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Are business loans tax deductible in Australia?

Are business loans tax deductible in Australia? The answer to the question is partly ‘Yes’. Why? It’s because a business loan repayment as a whole is not tax deductible, only the interest payment is.

For business owners, tax time can be rather hectic. Your main goal during this time should be to determine all tax deductibles to lessen your payment obligations. In this regard, one of the most common questions that new business owners ask is about business loans.

Tax Deductions for Interest Payments on Business Loans

In addition to depreciation costs, motor vehicle purchases, stock losses and bad debts, businesses can also claim tax deductions for all interest payments. This includes interest paid on employer superannuation contributions, purchase of income-generating assets, and business loans or other financial products. Specifically, here are the primary business loan interest expenses that you can deduct from your tax bill:

  • Interest accrued on business loans but are not paid by June 30.
  • Interest accrued by business owners from personal loans and personal credit card usage to fund their businesses. Tax deductions can be claimed in personal income tax filing.

Make sure that you maintain a good record of all interest payments made by your company on business loans. This will serve as proof when claiming tax deductions at the end of each fiscal year. Failure to produce such record will lead to rejection of your tax claims.

Different Sources of Debt Finance

Since we are on the topic of business loans, you should also take interest in the different sources of debt finance, where interest payments are tax deductible.

Debt finance is a type of business finance product where money is lent to the business by a lender. With debt finance, your business will be able to borrow money, but still has autonomy in business operations and profits. Sources of debt finance include the following:

  • Financial Institutions – banks, credit unions, and private lenders that offer loans, credit cards, and other finance products
  • Suppliers – some suppliers have a credit system that allows you to procure goods and pay at a later date
  • Retailers – stores that offer delayed payments for purchased goods

Factors to Consider Before Applying for Business Loans

Now you are aware that interest payments on business loans are eligible for tax deductions, you’ll be able to minimise your tax bill for this fiscal year. However, tax benefits aren’t reason enough for businesses to jump into a loan. Below are the things that you need to consider before applying for a business loan:

  • Purpose of the loan
  • The loan amount
  • Your business’ capability to make repayments
  • The interest rate
  • Loan fees and charges

Aside from these factors, you should also consult with loan experts to find out the best commercial loan product that will suit your business needs. Outright finance may not be the best option for you; a consultant will also talk you through commercial leases, hire purchase and chattel mortgage as potential options for you. Finance Ezi can help you with that. Call us or send us an email and one of our finance professionals will explain to you the difference between these options and what is best suited to your needs.

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