Small Business Expenses in Canada: Eligible Interest and Bank Charges
Cut your tax bill by claiming every single expense you’re entitled to! Here are some more small business expenses in Canada, including interest and bank charges.
You can deduct interest incurred on money borrowed for business purposes or to acquire property for business purposes. However, there are limits.
Limitations on interest incurred
The deductions have limitations on the interest you incur on a passenger car or a zero-emission passenger car, interest from vacant land, and on real estate mortgage where you earned from fishing.
Here are examples of interest expenses you can claim:
Loan fees, penalties and bonuses
You can deduct the money you pay to lower your loan’s interest rate. When you borrow money, financial institutions can charge you penalties or bonuses to pay your loan before the due date. For example, if you reduce the interest rate of your five-year loan on the 3rd year of payment, you can treat this payment as a prepaid expense and deduct it from the loan balance.
Fees deducted over 5 years
When you borrow money to buy the business property or improve an existing one, you are likely to incur fees like application fees, appraisal, insurance, and processing fees. Other fees include loan guarantee, brokerage, and legal financing fees. These fees are deducted over five years despite the terms of your loan.
The deductions usually have a 20% limit for the next five years, including the current tax year. If you complete payment before the five years elapses, then you can deduct all the financing fees.
Fees deducted in the year incurred
If you incur fees like stand-by charges, service, or guarantee fees within a specific year, you can deduct them in full within that same year.
Deductions on property formerly used for business
If you have a property, but you no longer use it for the business, you may deduct the interest expense for that property. You may have used the property for business, but you stopped.
Deductions on insurance policy loans
You can deduct insurance loan interest if your insurer has not added the interest to the adjusted cost base. You will need to ask your insurer to confirm the interest before 16th June.
You can decide to capitalize interest in adding it to the property cost or exploration and development cost instead of deducting it as an interest expense. This is capitalized interest on the money you borrowed.
Interest related to workspace in your home
You can claim a business-use of home expense. This is the interest in the workspace in your home that you use for business.
Do you have tax-related questions about your small business? Contact us for a consultation with one of our tax planning experts and find out how you can maximize your tax savings for your business’ year-end.