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Capital

What are Capital Funds?

Funds set aside and used to invest with an eye to returning a profit.

Capital expenditure differs from a regular expense not only by the size of the transaction but also it's purpose.

Why Class Some Transactions as Capital?

Expenses are deductions. If an expense to too large then effectively an individual or company might end up having more deductions than income and not pay tax that year. This could be used as a form of tax evasion. So tax offices allow the capital expense to be broken up and deducted over a number of years depending on the expense's size and type. For example if depreciated over 4 years the expense amount can be claimed at 25% of the purchase amount per year. Rules can be a little more complex, so check with an expert.

Sources of Capital Funds

These funds would be normally set aside from both emergency funds and funds accrued for regular payments.

 

Your tax office will publish capital expenditure criteria which will indicate when an expense must be treated as a capital expense.

 

Further Reading

Financial Capital (wikipedia)