- The A$20,000 instant asset write-off is now law and permanent from 1 July 2026
- Capital spending is usually not deductible in full the year you buy
- Assets of A$20,000 or more go into the small business pool at 15%
- The 2026-27 car limit caps car depreciation at A$69,883
Capital expenditure in Australia is money you spend acquiring or improving something that gives your business a lasting benefit, such as a vehicle, equipment or a fit-out, rather than keeping it running day to day. Capital purchases generally cannot be deducted in full in the year you buy them: they are either written off immediately under the instant asset write-off if you are eligible, or depreciated through the small business pool, which is where Sleek’s accounting services usually get involved. Running costs like rent, wages and repairs are revenue expenses and are deductible in the year you incur them.
One thing changed recently and it matters if you are buying now. The A$20,000 instant asset write-off was announced in the 2026-27 Budget on 12 May 2026 and then sat unlegislated for months, which meant the technical position was a A$1,000 threshold for anything first used from 1 July 2026.
The Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 has since passed both houses, and the ATO’s guidance now states the measure is law (ato.gov.au, last updated 27 August 2026).
What counts as capital expenditure in Australia?
Capital expenditure is spending that buys you something lasting. Revenue expenditure is spending that keeps the lights on. The line between them decides whether you get the deduction this year or over several years, and it is where most small-business tax mistakes start.
People often arrive at this question searching for capex vs opex, which is the corporate budgeting framing. For an Australian Pty Ltd the useful framing is narrower: the capital vs revenue expense question the ATO cares about is not how you classify the spend in your management reports, it is what you are allowed to claim on your return.
Is this expense capital or deductible?
Ask these three questions about the thing you are about to buy. They will not settle every borderline case, but they settle most of them.
| Question | If yes | If no |
|---|---|---|
| Will the business still be getting use out of this in more than 12 months? | Points to capital | Points to revenue |
| Does it add something new, or improve what you already had, rather than restore it? | Points to capital | Points to revenue |
| Would the business keep operating normally without it this month? | Points to capital | Points to revenue, because it is a running cost |
A laptop, a ute and a shop fit-out all fail the first question and are capital. Rent, wages, insurance, fuel and phone bills all pass it and are revenue. If two of the three answers point one way, that is usually your answer, and the remaining cases are the ones worth a phone call rather than a guess.
How are common purchases treated?
Below are capital expenditure examples for a small business, with the treatment and the ATO source behind it. Several rows split, because one invoice often contains both capital and revenue work. Those are the rows where the answer depends on the facts of your purchase rather than the label on the receipt.
| Purchase | Typical treatment | Why | Watch out for |
|---|---|---|---|
| Laptop, A$2,400 | Immediate deduction under the instant asset write-off | A depreciating asset under A$20,000, if you use the simplified depreciation rules | Apportion for any private use |
| Hand and power tools, several under A$20,000 each | Immediate deduction on each one | The threshold applies per asset, not per year | A single tool at A$20,000 or more is pooled instead |
| Ute, A$45,000 | Into the small business pool at 15% in year one, then 30% of the declining balance | A$20,000 or more, so it is above the write-off threshold | Whether the car limit applies depends on whether the vehicle meets the ATO definition of a car; confirm this one |
| Passenger car, A$85,000 | Depreciation calculated on the car limit, not the price paid | The 2026-27 car limit is A$69,883 | The GST credit is also capped, at A$6,353 for 2026-27 |
| Office or shop fit-out | Split: loose depreciating assets are assessed per asset, structural building works fall under the capital works rules | Division 40 or 328 for the assets, Division 43 for construction and structural improvements | Capital works deduct at 2.5% or 4% a year, not immediately, so never claim the whole invoice at once |
| Website build | Split: the build is capital and forms part of the cost of in-house software; hosting, domain renewal and routine content updates are revenue | TR 2016/3 treats a website as an intangible asset consisting of software | An eligible small business may still write off a capital portion under A$20,000 immediately, so itemise the invoice |
| Software subscription, monthly | Deductible in the year you incur it | ATO guidance: periodic payments to use software are excluded from the in-house software rules | A developed or perpetually licensed system is in-house software and follows the capital rules instead |
| Repair to existing equipment | Deductible where it restores the efficiency of function without changing the asset’s character | Section 25-10 ITAA 1997, as explained in TR 97/23 | An initial repair of a fault that existed when you acquired the asset is capital, not deductible |
| Improvement to an asset you already wrote off | The first improvement cost may be immediately deductible if it is under A$20,000 | Confirmed in the ATO’s second element of cost rule | It must be the first such amount after the year you wrote the asset off |
What are the three ways a capital purchase gets treated?
Once you have decided a purchase is capital, there are three possible outcomes. Which one applies depends on the cost of the asset and whether you have chosen the simplified depreciation rules.
- Immediately deductible as a revenue expense. This is the outcome if the spend was never capital in the first place, which is why the test above comes before everything else.
- Written off immediately under the instant asset write-off. Available where the asset costs less than A$20,000 and you meet the eligibility conditions.
- Depreciated through the small business pool. Assets of A$20,000 or more go into the pool and depreciate at 15% in the first income year, then 30% of the declining balance each year after that. If the pool balance is under A$20,000 at the end of an income year, that balance can be written off too.
Over the life of the asset the total deduction is the same in options two and three. The difference is timing, and timing is what drives your cash position in the year you spend the money. Building work is the exception: structural improvements deduct under the capital works rules at 2.5% or 4% a year instead of entering the pool.
Can I write it off immediately?
