Capex vs opex: what's the difference?

Published Thursday 23 July 2026

Table of contents

• What is opex?
• What is capex?
• How to categorise expenses as opex or capex
• Key differences between opex and capex
• Tax treatment of opex and capex in Australia
• Budgeting for opex and capex
• Track your business expenses with Xero
• FAQs on opex vs capex

Key takeaways

• Opex covers day-to-day running costs like rent, wages, and utilities, while capex refers to longer-term investments in assets such as equipment, vehicles, and property.
• Opex is fully deducted from revenue in the year you spend it, reducing your taxable income straight away. Capex is recorded as an asset and depreciated over its useful life.
• Understanding the difference helps you plan cash flow, budget more accurately, and take advantage of tax deductions including the Australian instant asset write-off scheme.
• Categorising your expenses correctly from the start saves time at tax time and gives you a clearer picture of your business's financial health.

What is opex?

Opex (operating expenditure) is the money you spend to keep your business running on a daily basis. These are the recurring costs you pay regularly to maintain normal operations.

Think of opex as the expenses that would stop your business from functioning if you didn't pay them. Rent, employee wages, utility bills, insurance premiums, and office supplies all fall into this category. They're typically predictable and repeat on a monthly, quarterly, or annual cycle.

Opex doesn't include the cost of goods sold (COGS), which covers the direct costs of producing or purchasing what you sell. It also doesn't include one-off asset purchases, which fall under capex.

Common opex examples

Most of your regular business expenses are likely opex. Here are some of the most common ones for small businesses:

• Wages and salaries for your team
• Rent and lease payments for your premises
• Utility bills such as electricity, water, and internet
• Insurance premiums
• Marketing and advertising costs
• Software subscriptions and cloud services
• Accounting and legal fees

Opex appears on your profit and loss statement and on your cash flow statement under "cash flow from operations." Because opex is subtracted from revenue, it directly affects your reported profit.

What is capex?

Capex (capital expenditure) is the money you spend on assets that will benefit your business for more than 1 year. These are typically larger, less frequent purchases that help you grow or maintain your operations over the long term.

Unlike opex, capex isn't deducted from revenue in a single year. Instead, the cost is spread across the asset's useful life through depreciation. This means a capex purchase affects your finances differently from your everyday running costs.

Types of capex

Capex generally falls into 2 categories, each serving a different purpose:

• Maintenance capex: spending to keep your current operations running, such as replacing a broken oven in a bakery or repairing a delivery vehicle
• Growth capex: spending to expand or improve your business, such as buying additional equipment, fitting out a second location, or investing in new technology

Common capex examples

Capex purchases tend to be less frequent but more significant in value. Here are examples you might encounter:

• Vehicles for deliveries or client visits
• Machinery and manufacturing equipment
• Computers, servers, and other IT hardware
• Office furniture and fit-outs
• Property or land purchases
• Major software systems bought outright (not subscriptions)

Capex appears on your balance sheet as an asset. The cash outflow shows up on your cash flow statement under "cash flow from investing activities."

How to categorise expenses as opex or capex

Knowing whether an expense is opex or capex isn't always obvious. A simple set of criteria can help you categorise each purchase correctly and avoid mistakes at tax time.

An expense is generally capex if it meets all 3 of these conditions:

• It has a useful life of more than 1 year
• It involves a significant upfront cost (the ATO uses a threshold of $300 or more for depreciating assets)
• It provides ongoing economic benefit to your business beyond the current financial year

If an expense doesn't meet these criteria, it's most likely opex. For example, a $200 keyboard is opex because it falls below the asset threshold. A $5,000 computer is capex because it costs more than $300, lasts several years, and supports your daily operations over that time.

Some expenses sit in a grey area. Repairs that restore an asset to its original condition are usually opex, while improvements that extend an asset's life or increase its value are typically capex. If you're unsure, your accountant or bookkeeper can help you classify borderline items correctly.

Key differences between opex and capex

Opex and capex both represent money leaving your business, but they behave very differently in your accounts, your tax return, and your planning. Here's how they compare across the areas that matter most.

Time horizon

Opex covers short-term costs you'll consume within the current financial year. Capex involves longer-term investments in assets you'll use for more than 1 year.

This difference affects how quickly you can course-correct. If you overspend on a monthly expense like marketing, you can adjust next month. A poor capex decision, such as buying equipment you don't need, ties up cash for much longer.

Impact on profit

Opex is subtracted from your revenue when calculating profit. The higher your operating expenses, the more revenue you need to break even. Capex doesn't reduce your profit in the year you spend it. Instead, depreciation spreads the cost across multiple years, with only the annual depreciation amount appearing on your profit and loss statement.

