Sometimes you need to borrow some money to keep your business going.
Did you know you can deduct the interest you pay on that money?
The Canada Revenue Agency generally allows small business owners, including sole proprietors, to deduct interest on borrow money used to earn income from a business or property.
Yes, that means this applies to rental owners and landlords.
Along with the interest you pay on any borrowed money, you can also deduct any fee you paid to reduce the interest rate on your loan, and any penalty or bonus a financial institution charges you to pay off the loan before it is due.
You may also deduct the following fees:
- Application, appraisal, processing and insurance
- Loan guarantees
- Loan brokerage and finder’s fees
- Legal costs related to financing
The CRA does place a limit on the interest you can deduct on money borrowed to buy a passenger vehicle and vacant land.
And, as we’ve written about with other deductions, you cannot use your interest to create or increase a loss in income.
You can, however, deduct these fees over five years. As well, your interest costs don’t have to be paid in the year to be deductible. It must, however, be legally payable in the year you’re claiming the deduction.
To claim the interest, you need to fill out Form T-2210, Verification of Policy Loan Interest by the Insurer. You will carry the calculated total over to Line 221 of your T-1 if you are a sole proprietor or a member of a partnership.
Can you help?
We’re here to assist you with your taxes and planning. We specialize in small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.
The Canada Revenue Agency has an active Twitter account. If you’re interested in following the account, you can the CRA at@CanRevAgency.