| Because they are profitable. So the cost is deductible over 5 years, instead of one year. A very simple example: Revenue: $ 1 000
All other cost except software: $ 500
Software cost: $ 100 Net profit (if software is allowed as opex): $400 Tax on $400 (@30%): $120 Net profit after tax: $280 However, if it is capex(amortized over 5 years): Revenue: $ 1 000
Other cost (except software): $500
Software cost: $ 100 Net profit before tax: $ 400 Important: But now for tax purposes you can only deduct $20 this year as a cost ($100 amortized over 5 years) So now you have to add back $80 to net profit for tax purposes: $480 Tax (@30%): $ 144 Net profit after tax: $400 - $144 = $256 So the difference is $280 - $256 = $24 Just a few notes: 1. I assume tax rate at 30%, it can be something else, principle stay the same 2. That all other expenses are tax deductible |