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Tax implications of business loans

Learn how you can claim your interest on your next business loan to bring down your taxes.

Borrowing money for your business can affect how you file your taxes since your interest payments will be tax deductible. Find out more about how you can claim your loan interest on your tax return. And learn more about other tax deductions you can make to reduce the amount of money you owe at the end of the tax year.

Is a business loan considered taxable income?

Most business loans are not considered taxable income since you have to pay the money back to your lender. This means you won’t have to claim a business loan when you file your taxes, and the money you get from a business loan won’t be treated as income.

The main exception to this rule applies in cases where all or part of your debt is forgiven. At this point, any amount of debt that has been forgiven becomes taxable as income. This can happen if you’ve gotten debt forgiveness from a certain creditor or you’ve filed for a consumer proposal.

Is interest on a business loan tax deductible?

The short answer is yes. You can typically deduct interest you have paid on business loans used solely for business purposes. This includes business loans that are guaranteed by insurance policies, as long as the interest you paid is not added into the insurer’s base cost of the policy.

Specific situations may arise in which the whole amount borrowed isn’t used for business expenses. In these cases, the interest you pay on the portion of your loan that covers business expenses is eligible for business loan tax deductions, but the amount used for personal purchases isn’t deductible.

Is my full loan amount eligible for business loan tax deductions?

When you repay the principal on your loan, it isn’t considered a business expense and you can’t claim it towards your tax deductions. However, the interest you pay on your loan is considered a business expense. This is because you never received this money when you initially took out your loan.

Is loan repayment considered a business expense?

Partially. A full loan repayment isn’t considered a business expense because the principal amount — the amount borrowed outside of interest — isn’t a cost to your business. It’s simply money you received and then paid back. However, the interest is considered deductible because it isn’t part of the original amount borrowed.

Top business expenses you can write off on your business tax return

11 commonly known tax deductible expenses for your small business

  • Office supplies
  • Up to 50% of food, beverage and entertainment expenses (unless your business regularly provides these – i.e. a hotel or restaurant – or you already billed a customer or client for these costs)
  • Business software and applications including cloud computing service fees
  • Conference and convention fees
  • Membership fees for business-related organizations and publications
  • Utilities and phone costs
  • Advertising fees
  • Rent
  • Employees’ gross salaries
  • Repairs and maintenance done on business property
  • Motor vehicle expenses such as car insurance, gas and maintenance. Note that the vehicle itself is considered capital and is thus factored in as part of your business’s Capital Cost Allowance (CCA).

11 overlooked tax deductible expenses for your small business

  • Cost of supplies indirectly used to provide goods or services (such as medication used by a veterinary clinic or cleaning supplies used by a maintenance company). Do not include items such as desks, chairs and filing cabinets, because these are considered depreciable capital items – not expenses – and factor into your Capital Cost Allowance (CCA) instead.
  • Insurance premiums paid to insure buildings, equipment and machinery
  • Non-penalty bank service charges
  • Business credit card interest
  • Business-related expenses that have been prepaid
  • Professional fees (such as legal, accounting and consulting fees)
  • Bad debts if you already included this amount as part of your business’s yearly income (must be claimed in the tax year in which the debts are written off)
  • Tax preparation fees
  • Startup costs (pre-operational expenses must be claimed in a year in which the business was operational)
  • Property taxes for your business’s land and building(s)
  • Employer contributions towards employees’ CPP, EI and Workers’ Compensation amounts

Top tax deductible expenses for your small business

Looking for more deductions? Consult a tax specialist to find out if your small business could qualify for any of the following tax deductible expenses for small business:

  • Home expenses (such as a heat, electricity, property taxes, mortgage interest and cleaning materials). If you work from home or have a space at home that’s used exclusively for business, you can claim whatever portion of these expenses is related to business use – see the Government of Canada website for more details on how to calculate this amount.
  • Capital expenses. Capital expenses are related to items that benefit your business for several years. Examples of capital expenses include costs incurred by buying or improving property as well as the cost of filing cabinets and office furniture. You can deduct any type of technology your business uses, including new computers, scanners and copiers on top of the usual capital expenses and office supplies.
  • Mileage. If your business involves a lot of traveling by car, you can write off some of those expenses like mileage, tolls and parking, though you’ll need to keep careful track during the year. You can only write off expenses related to business – not personal – use of your car, so be sure to keep these expenses separate.
  • Private health insurance. You can deduct Private Health Service Plan (PHSP) premiums paid to insure yourself or anyone in your household if your business provides 50% or more of your total income. (See the Government of Canada website for details on eligible medical expenses and what the government considers a PHSP.)
  • Wages for family members employed by your business. You might be able to deduct the salaries you pay family members to work in your business. In fact, splitting business earnings among family members may be a good way to keep income taxes low since you can avoid declaring one large amount as a single income.

I have business tax debt. What can I do?

A lot can happen over a year, especially if your business is young. You may even find that you don’t have all of the funds needed to cover your taxes owed. Should you owe money to the CRA that you can’t immediately repay, you can take a few steps to minimize the financial impact it has on your business.

Your first option is to contact the CRA directly. You may be able to set up a payment plan, which can reduce or eliminate possible penalties that come with not paying the owed amount. After all, the CRA wants you to pay your tax bill too – better to develop a repayment plan that works for you than get no repayment at all.

