Robert August Ltd commences operations on 1 July 2020. On the same date, it purchases a fibreglassing machine at a cost of $600 000. The machine is expected to have a useful life of four years, with benefits being derived uniformly throughout its life. It will have no residual value at the end of four years. Hence, for accounting purposes the depreciation expense would be $150 000 per year. For taxation purposes, the ATO allows the company to depreciate the asset over three years that is $200 000 per year.

The accounting profit before tax of the company for each of the next four years (for years ending 30 June) is $500 000, $600 000, $700 000 and $800 000 respectively. The corporate tax rate is 30 per cent. We wil assume that the only item that has a different treatment for accounting and tax purposes is the machine.