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