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Is Interest on a Business Credit Card Deductible in Canada?
Published Apr 23, 2026 3:27 AM • 4 min read
Fact Checked
What Small Business Owners Need to Know
If you own a small business in Canada, you probably have a business credit card.
You may wonder whether the extra money you pay, called interest, can be taken off your taxes.
The short answer is yes, sometimes. This article explains when and how to claim the deduction correctly.
What Is Credit‑Card Interest?
Interest is the cost you pay when you do not clear your whole balance by the due date.
Example:
- You buy office paper for $500.
- You pay $400 on time.
- The bank adds interest on the $100 you still owe.
Interest only appears when you carry a balance. If you pay the full amount each month, you pay no interest.
Finlywealth highlights more details on How Credit Card Interest Works in Canada.
When Is the Interest Deductible?
The Canada Revenue Agency (CRA), lets you deduct interest only if three things are true:
- The purchase is for your business.
- The interest is paid to a bank or a lender (not a friend or a family member).
- The expense is reasonable and needed for the business to run.
Learn more: Can I Use a Personal Credit Card for Business Expenses in Canada?
Deductible Examples
Business Need | Typical Purchase | Why It Is Deductible |
|---|---|---|
Office supplies | Printer ink | Directly used for work |
Business equipment | Laptop | Helps you earn money |
Work travel | Plane ticket | Required for a client meeting |
Non‑Deductible Examples
Personal Use | Why It Is Not Deductible |
|---|---|
Grocery shopping | Not a business cost |
Family vacation | Not related to work |
Gifts for friends | Not a business expense |
The CRA’s official list can be found here: Business Expenses – CRA.
Learn more: Canadian Business Credit Cards and Tax Deductions Explained
How to Claim Your Interest Deductions Properly
Keep Business and Personal Spending Separate
Mixing money makes it hard to prove which interest is business‑related. You should:
- Use one credit card only for business.
- Use a different card (or a personal debit card) for personal needs.
The FCAC also recommends separate accounts.
Track Every Interest Payment
Keep track of every interest payment, it’s required at tax time. These record-keeping tips can help:
- Check your statement each month. Look for the line that says “Interest Charged.”
- Write the amount in a spreadsheet or a bookkeeping app.
- Save the whole statement—digital PDFs work well.
Software like Wave, QuickBooks, or Zoho Books can pull interest totals automatically.
Link Interest to a Business Purchase
You can only claim interest that belongs to a business purchase.
How to prove it
- Keep the receipt for the original purchase.
- Mark the receipt with “Business” in a bright pen.
- Keep the receipt together with the monthly statement that shows the interest.
If you ever get an email from the CRA, you will have the proof ready.
Report the Interest on Your Tax Return
When it is time to file, follow these steps:
- Add up all the interest you paid for business purchases during the tax year.
- Enter the total on the line for “Interest and bank charges” in the T2125 form (Statement of Business Activities).
- Attach a copy of your statements and receipts if the CRA asks.
Common Mistakes and How to Fix Them
Mistake | Why It Hurts | Quick Fix |
|---|---|---|
Mixing personal and business purchases | CRA can reject the claim | Use separate credit cards |
Forgetting to record interest each month | Missed deduction | Set a calendar reminder |
Claiming interest on non‑business items | CRA audit risk | Only deduct interest linked to business receipts |
Losing receipts | No proof for CRA | Store PDFs in cloud storage (Google Drive, Dropbox) |
How the Deduction Affects Your Taxes
Deductible interest lowers your taxable income.
Example:
- You paid $1,200 in interest for the year.
- Your business earned $30,000 before tax.
- After the deduction, the CRA sees $28,800 as income.
You pay tax on the lower amount, which can mean hundreds of dollars saved.
Remember, the deduction is only allowed if the interest is reasonable and directly tied to a business purchase.
Final Thoughts
Interest on a business credit card can be a useful tax tool for Canadian small business owners. But don’t rely on it, interest still costs you money, even if it’s deductible.
Use one business card to start, and only add more when needed. Keep business and personal spending separate, and ask suppliers if they report to credit bureaus—this can help build your business credit profile.
Follow these simple steps to track and claim your interest deductions properly:
- Keep business and personal cards separate.
- Track every interest charge.
- Link interest to the appropriate business purchase.
- Report the total on the T2125 form.
- Keep all receipts and statements safe.
Doing this helps you stay organized, avoid CRA problems, and keep more money in your pocket.
Explore more on Finlywealth’s list of top business credit cards: 8 Best Business Credit Cards in Canada.
Frequently Asked Questions
Yes, but only if every purchase on that card is 100 % for the business. Keep perfect records and separate the receipts.
No. The CRA only allows the interest portion, not the penalty fees.
It is not mandatory, but a business account makes interest and expense tracking easier.
Every month. Mark the interest, save the statement, and update your bookkeeping file.
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About the author
Faith Ogunkanmi
Editor
Faith is a seasoned finance professional with over six years of experience specializing in credit analysis, financial risk assessment, and business/personal lending. My background includes extensive w...
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Lauren Brown
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Lauren is a freelance copywriter with over a decade of experience in wealth management and financial planning. She has a Bachelor of Business Administration degree in finance and is a CFA charterholde...
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