Definition
Capital expenditure (CapEx) is cash spent on acquiring or improving long-lived fixed assets that will generate economic benefits over more than one accounting period. It is capitalised to the balance sheet at cost and depreciated or amortised over its useful life, as distinct from operating expenditure (OpEx) which is fully expensed in the period it is incurred. Common CapEx items: vehicles, IT hardware, office equipment, fixtures and fittings, buildings, machinery, and acquired software licences.
What capital expenditure means in practice
For a bookkeeper, the OpEx vs CapEx categorisation decision is one of the most consequential at the point of capture. A 12,000 outlay coded as OpEx hits the P&L this period as a 12,000 expense. The same 12,000 coded as CapEx hits the balance sheet as a fixed asset and produces only a fraction of that as depreciation each period over the asset’s useful life. The two paths produce very different P&Ls in the period of purchase, and very different tax positions.
The standard test is whether the item produces economic benefits over more than one period. A laptop that will be used for 3+ years is CapEx. A box of stationery consumed within a few weeks is OpEx. A 200 annual software subscription is OpEx; a 2,000 perpetual licence is CapEx. Most SMBs also apply a minimum capitalisation threshold (typically 500-1,000) below which items are expensed regardless of useful life, because the tracking cost outweighs the benefit.
A practical example: a UK consultancy spends 18,000 in October 2026 on 6 new MacBook Pros at 2,400 each plus a 3,600 piece of audio-visual equipment for the meeting room. With a 1,000 capitalisation threshold, all 7 items are CapEx (each above the threshold). Total CapEx for the month: 18,000. None of this hits the P&L in October; instead, all 18,000 is added to fixed assets on the balance sheet. Annual depreciation (straight-line over 3 years): 6,000. Monthly depreciation: 500. The P&L impact is 500 per month for 36 months, not 18,000 in October.
How capital expenditure works by country
United Kingdom
Tax relief on CapEx is via capital allowances, not depreciation (accounting depreciation is added back in the corporation tax computation). The main routes: Annual Investment Allowance of up to 1 million per year (100% first-year deduction on qualifying plant and machinery), full expensing (companies only, no cap on new main-rate plant and machinery), writing-down allowances of 18% on the reducing balance for the main pool or 6% for the special rate pool. The choice between AIA and full expensing depends on whether the company has used its AIA and whether the asset is new or second-hand.
Australia
Tax relief on CapEx is via Division 40 depreciation under the Income Tax Assessment Act 1997. The small business instant asset write-off (up to AUD 20,000 per asset, extended through 30 June 2026 in the 2025-26 Federal Budget) gives accelerated tax deduction for SMBs under AUD 10 million turnover. Larger businesses use the prescribed effective lives from Taxation Ruling TR 2024/4. The diminishing-value method is the default; prime cost (straight-line) is also available.
Canada
Tax relief on CapEx is via Capital Cost Allowance (CCA). Each fixed-asset class has a prescribed CCA rate: Class 50 (computer equipment, 55% declining balance), Class 8 (most office furniture and equipment, 20%), Class 10.1 (passenger vehicles above the CRA’s prescribed cost ceiling). The half-year rule limits first-year claims to half the normal rate. The Accelerated Investment Incentive accelerates first-year claims for purchases between 2018 and 2027.
New Zealand
Tax relief on CapEx is via depreciation at IRD-prescribed rates by asset class. Each class has both a diminishing-value rate and a straight-line rate; the business chooses at acquisition. Low-value assets under NZD 1,000 (from 17 March 2021) can be fully expensed in the year of purchase, providing immediate tax relief.
Singapore
Tax relief on CapEx is via capital allowances under sections 19, 19A, and 19A(2). Section 19A allows a three-year write-off for plant and machinery (one-third per year). Section 19A(2) allows a two-year write-off in qualifying years of assessment. Small-value assets up to SGD 5,000 each (capped at SGD 30,000 per year in aggregate) can be fully written off in the year of purchase under the small-value asset rules.
Related terms
Capital expenditure sits in opposition to operating expenditure:
- Operating expenses is the alternative categorisation.
- Depreciation is how tangible CapEx hits the P&L over time.
- Amortization is how intangible CapEx hits the P&L over time.
- Fixed assets is the balance-sheet section CapEx creates.
- Capital allowance is the UK tax mechanism for CapEx deduction.
- The balance sheet is where capitalised CapEx appears.
See also
For the operating-expenditure alternative, see the operating expenses entry. For UK tax treatment specifically, see capital allowance.
FAQ
See the answered questions above for CapEx vs OpEx, why the distinction matters, and capitalisation thresholds.