3.5  Non-cash items and the PSC

The PSC is calculated on a cash flow rather than an accrual basis. Given this, non-cash items, such as depreciation, should not be included in the PSC. The exception to this is where depreciation may affect tax payments, where post-tax cash flows are used, e.g. government business enterprises subject to a tax equivalent regime.

Government business enterprises subject to a tax equivalent regime are required to make tax equivalent payments to ensure they have the same taxation obligations as private sector firms. For example, although government business enterprises are ordinarily exempt from Commonwealth income taxes, they are required by their owner governments to make payments calculated on the same basis as income tax. These government business enterprises may consider using post-tax cash flows and would therefore need to adopt a post-tax discount rate.