You may also be able to take out a personal loan to pay your tax debt. Tax loans can reduce the likelihood of you becoming personally liable for your business’s debts — and, importantly, help you avoid penalties. In some cases, lenders even help you by providing a specialist to navigate the CRA’s rules.
Compare business loans vs. personal loans

Compare loans

Name Product Interest Rate Loan Amount Loan Term Minimum Revenue Minimum Time in Business Loans Offered
SharpShooter Funding Business Loan
Prime pricing from 9.00%
$500 - $250,000
6 - 60 months
$10,000 /month
100 days
Unsecured Term, Merchant Cash Advance, Invoice Factoring
To be eligible, you must have been in business for at least 100 days with a minimum of $10,000 in monthly deposits.

SharpShooter provides capital to small businesses that are underserved by banks and credit unions. It measures overall business health and potential rather than focusing strictly on traditional metrics. Fill out a simple application and get pre-approved in minutes. Receive your funds within 24 hours.
Swoop Funding Business Loan
4.00% - 25.00%
$1,000 - $5,000,000
3 - 60 months
$10,000 /month
24 months
Term, MCA, LOC & more
To be eligible, you must have been in business for at least 24 months and have a minimum of $100,000 in annual revenue.

Swoop partners with banks and alternative lenders to match your business with the right funding options. Register for free and browse your offers without affecting your credit score.
Lending Loop Business Loan
Starting at 4.96%
$10,000 - $500,000
3 - 60 months
$8,500 /month
12 months
P2P
To be eligible, you must have been in business for at least 12 months and have a minimum of $100,000 in annual revenue.

Lending Loop is Canada’s first regulated peer-to-peer lending platform. Complete an application in 5 minutes. Once you accept your loan offer, investors will begin to fund your loan on the marketplace. Your loan will be transferred to your bank account when it is fully funded.
OnDeck Business Loan
8.00% – 29.00%
$5,000 - $300,000
6 - 18 months
$10,000 /month
6 months
Secured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months with a minimum monthly revenue of $10,000.

OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.
Loans Canada Business Loan
Prime Pricing from 9.00%
$2,000 - $350,000
3 - 60 months
$4,166 /month
100 days
Unsecured Term
To be eligible, you must have been in business for at least 100 days, have a credit score of 410+ and show a minimum of $4,166 in monthly deposits ($50,000/year).

Loans Canada connects Canadian small business owners to lenders offering financing up to $350,000. Complete one simple online application and get matched with your loan options.
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Compare up to 4 providers

Name Product Interest Rate Loan Amount Loan Term Requirements Credit Score Link
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 5.75%-46.96%
$500 - $50,000
3 - 120 months
Currents debts must total less than 60% of income
Min. credit score: 300
Go to site
More Info
An online broker who helps inform clients towards better finances. Get pre-approved by different lenders for unsecured or secured loans in 5 minutes with any credit score.
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Min. income of $1,800 /month, 3+ months employed
Min. credit score: 400
Go to site
More Info
An online lender offering unsecured personal loans and credit builder loans. Those filing for bankruptcy or a consumer proposal can also apply. If you're not eligible for an unsecured loan, you may be offered a loan to help rebuild your credit.
ConsumerCapital Personal Loan
19.99% - 34.99%
$1,500 - $12,500
24 - 60 months
Min. income of $1,900 /month, 6+ months employed
Min. credit score: 600
Go to site
More Info
An online lender that provides fast unsecured personal loans. Complete an application in less than 10 minutes and get a decision within 24 hours. For faster loan approval, complete the Flinks bank integration in the app.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 36 months
Min. income of $1,200 /month, stable employment
Min. credit score: 550
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More Info
An online lender offering unsecured personal loans to borrowers with a wide range of credit scores. Apply in less than 5 minutes and if approved, receive financing in as little as 24 hours.
FlexMoney Personal Loan
18.90% - 46.93%
$500 - $15,000
6 - 60 months
Min. income of $2,000 /month, 3+ months employed
Min. credit score: 500
Go to site
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An online lender offering flexible unsecured loans. Apply in less than 10 minutes and if approved, receive financing in as little as 24 hours. Pay off your loan at any time.
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$300 - $50,000
3 - 60 months
No min. income or employment requirements
Min. credit score: 300
Go to site
More Info
An online broker with the largest lender network in Canada. Get matched for free with lenders offering both unsecured and secured loans through one quick application regardless of your financial situation.
OFFER
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Min. income of $13,000 /year
Min. credit score: 500


Mogo offers a 100-day money-back guarantee. If you're not happy with your loan, pay back the principal and get your 100 days of paid interest and fees back.
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An online lender who aims for a hassle-free process through same-day unsecured loan approval and funding. Get a loan fast and track your credit score for free.
Fairstone Personal Loan (Unsecured)
26.99% - 39.99%
$500 - $25,000
6 - 60 months
Able to make monthly repayments on your loan
Min. credit score: 560
Go to site
More Info
An online lender with a team dedicated to professional service. Get a quote for an unsecured loan without impacting your credit score. Receive funds within as little as 24 hours. No prepayment fees.
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$5,000 - $50,000
60 - 120 months
Must be a homeowner
Min. credit score: 560
Go to site
More Info
Use your home equity to get a secured loan up to $50,000 with flexible repayment options and a long loan term. Get a quote without impacting your credit score.
Loan Away Personal Loan
19.90% - 45.90%
$1,000 - $5,000
6 - 36 months
No min. income or employment requirements
Min. credit score: 300
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More Info
A lender that approves unsecured loans in as little as 20 minutes. Get affordable monthly repayments with any credit score.
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Bottom line

Business loans can be useful tools for creating cash flow, buying equipment and maintaining supplies. When you take one out, you may also be eligible for business loan tax deductions that can give you a break on your taxes at the end of the year. Looking for more information on business loans? Check out our detailed guide to find out about fees, how to apply, alternative financing options and more.

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