Depreciation group

What it means

The depreciation group sets how many years an asset is depreciated for tax. The law splits assets into six groups, from four years for machinery and IT to forty for buildings.

Classification follows the statistical classification of products and constructions, not the wording on the invoice. That is why identical equipment in a different operation can land in a different group.

The depreciation group applies to tax depreciation only. Accounting depreciation follows the depreciation plan and the expected useful life, so the two figures for the same asset diverge, and the gap between them is what gives rise to deferred tax.

How it works in practice

On entry into use the group, the method and the date are set. Those three decide tax depreciation for years ahead and can be changed retrospectively only by amending returns.

On sale or disposal it is the tax net book value that counts, which differs from the accounting one. That matters when planning to replace a fleet or a technology.

When a building is converted or equipment upgraded, the capital improvement goes into the same group as the asset it improves and raises its entry or remaining value. It gets no group of its own, even when the invoice comes from a different supplier and a different year.

What to watch out for

A set of items is often booked as one whole although its parts belong in different groups, or the other way round. An audit recalculates and assesses the depreciation difference with interest for every year.

The law does not allow accelerated depreciation in every group. Choose it for an asset where it is excluded and an audit recalculates on a straight-line basis, with the extra tax for every affected year assessed together with a penalty.