Flexibility and planning

Most opex is essential to keep your business running. You can't skip paying rent or wages without serious consequences. Capex, on the other hand, often gives you more flexibility on timing. You can delay purchasing a new vehicle or upgrading equipment until your cash flow supports it.

Opex tends to follow a predictable pattern from quarter to quarter. To see this in practice, consider wages, typically the largest operating expense for small businesses. Xero Small Business Insights data from 520,000 Australian small businesses shows wages growth holding between 2.0% and 2.8% across each quarter of 2025, close to the long-term average of roughly 2.9%. That kind of predictability makes it easier to plan your opex budget from one quarter to the next.

That said, maintenance capex can be urgent. If a critical piece of equipment breaks down, you may need to replace it immediately regardless of your budget.

How they appear on financial statements

Opex and capex show up in different places across your financial statements. Understanding where each one appears helps you read your reports more accurately.

• Opex appears on the profit and loss statement as an expense and on the cash flow statement under operating activities
• Capex appears on the balance sheet as an asset and on the cash flow statement under investing activities
• Depreciation (the annual cost of capex assets wearing out) appears on the profit and loss statement as an expense

Tax treatment of opex and capex in Australia

How you classify an expense as opex or capex directly affects when and how you can claim a tax deduction. Getting this right helps you maximise your deductions and avoid issues with the ATO.

Deducting opex

Opex is generally deductible in full in the financial year you incur it. If you spend $10,000 on rent this year, you can claim the entire amount as a tax deduction against your taxable income for that year. This makes opex straightforward at tax time.

Depreciating capex

Capex is typically deducted over the useful life of the asset through depreciation. The ATO sets effective life estimates for different asset types, which determine how many years you spread the deduction across. For example, a laptop with a 4-year effective life means you'd deduct roughly 25% of its cost each year.

Instant asset write-off

The Australian government's instant asset write-off scheme lets eligible small businesses deduct the full cost of qualifying assets in the year of purchase, rather than depreciating them over time. This can significantly improve your cash flow in the year you make the purchase.

Eligibility thresholds and rules change regularly, so check the ATO website or speak with your accountant to confirm the current limits before claiming.

Budgeting for opex and capex

Planning your spending across opex and capex helps you manage cash flow and avoid surprises. Each type of expense calls for a different budgeting approach.

Budgeting for opex

Because opex tends to be predictable, you can budget for it using your historical spending data. Review your past 12 months of operating expenses and look for patterns. Factor in any expected changes, such as a rent increase or a new hire, and build a monthly forecast you can track against actual spending.

Budgeting for capex

Capex is harder to predict because it often depends on opportunity, equipment condition, or growth plans. Create a separate capex budget that lists planned asset purchases for the coming year, along with estimated costs and timing. Prioritise items based on urgency and expected return.

Considering capex-to-opex strategies

You don't always have to buy assets outright. Leasing equipment or using subscription-based software converts what would be a large upfront capex payment into smaller, regular opex payments. This can help you preserve cash flow, especially in the early stages of your business or during periods of uncertainty.

For example, leasing a vehicle instead of buying one spreads the cost over monthly payments rather than requiring a lump sum. The lease payments are classified as opex, which also simplifies your tax deductions.

Track your business expenses with Xero

Keeping your opex and capex organised doesn't have to be complicated. Xero's accounting software helps you categorise expenses as you go, so you always know where your money is going. With automatic bank feeds, real-time reporting, and built-in asset tracking, you can stay on top of both your daily running costs and your longer-term investments.

Accurate expense tracking means fewer surprises at tax time and a clearer picture of your business's financial health. Get one month free.

FAQs on opex vs capex

Here are answers to some frequently asked questions about opex vs capex.

Is depreciation opex or capex?

Depreciation itself is an opex item that appears on your profit and loss statement. It represents the annual cost of a capex asset losing value over time, so it connects the 2 categories.

Is software opex or capex?

It depends on how you acquire it. Software subscriptions and cloud services are opex because you pay ongoing fees. Software you purchase outright with a licence you own is typically capex because it's an asset with a useful life beyond 1 year.

Can you convert capex to opex?

Yes. Leasing an asset instead of buying it turns a capex purchase into opex payments. This is a common strategy for managing cash flow, as it spreads costs into smaller, regular amounts rather than 1 large upfront payment.

What is an example of an opex expense?

Monthly rent for your office or workspace is a common opex expense. It's a recurring cost that keeps your business running but doesn't create a long-term asset on your balance sheet.

What is an example of a capex expense?

Buying a delivery vehicle for your business is a typical capex expense. The vehicle is an asset you'll use for several years, and its cost is depreciated over its useful life rather than deducted in full straight away.