If the asset costs less than A$20,000 and your business qualifies, yes. The conditions, from ATO guidance verified on 4 September 2026:
- Aggregated annual turnover under A$10 million, counting affiliated and connected entities.
- You must have chosen to use the simplified depreciation rules.
- The asset must be first used, or installed ready for use, in the income year you claim it.
- The A$20,000 limit applies per asset, so several qualifying purchases can each be written off in full.
The threshold is now permanent from 1 July 2026 rather than renewed year by year, which is a real change after more than a decade of annual extensions. The lock-out provisions that would otherwise stop a small business re-entering the simplified depreciation regime for five years after opting out remain suspended until 30 June 2027.
Two honest warnings before you act on the threshold. Check the current position on ato.gov.au on the day you buy, because this measure has moved twice in a year. And buying an asset mainly for the deduction is usually a bad reason to buy it, because a deduction returns your tax rate on the spend, not the spend itself.
Buying a vehicle: what is the car limit trap?
Vehicles are where the capital expenditure tax treatment surprises people most. If you buy a passenger car that costs more than the car limit, your depreciation is calculated on the limit rather than on what you actually paid.
The car limit for 2026-27 is A$69,883, up from A$69,674 for 2025-26. On an A$85,000 car, the roughly A$15,000 above the limit generally attracts no depreciation deduction at all. The GST credit is capped the same way, at one eleventh of the limit, which is A$6,353 for 2026-27.
Two things follow. A more expensive car can still be the right commercial decision, but the after-tax cost is not what a simple percentage calculation suggests. And the limit applies to vehicles that meet the ATO definition of a car, so utes and heavier commercial vehicles need checking rather than assuming.
Where does capital expenditure show up in your accounts?
A capital purchase does not appear as an expense when you buy it. It lands in three places, and this is the part that confuses owners reading their own reports for the first time.
- The balance sheet, as a depreciating asset in Australia sitting under non-current assets at its written-down value.
- Your profit and loss statement, as a depreciation charge spread across years rather than the purchase price in year one.
- Cash flow, where the full amount leaves the bank in the purchase year even though the P&L only shows part of it.
That mismatch is why a profitable-looking year can feel tight, and why the loan you took to buy the asset shows up separately again under non-current liabilities. If you want the full structure, see how the balance sheet works. Whether the timing of all this follows the invoice date or the payment date depends on your method, which is covered in cash vs accrual accounting.
What can go wrong?
Four failures account for most of the reclassification work we do on client files.
- Claiming a capital item as an immediate deduction. The deduction gets denied or amended, and interest can follow.
- Missing the installed ready for use timing. An asset paid for in June but delivered in July belongs to the next income year, which is a common and expensive miss.
- Buying just before year end without checking delivery. A signed order is not an asset first used or installed ready for use.
- Claiming the wrong GST basis. If you are registered for GST, the cost you test against the threshold is the GST-exclusive amount.
None of these are exotic. They are timing and paperwork failures, which is why the fix is having someone look at a significant purchase before it happens rather than in the following May.
How Sleek helps with capital expenditure
Sleek’s managed accounting for Australian companies starts from A$275 a month on the Starter plan, covering bookkeeping and reconciliations, BAS and IAS lodgements and your company tax return with a dedicated accountant attached. The Pro plan adds monthly reporting and tax planning with a senior tax agent, which is the tier that suits a business making regular asset purchases.
The practical value on this topic is the call being made before you buy rather than at year end. If you want that on a specific transaction, our tax accountant service covers the classification and the return that follows from it. For a fuller view of common questions, see our cost of goods sold guide if the purchase is stock rather than equipment.
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FAQs on capital expenditure australia
Do I claim the GST-inclusive or GST-exclusive amount?
If your business is registered for GST, use the GST-exclusive cost when you test an asset against the A$20,000 threshold, because you claim the GST separately as a credit on your BAS. If you are not registered for GST, the cost you use is the full amount you paid. On a car above the car limit the GST credit is capped at one eleventh of the limit, which is A$6,353 for 2026-27.
What happens to an asset that costs exactly A$20,000?
It does not qualify for the immediate write-off. The ATO wording is assets costing less than A$20,000, so A$20,000 exactly falls above the line and goes into the small business pool instead. That is worth knowing before you negotiate a price, because A$19,999 and A$20,000 are treated differently.
Is a laptop a capital expense or can I just deduct it?
A laptop is a capital purchase, because you will still be using it in more than 12 months. In practice most business laptops cost well under A$20,000, so an eligible small business using the simplified depreciation rules can deduct the business-use portion in full in the year it is first used. Apportion for private use and keep the invoice with the date you started using it.
Are repairs capital or deductible?
A genuine repair is deductible under section 25-10, and the test the ATO sets out in TR 97/23 is whether the work restores the asset’s efficiency of function without changing its character. Substantial improvements, additions and alterations are capital, and so is renewing substantially the whole of a thing rather than replacing a worn part of it. Watch the initial repair trap: fixing a defect that already existed when you acquired the asset is capital even if you have owned it for years. One invoice frequently contains both kinds of work, so the split is worth getting right.
Is a website build a capital expense?
Partly. Under TR 2016/3 a website is an intangible asset consisting of software, so building it or significantly upgrading its functionality is capital and forms part of the cost of in-house software. Annual domain registration, hosting and routine content updates are revenue expenses you deduct in the year you incur them. If you are an eligible small business using the simplified depreciation rules, a capital portion under A$20,000 may still be immediately deductible, which is why you should ask for the invoice to be itemised.
For more on lodgement, deadlines and deductions generally, see our accounting and tax FAQs.
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