Yes, small business owners can deduct interest on business loans and certain borrowing costs, provided the loan was used to purchase income-producing assets or fund business operations. The CRA generally allows deductions for interest paid on money borrowed for business purposes, but there are specific rules about what qualifies and how to document these expenses. Personal loans, credit card interest for personal use, and penalties do not qualify, so it's important to keep clear records showing the connection between the loan and your business income. Not all interest expenses are created equal when it comes to small business deductions. The CRA recognizes interest deductions when these conditions are met: - The money was borrowed specifically to earn business or investment income - You paid actual interest to a lender (bank, credit union, private lender, or supplier) - You can prove the loan amount and interest paid through documentation - The interest is not capitalized as part of an asset's cost Common examples that may qualify include interest on: - Bank loans used to purchase equipment or inventory - Lines of credit for operating expenses - Business credit cards used exclusively for business purchases - Mortgages on commercial real estate -
Only the portion of interest allocated to actual business purchases is deductible. You must track and separate business versus personal use. Interest on the personal portion is not deductible, even if you occasionally use the card for business expenses.
This rule may apply to you: interest paid on personal debt is generally not deductible. You would need to structure a formal business loan instead, with documentation showing it's a business debt rather than a personal loan used indirectly for business.
Yes, you can deduct both. Interest paid to finance an asset is deductible in the year paid, and the asset's cost is also deductible through capital cost allowance (CCA) claimed over multiple years. These are separate deductions.
You can only deduct the interest portion that applies to the business use. Document the allocation clearly (for example, 70% business and 30% personal) and deduct only the 70% of interest paid.
Yes, fees charged by your lender for setting up or maintaining business loans, plus legal and appraisal fees required to obtain the loan, are generally deductible as business expenses in the year paid.