Capital expenditure
Learn what capital expenditure (capex) is, how it differs from opex, and how it's recorded and taxed in Canada.
September 2023 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Capital expenditure (capex) is money you spend to buy or upgrade a long-term asset, such as equipment, a vehicle, or a building.
- Capex is recorded on your balance sheet as an asset and written down over time through depreciation, unlike opex, which you expense straight away.
- You calculate capex as closing property, plant and equipment (PP&E) minus opening PP&E, plus depreciation for the period.
- For Canadian tax, capex is generally claimed over several years through the capital cost allowance (CCA) rather than deducted in full the year you spend it.
What is capital expenditure (capex)?
Capital expenditure (capex) is money you spend to acquire or upgrade a long-term asset, such as land, equipment, or a building. It's a big-ticket purchase you expect to use and benefit from for years, not something you use up right away.
You make capex on assets that give a long-term benefit to your business. Because the asset sticks around, you record it on your balance sheet as an asset, often under property, plant and equipment (PP&E), rather than as a cost on your income statement.
You then depreciate the asset as you use it, spreading its cost across the years it earns its keep. Capex is the opposite of operating expenditure (opex), which covers the everyday costs of running your business.
Capex vs. opex: what's the difference?
The difference comes down to how long the spending lasts and where it lands in your accounts. Capex buys long-term assets, while opex covers your day-to-day running costs.
Capex is capitalized on your balance sheet as an asset and depreciated over time, so the cost is recognized gradually. Opex is expensed on your income statement in the same period you incur it.
Typical opex includes payroll, utilities, insurance, marketing, and materials. These keep the lights on today, whereas capex builds the assets that keep your business running for years to come.
Examples of capital expenditure
Capex shows up across many parts of a business, from physical premises to the tools you work with. Here are common examples of capital expenditure:
- Property, including land and buildings
- Fit-outs, such as furniture and infrastructure
- Equipment, vehicles, and work tools like computers
- Research and development (R&D)
- Intellectual property, such as patents and copyrights
- Buying a new business
Maintenance capex vs growth capex
Not all capex serves the same purpose, so it helps to split it into 2 types. The difference is whether you're protecting what you already earn or building for more.
- Maintenance capex replaces assets to keep your current revenue and profitability steady, for example replacing an old warehouse forklift. It's a necessary expense to keep things running as they are.
- Growth capex adds assets to grow revenue, lift capacity, or reach new markets, for example buying 3 new forklifts for a larger warehouse. It's a discretionary expense you choose to make when you want to expand.
How is capital expenditure recorded and calculated?
Capex touches all 3 of your main financial statements, so it's worth knowing where each part lands. Recording it correctly keeps your reports accurate and your tax position clear.
On your balance sheet, capex appears as an asset under property, plant and equipment (PP&E). On your cash flow statement, it shows up as a cash outflow under investing activities. It affects your income statement indirectly, through the depreciation you record each period.
To work out how much you spent, use this formula: capex = closing PP&E minus opening PP&E plus depreciation. Say your opening PP&E was 30,000, your closing PP&E was 40,000, and depreciation for the year was 10,000. Your capex is 40,000 minus 30,000 plus 10,000, which comes to 20,000.
How is capital expenditure treated for tax in Canada?
Capital expenditure is usually treated differently from an everyday running cost at tax time. Knowing which is which helps you claim the right amount in the right year.
Unlike a current expense you can generally deduct in the year you spend it, capital expenditure is usually added to the cost of the asset and written off over time. In Canada, you generally do this through the Canada Revenue Agency's capital cost allowance (CCA).
The practical test is often repair versus improvement. A repair that restores an asset to its original condition is usually a current expense, while an upgrade that improves the asset beyond its original condition is usually capital. Keeping good records of what you bought and why helps you sort this out at tax time.
Manage your capital expenditure with Xero
When your assets, spending, and reports live in one place, planning your next capex decision gets a lot simpler. You can see what you own, track what you've spent, and forecast what comes next without digging through spreadsheets.
Bring your finances together so you can plan capex with confidence and try Xero to get one month free.
FAQs on capital expenditure
Here are answers to some frequently asked questions about capital expenditure to help you put it into practice.
Is capital expenditure tax deductible in Canada?
Not usually in the year you spend it. It's generally claimed over time through the capital cost allowance (CCA).
How do you calculate capital expenditure?
Take your closing PP&E, subtract your opening PP&E, then add depreciation for the period. The figures come from your balance sheet and income statement.
Does capital expenditure affect profit?
Not directly, because it isn't an income-statement expense. It affects your profit over time through depreciation.
Does inventory count as capital expenditure?
No. Inventory is a current asset you expect to sell soon, while capex buys long-term assets.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.