Updated Checked by the Tax-Services.ca editorial team How we check
Interest on a business loan is deductible, as long as you borrowed the money for the business. The CRA says you can deduct interest on money borrowed for business purposes or to acquire property for business purposes. Loan fees are deductible too, but often spread over five years.
Is business loan interest tax deductible?
Yes. That’s the whole tax point of a business loan. The interest you pay in the year comes off your business income, so you’re taxed on a smaller profit. What counts is what the money was used for, not what the loan is called. A loan spent on stock, equipment or wages qualifies. The same loan spent on a family holiday doesn’t.
You can deduct interest on money borrowed for business purposes or to acquire property for business purposes.
Line 8710, Interest and bank charges, Canada Revenue Agency, canada.ca
The CRA is clear on two exclusions. You can’t deduct interest on money borrowed for personal use, and you can’t deduct interest on money borrowed to pay overdue income taxes. There are also limits on interest for a passenger vehicle and on vacant land.
This page follows a sole proprietor who reports business income on the T2125 form. A corporation files its own return, and those rules aren’t covered here.
What does the deduction save you?
Here’s a case with numbers. Say you run a sole proprietorship in Ontario with $80,000 of net business income before interest. Over the year you pay $6,000 of loan interest, so your net income drops to $74,000, and the result in our income tax calculator for 2026 looks like this.
| Income tax | CPP | Total | |
|---|---|---|---|
| $80,000 net income | $13,233.57 | $8,892.90 | $22,126.47 |
| $74,000 net income | $11,450.68 | $8,389.50 | $19,840.18 |
| Difference | $1,782.89 | $503.40 | $2,286.29 |
So $6,000 of interest saves about $2,286 in tax and CPP. That’s roughly 38 cents per dollar, but you’re still $3,714 out of pocket. A deduction lowers the cost of borrowing. It doesn’t make it free.
What if the loan paid for business and personal things?
Split it. Suppose you borrow $30,000, spend $24,000 on a delivery van and kitchen equipment, and use the other $6,000 to clear a personal credit card. Only 80% of the loan is a business loan. If the year’s interest is $2,400, you’d claim $1,920 and the other $480 is your own cost.
The cleanest way to avoid that argument is to keep the borrowed money separate. Put it in the business account, pay the supplier from there, and keep the invoice with the loan agreement. When the money lands in your personal chequing account and mixes with the rent, nobody can show what it paid for.
How are loan fees treated?
Fees work differently from interest, and this catches people out. The CRA lists application, appraisal, processing and insurance fees, loan guarantee fees, brokerage and finder’s fees, and legal fees for the financing. You deduct these over five years, 20% in the current year and 20% in each of the next four. Pay $1,000 in fees and you claim $200 a year.
If you repay the loan before the five years are up, you can deduct what’s left at that point. Standby charges, guarantee fees, service fees and similar charges may be deductible in full in the year you pay them. The page groups some of these terms in more than one place, so check how your lender describes each charge.
| Cost | How it’s deducted (CRA) |
|---|---|
| Interest on business borrowing | In the year you incur it |
| Interest on personal borrowing | Not deductible against business income |
| Interest on a loan to pay overdue income tax | Not deductible |
| Financing fees (application, appraisal, legal, brokerage) | 20% a year over five years |
| Standby charges and service fees | Possibly in full in the year |
How much will a loan cost before tax?
Work out the cost first, then the saving. A $50,000 loan at 8% over 60 months costs $1,013.82 a month and $10,829.18 in interest in total, according to our loan calculator. You can model a revolving facility in the line of credit calculator. Set both against what the money will earn, using the ROI calculator.
Be careful with the personal loan calculator’s fee box. It didn’t behave as a plain dollar amount when we tested it, so add fees by hand.
Only the interest part of each payment is the deduction. The part that pays down what you borrowed isn’t, so don’t claim the whole $1,013.82 each month.
Mistakes that cost you a deduction
- Mixing personal and business spending in the same account, so you can’t show what the loan paid for.
- Deducting all the fees in year one when they belong over five years.
- Claiming interest on a loan you used to pay a tax bill.
- Throwing away the loan agreement and statements. You need to keep records for six years from the end of the last tax year they relate to.
Did your loan cover several purposes? Split the interest by use and keep the paperwork that shows the split. Come tax time, a clean folder saves you an awkward afternoon.
How we checked the figures
The deduction rules come from the Canada Revenue Agency‘s page on interest and bank charges (line 8710 of form T2125) and its record keeping pages. The tax figures use 2026 federal, Ontario and CPP values in our calculators. Loan interest for your own facility depends on your lender’s terms, and no lender or product was compared. This site isn’t linked to the CRA or any government body.
Frequently asked questions
Is business loan interest tax deductible in Canada?
Yes, when you borrowed the money for business purposes or to acquire business property. Personal borrowing doesn't qualify.
Can I deduct loan fees?
Some fees, such as application, appraisal, legal and brokerage fees, are deducted over five years at 20% a year. Other charges may be deductible in full in the year.
Can I deduct interest on a loan used to pay my tax bill?
No. The CRA says not to deduct interest on money borrowed to pay overdue income taxes.
What if I repay the loan early?
You can deduct the remaining financing fees at that point.
How long should I keep loan records?
The CRA asks for records for six years from the end of the last tax year they relate to.
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