Line 8710 - Interest
You can deduct interest incurred on money borrowed for business purposes or to acquire property for business purposes. However, there are limits on:
- the interest you can deduct on money you borrow to buy a passenger vehicle. For more information, go to Motor vehicle - Interest.
- the amount of interest you can deduct for vacant land.
Usually, you can only deduct interest up to the amount of income from the land that remains after you deduct all other expenses. You cannot use any remaining amounts of interest to create or increase a loss, and you cannot deduct them from other sources of income.
Fees, penalties, or bonuses paid for a loan
You can deduct the fee you pay to reduce the interest rate on your loan. You can also deduct any penalty or bonus a financial institution charges you to pay off your loan before it is due. Treat the fee, penalty, or bonus as prepaid interest and deduct it over the remaining original term of your loan.
For example, if the term of your loan is five years and in the third year you pay a fee to reduce your interest rate, treat this fee as a prepaid expense and deduct it over the remaining term of the loan. For more information, go to Prepaid expenses.
Fees deductible over five years
You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:
- application, appraisal, processing, and insurance fees;
- loan guarantee fees;
- loan brokerage and finder's fees; and
- legal fees related to financing.
You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% in the current year and 20% in each of the next four years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.
However, if you repay the loan before the end of the five-year period, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.
Fees deductible in the year incurred
If you incur standby charges, guarantee fees, service fees, or any other similar fees, you may be able to deduct them in full in the year you incur them. To do so, they have to relate only to that year. For more information, see Interpretation Bulletin IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate, and Expenses of Borrowing Money.
Interest deductible on property no longer used for business purposes
You may be able to deduct interest expenses for a property you used for business purposes, even if you have stopped using the property for such purposes because you are no longer in business. For more information, see Income Tax Folio S3-F6-C1, Interest Deductibility.
Interest on loans made against insurance policies
You can deduct interest you paid on a loan made against an insurance policy, as long as the insurer did not add the interest you paid to the adjusted cost base of the insurance policy. To claim the interest you paid for the year, have the insurer verify the interest before June 16 of the following year on Form T2210, Verification of Policy Loan Interest by the Insurer.
You can choose to capitalize interest on money you borrow:
- to buy depreciable property;
- to buy a resource property; or
- for exploration and development.
When you choose to capitalize interest, add the interest to the cost of the property or exploration and development costs instead of deducting the interest as an expense.
Interest related to work space in your home
The interest related to business use of work space in your home has to be claimed as Business-use-of-home expenses.
Forms and publications
- Guide T4002, Business and Professional Income
- Form T2125, Statement of Business or Professional Activities
- Form T2210, Verification of Policy Loan Interest by the Insurer
- Interpretation Bulletin IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate, and Expenses of Borrowing Money
- Income Tax Folio S3-F6-C1, Interest Deductibility
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