Financing expenses deduction (s. 20(1)(e))

A buyer who borrows to acquire a business can meet this when the lender and lawyers send their bills at closing. The CRA’s guide for self-employed business income lists loan guarantee fees, loan brokerage and finder’s fees, and legal fees related to financing among the fees for a loan to buy or improve business property that are deducted over five years. See how a buyer assembles the capital stack.

What the paragraph says

• It applies to an amount not otherwise deductible that is an expense incurred in the course of a borrowing of money used to earn income from a business or property, other than money used to acquire property whose income would be exempt
• It excludes the principal amount of a debt, interest, and amounts that depend on use or production or are computed by reference to revenue, profit or similar criteria
• The deduction is spread over the years the paragraph sets; the CRA’s guide says these fees are deducted over five years regardless of the loan term

What to ask

Ask the lender and lawyers for a breakdown of the closing costs, separating interest from fees and from amounts added to the purchase price. The CRA says any remaining fees can be deducted if the loan is repaid before the end of the five-year period, and that some standby charges and guarantee fees may be deductible in full in the year incurred. A separate limit on interest and financing costs is covered under EIFEL.