Are Business Loans Tax-Deductible?
Last updated: 3 August 2025
By Michael Pajar, Director & Business Finance Broker, Casey Asset Finance
What the ATO may let you claim in 2025-26
Disclaimer – general information only: The following insights are not tax or financial advice. Always confirm your position with a registered tax or accounting professional.
Paying more tax than you need feels like tipping money down the drain. Yet thousands of Australian owners still miss legitimate deductions hiding in their loan statements.
This quick guide explains which parts of a business loan may be deductible, which never are, and where the ATO has recently tightened the rules — in plain English you can skim on your phone.
30-Second Snapshot
Interest – May be deductible if 100 % of the funds are used to generate assessable business income.
Up-front & ongoing fees – Often deductible; includes application, line and account-keeping fees tied to business borrowing.
Principal repayments – Not deductible; repaying capital isn’t an expense.
Interest on loans used to pay ATO debt – Deductible only until 30 June 2025; the concession is removed from 1 July 2025.
Why the ATO Cares More About Purpose Than Product
Legislation in one line
Under s 8-1 ITAA 1997, an expense is deductible when it is “incurred in gaining or producing assessable income.” Loan type is secondary; how you apply the funds is what counts.
Interest vs principal: the golden rule
Because interest represents the cost of earning income, it can qualify. Principal simply repays capital, so it doesn’t.
Purpose drives deductibility — not the loan label.
What You May Claim
1. Interest charges
Provided 100 % of the loan supports business activity, claimable interest shows up on your annual loan statement. Partial private use? You must apportion.
2. Establishment & monthly fees
Set-up, line and account-keeping charges tied to business borrowing are generally deductible in the year you pay them, or spread if they create an enduring benefit.
3. Government duties & guarantee fees
State duties and personal-guarantee premiums may also qualify when the borrowing purpose is fully business-related.
What You Can’t Claim
Principal repayments
They restore cash you originally borrowed — the ATO treats that as capital, not an expense.
Capitalised interest on private use
Roll private costs into the loan and the deduction disappears.
Consumer-finance costs
Interest on personal credit cards or car loans isn’t deductible, even if you later redirect the funds to the business.
Three Everyday Scenarios Explained
Buying equipment (e.g. excavator)
Usually deductible: Interest & related fees
Not deductible: Principal repayments
Stocking inventory pre-Christmas
Usually deductible: Interest
Not deductible: Principal
Refinancing ATO tax debt
Usually deductible: Interest up to 30 June 2025
Not deductible: Interest after 1 July 2025 and all principal
Pitfalls That Trigger ATO Red Flags
Mixing personal & business use — keep stand-alone accounts.
Redrawing for private purposes — instantly taints deductibility.
Poor record-keeping — keep contracts, statements and proof of business purpose for five years.
How to Maximise — and Legitimately Defend — Your Deduction
Document the purpose up-front.
Apportion carefully if any private use sneaks in.
Time interest payments to hit the financial year you need relief.
Loop in your accountant early (and keep them in the loop when structuring loans with us).
Disclaimer: This information is general in nature and does not consider your personal situation. Please refer to your accountant for tailored financial advice.
Ready to Structure Your Next Loan the Smart Way?
Text “TAX HELP” to 0450 622 115, call us direct, or complete our 30-second form at the top right of this page (menu for mobile). We can work alongside your accountant so you stay compliant and keep more cash in the business.
Related Resources
Coming soon: Low-Doc Business Loans in 2025
Coming soon: Working Capital Loans — Comparing Options
Frequently Asked Questions
Are principal repayments tax-deductible?
No — only the interest and eligible fees may be deductible.
Which business-loan fees are deductible in Australia?
Application, line and account-keeping fees linked to income-producing purposes may be claimable.
Is loan interest deductible if I borrow to pay GST or PAYG?
Generally yes until 30 June 2025. From 1 July 2025 the concession is removed.
Do sole traders and companies claim differently?
The deductibility rules are similar, but the tax-return sections differ. Check with your accountant.
How does a redraw facility affect deductions?
Redrawing for private use cancels deductibility for that portion.
This article provides general information only and does not take your objectives, financial situation or needs into account. Consult a registered tax agent before relying on this information.
