Financing fees deduction (paragraph 20(1)(e))

A buyer who borrows to purchase a business may pay fees to get the loan, apart from the interest itself. This rule is about those fees. See deducting interest on a loan to buy a business and the EIFEL interest limit.

What the Act and CRA say

Paragraph 20(1)(e) covers an expense, not otherwise deductible, 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), but not an “excluded amount”, which includes principal and interest. CRA’s guide lists application, appraisal, processing and insurance fees, loan guarantee fees, loan brokerage and finder’s fees, and legal fees related to financing. It says they are deducted over five years regardless of the loan’s term, and that the balance can be deducted when the loan is repaid early; the Act sets conditions for that in subparagraph 20(1)(e)(v).

What to check or ask

• Ask your accountant which closing costs belong here and which are interest or something else.
• CRA says some fees, such as standby charges and service fees, may be deductible in the year incurred.
• CRA says the yearly limit is reduced for fiscal periods shorter than 12 months.
• Keep the lender’s invoices and the lawyer’s account.