I have a business that is dormate but I have a loan that I am still paying on. Can I claim interest on business loan

I have a business that is dorment but I have a loan that I am still paying on. Can I claim interest on business loan each year?

Answer

Yes you can.

Outstanding Debt

Did you borrow money for the purpose of operating your business, and there will still be a part of the loan outstanding?  Here are the rules, directly from the Income Tax Act:

s. 20.1(2)  Borrowed money used to earn income from business — Where at any particular time after 1993 a taxpayer ceases to carry on a business and, as a consequence, borrowed money ceases to be used by the taxpayer for the purpose of earning income from the business, the following rules apply:

  1. where, at any time (in this paragraph referred to as the “time of disposition”) at or after the particular time, the taxpayer disposes of property that was last used by the taxpayer in the business, an amount of the borrowed money equal to the lesser of
    1. the fair market value of the property at the time of disposition, and
    2. the amount of the borrowed money outstanding at the time of disposition that is not deemed by this paragraph to have been used before the time of disposition to acquire any other property

    shall be deemed to have been used by the taxpayer immediately before the time of disposition to acquire the property;

  2. subject to paragraph (a), the borrowed money shall, after the particular time, be deemed not to have been used to acquire property that was used by the taxpayer in the business;
  3. the portion of the borrowed money outstanding at any time after the particular time that is not deemed by paragraph (a) to have been used before that subsequent time to acquire property shall be deemed to be used by the taxpayer at that subsequent time for the purpose of earning income from the business; and
  4. the business shall be deemed to have fiscal periods after the particular time that coincide with the taxation years of the taxpayer, except that the first such fiscal period shall be deemed to begin at the end of the business's last fiscal period that began before the particular time.

In other words, yes , the interest is still deductible until the debt is repaid, and the interest expense will still be considered to be interest paid for the purpose of earning income from the business.

Was this answer helpful? Yes No
Original
Moderator

No answers have been posted

More Actions

People come to TurboTax AnswerXchange for help and answers—we want to let them know that we're here to listen and share our knowledge. We do that with the style and format of our responses. Here are five guidelines:

  1. Keep it conversational. When answering questions, write like you speak. Imagine you're explaining something to a trusted friend, using simple, everyday language. Avoid jargon and technical terms when possible. When no other word will do, explain technical terms in plain English.
  2. Be clear and state the answer right up front. Ask yourself what specific information the person really needs and then provide it. Stick to the topic and avoid unnecessary details. Break information down into a numbered or bulleted list and highlight the most important details in bold.
  3. Be concise. Aim for no more than two short sentences in a paragraph, and try to keep paragraphs to two lines. A wall of text can look intimidating and many won't read it, so break it up. It's okay to link to other resources for more details, but avoid giving answers that contain little more than a link.
  4. Be a good listener. When people post very general questions, take a second to try to understand what they're really looking for. Then, provide a response that guides them to the best possible outcome.
  5. Be encouraging and positive. Look for ways to eliminate uncertainty by anticipating people's concerns. Make it apparent that we really like helping them achieve positive outcomes.

Select a file to attach:

Do you still have a question?

Ask your question to the community. Most questions get a response in about a day.

Post your question to the community