Quick answer
Capital expenditure, or capex, is money a business spends to buy, build or substantially improve an asset it will use for more than a year, such as machinery, vehicles, a fit-out or premises. Unlike everyday running costs, it usually isn't deducted in one go: the cost is spread over the asset's life through depreciation, unless a concession such as the $20,000 instant asset write-off applies.
Key points
- Buys or upgrades something that keeps earning for more than one year
- Usually deducted over time through depreciation, not all at once
- Small businesses can write off eligible assets under $20,000 each, now on a permanent basis
- Lenders prefer capex funded over the asset's working life rather than from day-to-day cash
Accountants shorten it to capex. The idea is simple: some spending keeps paying off for years, so it’s treated differently from the bills that come round every month. A new excavator, a coolroom, a delivery van, a shop fit-out or a warehouse extension are all capital expenditure. The fuel, electricity and wages that keep those assets working are not.
What counts as capital, and what doesn’t?
The test is what the money achieves. If it buys an asset that lasts beyond the current year, or makes an existing asset better than it was, it’s generally capital. If it keeps the business ticking over or restores something to how it was, it’s generally a running cost, covered on our page about operating expenses.
| Spending | Usually treated as |
|---|---|
| Buying a forklift, ute or oven | Capital |
| Replacing an entire roof | Capital |
| Patching a section of a leaking roof | Repair (running cost) |
| Fitting out a newly leased shop | Capital |
| Servicing a truck | Running cost |
| Software built for your business | Capital (often treated as an intangible) |
The ATO draws the repair line in a similar place: replacing a worn part is normally a repair, while replacing the whole thing or upgrading it is capital.
How is capex treated for tax?
Instead of claiming the full cost in the year you pay it, you usually claim it gradually through depreciation across the asset’s effective life. Small businesses get a shortcut. If aggregated turnover is below $10m, any eligible asset priced under $20,000 can be deducted in full for the year you start using it (or have it installed and ready). The May 2026 Budget locked that $20,000 limit in on an ongoing basis from 1 July 2026. Dearer assets are pooled and written down over several years.
GST works on a separate track. A GST-registered business can generally claim the credit on a capital purchase in the BAS for that period, and the activity statement has a separate label for capital purchases. On a large purchase, that refund can be a meaningful cash boost a few weeks later.
Why do lenders care about capex?
Three reasons come up again and again.
Funding mismatch. A machine that earns money over seven years shouldn’t be paid for out of one quarter’s cash flow. Owners who pay cash for big assets often find themselves short for payroll or a tax bill a month later. Lenders, and good accountants, prefer long assets funded with longer finance such as equipment finance or a chattel mortgage.
Reading your profit. A heavy capex year can make reported profit look low once depreciation or write-offs flow through. Lenders generally add these back when assessing what you can afford, but a short note from your accountant explaining a large write-off avoids confusion.
Security. The asset itself often becomes the security, so lenders look at its resale value, age and how specialised it is.
If you’re planning a purchase now, you can check what funding might suit before committing your cash reserves.
Worked example: an earthmoving contractor
Here’s an illustrative case. A Toowoomba earthmoving business buys a used excavator for $165,000 including GST. It has $190,000 in the bank but around $110,000 of that is needed for wages, fuel and an upcoming BAS.
- Pay cash: the balance drops to $25,000. The GST component of $15,000 comes back after the next BAS, but for weeks the business has almost no buffer.
- Finance it: a chattel mortgage over five years keeps the cash in the account. The business still claims the GST credit and depreciation, because it owns the machine from day one, and repayments are matched to the work the excavator brings in.
With a price tag well above $20,000, the excavator is pooled and depreciated over time, not deducted in one hit. Either way, it’s capex. The question is simply where the money comes from. Our equipment finance calculator and the equipment finance vs paying cash comparison help you weigh it up.
Related terms
- Operating expenses: the day-to-day costs capex is contrasted with
- Depreciation: how capital costs are spread over time
- Residual value: what an asset is expected to be worth at the end of a finance term
- Working capital: the cash buffer that big purchases can drain
Buying an asset without emptying the account?
The best capex decisions leave enough cash behind to run the business comfortably. If you’re weighing up a machine, vehicle or fit-out, we can look at whether asset finance, a property-backed loan or another option makes more sense for your numbers. You can also read more on funding equipment purchases.
Sending an enquiry takes roughly a minute, and asking the question won’t register on your credit history. What you tell us isn’t forwarded to a long list of funders; someone on our team reads it properly and then phones you. Put in the true purchase price and when you need the asset, so our first recommendation matches the deal you’re actually doing.
Frequently asked questions
What is the difference between capex and opex?
Capex buys or improves a long-lived asset, like a truck or a new kitchen. Opex covers the costs of running the business this year, like rent, wages and power. Opex is generally deductible in the year it's incurred, while capex is usually deducted over the asset's life.
Is a repair capital expenditure?
Usually not. Fixing a worn or damaged part to restore something to its working condition is generally a deductible repair. Replacing the whole item, or improving it beyond its original state, is generally capital. The line can be fine, so ask your accountant about large jobs.
Can I claim the GST back on a capital purchase?
If you're registered for GST and the asset is for business use, you can generally claim a GST credit on your BAS for the period you buy it, even when the purchase is financed. Capital purchases are reported at their own label on the activity statement.
Is the instant asset write-off still available?
Yes. The 2026–27 Budget made the $20,000 threshold permanent from 1 July 2026 for businesses with aggregated turnover under $10m. It applies per asset, so several eligible purchases can each be written off in the year they're first used or installed ready for use.
Should I pay cash for equipment or finance it?
It depends on how much cash buffer you'd have left. Paying cash avoids finance costs but can leave the business short for wages, tax and stock. Financing spreads the cost over the years the asset earns money, which many owners find easier to carry.