CapEx vs OpEx: Key differences and examples

Published 13 July 2026

Table of contents

• What is capex?
• What is opex?
• Difference between capex and opex
• How to calculate capex and opex
• When to use capex vs opex
• Track capex and opex in Xero
• FAQs on capex and opex

Key takeaways

• Capital expenditures (capex) are what you spend on things your business will use for years while operating expenditure (opex) is your everyday running costs.
• Capex is usually deducted over time through depreciation, while opex is typically claimed in full in the same financial year.
• The choice usually comes down to what you need, like capex for long-term growth, or opex for flexibility and lower upfront costs.

What is capex?

Capex (capital expenditure) is money you invest in your business for the long term – things like equipment, vehicles, tools, or fit-outs that help you operate and grow over time. Some capex keeps things running (like replacing equipment), while some is about growth. This could be things like expanding with a new shopfront, or upgrading the machinery you use to run your business.

Opex, on the other hand, covers your day-to-day running costs – like rent and utilities, as well as software subscriptions.

A simple way to think about it is this: Capex is what your business builds with, while opex is what it runs on.

Common examples of capex

Capex usually includes larger, one-off purchases that support your business over the long term – often things you’ll use for several years rather than replace regularly.

Common examples of capital expenditures include:

• buying a work vehicle
• purchasing machinery or specialised tools
• fitting out a retail shop, warehouse, café, or office
• major upgrades to existing equipment
• building, renovating, or improving property

These are typically tangible assets (also known as property, plant and equipment (PP&E)) that are recorded on your balance sheet, rather than expensed all at once.

Real-world capex examples: Sharon and Liam

Sometimes it’s easier to see how capex works in practice.

Sharon runs a café and upgrades her commercial oven to a larger, more efficient model that can handle higher demand. Because it improves performance and will be used for years, this is treated as capex.

Liam owns a landscaping business and installs a new hydraulic system on his existing excavator to boost its capability. Since this upgrade extends the asset’s usefulness and value, it’s also considered capex.

In both cases, these aren’t everyday expenses – they’re investments in assets that help the business operate better over the long term.

When a purchase isn’t capex

Not every large or important purchase is capex, so it’s important to know the difference between whether you’re investing in something your business owns and uses over time, or paying for something it uses up as it goes.

Take Priya, for example. Priya runs a marketing agency and pays for a premium annual software subscription. It might feel like a big investment, but because it’s an ongoing service (not something the business owns), it’s actually opex – not capex in this scenario.

How capex is treated in your accounts

Unlike everyday expenses, capex isn’t deducted all at once. Instead, it’s recorded as an asset on your balance sheet, then gradually expensed over time using depreciation (which simply means spreading the cost out).

This reflects the fact that the asset is delivering value to your business over multiple years – not just when you buy it.

For example, if you purchase equipment for $10,000, you wouldn’t usually claim the full $10,000 in that financial year. Instead, you’d claim a portion each year over its useful life, which helps smooth out the impact on your profit and gives a more accurate picture of performance.

The exact rules (including how quickly you can claim those costs) depend on Australian Taxation Office (ATO) guidelines, including things like asset type and eligibility for concessions. Under the instant asset write-off, eligible small businesses can claim an immediate deduction for the business portion of an asset's cost in the year it's first used or installed ready for use, up to the threshold and eligibility rules that apply for that income year.

What is opex?

Opex (operating expenditure) covers the day-to-day costs of running your business – the things you need to pay regularly to keep everything ticking over. Unlike capex, they’re typically short-term expenses, meaning they’re used up within the same financial year rather than delivering value over several years.

Is opex more flexible than capex?

In many ways, yes. Because opex is short term, it’s usually easier to adjust if something goes wrong. For example, if you overspend on electricity, or ads or even software one month, you can often scale things back the next. The impact is relatively contained.

Capex is different. Since it involves larger, long-term investments, a poor decision – like overpaying for equipment or buying something you don’t end up using – can affect your business for years. For that reason, consider capex as longer term, with more careful planning required upfront.

How opex is treated in your accounts

Opex is recorded in your profit and loss statement and is generally deducted in full in the same financial year. That means it has a direct impact on your profit, because higher opex means you’ll need more revenue to stay profitable.

In contrast to capex (which sits on the balance sheet), opex is part of your everyday performance and is factored straight into how your business is tracking financially. The ATO’s guidance on deductible operating expenses breaks down the different types of operating expenses you can claim, with examples to help you understand what counts as a deductible day-to-day business cost.

Difference between capex and opex

The simplest way to think about capex vs opex (and what’s a capital expense vs operating expense) is this:

• capex: long-term investment
• opex: everyday running cost

To make things clearer, here’s a side-by-side comparison of capex and opex – including how they’re treated for tax and some common examples.

This distinction shapes how your business looks and performs on paper, influencing:

• your reported profit
• your cash flow
• your tax obligations
• how your business appears to lenders or investors

It also plays a role in whether you’re using cash vs accrual accounting (when cash moves versus when it’s earned or billed).

How to calculate capex and opex

You don’t need complex formulas – here’s a quick way to calculate both.

Simple capex formula

You can estimate capex using your financial statements with this formula:

Capex = Change in PP&E + Depreciation

In plain terms:

• Look at how much your fixed assets (PP&E) increased over a period.
• Add back depreciation.

This gives you a rough idea of how much you invested in long-term assets.

How to identify opex

Opex is more straightforward – it’s typically the total of your operating expenses for the period, as shown in your profit and loss statement. There’s no single formula because it’s a collection of all your running costs.

Practical tip:

If you’re unsure whether something is capex or opex, ask:

• Will this benefit my business over several years? If yes, it’s likely capex.
• Is this part of everyday operations? If not, it’s likely opex.

When to use capex vs opex

Choosing between capex and opex comes down to your goals and cash flow.

Choose capex when:

• You’re investing in long-term growth or efficiency
• The asset will last several years
• You want to build business value (assets on your balance sheet)

For example, buying a commercial oven for a bakery.

Choose opex when:

• You need flexibility or lower upfront costs
• The expense is recurring
• You want immediate tax deductions

For example, paying for a monthly software subscription instead of buying software outright.

The trade-off

• Capex often means higher upfront costs but long-term value.
• Opex is easier on cash flow but doesn’t build assets.

Track capex and opex in Xero

Keeping track of capex and opex doesn’t need to be complicated – especially if you’re using cloud-based accounting software.

In Xero, you can:

• categorise purchases as assets (capex) or expenses (opex)
• automatically calculate depreciation
• keep your balance sheet and profit and loss up to date
• track spending and stay compliant with ATO requirements

This helps reduce manual errors and gives you a clearer picture of how your business is performing.

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FAQs on capex and opex

Still asking ‘what is capital expenditure’? Maybe you still have a few questions on capex versus opex? Here are some quick answers to your most common ones.

Can capex be a tax write off in Australia?

Capex is usually claimed over time through depreciation rather than as an immediate deduction, depending on ATO rules.

Are software subscriptions capex or opex?

Most software subscriptions are treated as opex because they’re ongoing, recurring costs.

Are laptops and small tools capex or opex?

It depends on cost and how long you’ll use the item. A laptop or power tool you’ll keep for years is usually capex, though under ATO instant asset write-off rules you may be able to claim lower-cost items straight away.

Where do I find capex on financial statements?

Capex appears on the balance sheet under assets (PP&E), with depreciation shown in your profit and loss.

Is a major repair capex or opex?

It depends. Repairs that restore an asset are usually opex, while improvements that extend its life or value are typically capex.