Is business loan interest tax deductible in Australia?

Business loan interest is generally tax deductible in Australia when the borrowed money is used to run or grow a business that earns assessable income. The ATO looks at what the money was used for, not at which lender provided it or what property secures it. This page, part of our guide to how business loans work, is general information to help you ask the right questions; your accountant or registered tax agent should confirm how the rules apply to your structure.

Is business loan interest tax deductible?

In most ordinary cases, yes. The ATO’s list of deductible operating expenses includes interest on money borrowed for producing assessable income or for purchasing income-producing assets. So interest on a loan used for stock, wages, a fit-out, equipment, a vehicle used in the business or working capital generally falls into the deductible bucket.

The ATO’s three general rules for any business deduction apply here too:

1. The expense must be for your business and not for private use.
2. If it’s partly business and partly private, you claim only the business portion.
3. You need records to prove it.

What parts of a business loan can you claim?

A loan creates several types of cost, and they’re treated differently:

Cost	General tax treatment	Notes
Interest	Deductible in the year incurred	Apportion if part of the loan is private
Principal repayments	Not deductible	You’re returning borrowed money
Ongoing bank and account fees	Deductible	Listed by the ATO as operating expenses
Establishment, valuation, legal and broker fees	Generally spread over five years or the loan term if shorter	Fully claimable in the year if the total is $100 or less
Break costs on early exit	Depends on the facts	Ask your accountant before you refinance
ATO penalties and fines	Not deductible	Late payment fees are usually penalties
ATO GIC and SIC from 1 July 2025	Not deductible	Applies even to older tax debts

The ATO’s guidance on borrowing expenses also notes that if you pay a loan out before the five-year period ends, the remaining balance of those costs can generally be claimed in the year the loan is repaid. That’s worth knowing if you’re planning to pay off a business loan early.

What about the asset the loan paid for?

If the loan bought equipment, a vehicle or a fit-out, the interest is one deduction and the asset is another. Depreciating assets are generally claimed over time, while small businesses may be able to claim an immediate deduction under the simplified depreciation rules.

The $20,000 instant asset write-off is now permanent from 1 July 2026 for businesses with aggregated turnover under $10 million, and applies per asset. That pairing of finance and write-off is one reason equipment finance and a chattel mortgage are popular around EOFY. Talk to your accountant about timing before you buy, not after.

Thinking about borrowing for something your accountant has already signed off on? See if you qualify in about a minute, with no credit check at the enquiry stage.

What changed for ATO interest charges in 2025?

This is the biggest recent change for business borrowers carrying tax debt. General interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 are no longer tax deductible. The ATO confirms the rule applies regardless of whether the underlying debt relates to an earlier income year, so interest accruing today on an old tax debt is caught. The measure is now law.

GIC is set quarterly and calculated daily on the unpaid amount; the ATO publishes the current figure on its general interest charge rates page. Before July 2025, part of the sting was softened by the deduction. Now the full cost lands on the business.

Separately, the ATO’s list of deductible operating expenses includes interest on money borrowed for income tax obligations, employer super contributions, or late payment or lodgment of tax. That’s why some businesses compare the after-tax cost of leaving a debt with the ATO against refinancing it with a lender. The comparison depends on your structure, the size of the debt and the loan terms, so run it with your accountant. Our page on funding an ATO tax debt covers the lending side.

What if the loan is partly business and partly private?

Then the interest is split. The ATO’s rule is that you can claim only the portion used for your business. A few common situations:

• Redraw or offset on a home loan used for the business. The interest on the business portion may be deductible, but tracing the funds gets messy fast. Many accountants prefer a separate split or facility.
• Personal loan used for business purposes. The deduction generally follows the use, not the loan’s label. Our page on business loans vs personal loans explains why a proper business facility is usually cleaner.
• Vehicle used partly privately. The interest, like the running costs, is apportioned by business use.
• Company money used for a director’s private purposes. That raises separate issues, including Division 7A, and needs your accountant’s attention.

How do you keep the claim clean?

Good records are the difference between a straightforward deduction and an argument. Practical habits:

• Pay loan proceeds into a business account, not a personal one.
• Keep the loan contract, settlement statement and annual interest statements.
• Note what each draw on a line of credit was used for.
• Don’t mix private spending through a business facility.
• Give your bookkeeper the settlement statement at drawdown so fees are coded correctly from day one.

An illustrative example

Illustrative only, with round numbers and simplified tax treatment. A landscaping business borrows $80,000: $60,000 for a tipper truck and $20,000 for working capital. Over the first year it pays $7,000 in interest, $400 in account fees, and $1,500 in establishment and valuation fees at settlement.

• The interest is generally deductible because all the money went into the business.
• The account fees are generally deductible as bank charges.
• The $1,500 in borrowing costs is over $100, so it’s generally spread across five years or the loan term if shorter.
• The truck is claimed separately through depreciation, under the simplified rules if eligible.
• The principal repaid during the year isn’t deductible.

If the owner had also used $10,000 of the loan for a family holiday, the interest on that portion would not be claimable.

Does the business structure change the deduction?

The basic principle, interest on money used to earn assessable income, applies across structures, but who claims it and how the records look differ:

• Sole traders claim business interest in their individual return. Because the loan is in your own name, keeping the funds and repayments in a dedicated business account is what proves the business use.
• Partnerships claim interest on partnership borrowings in the partnership return, with the net result flowing to partners.
• Companies claim interest on company borrowings in the company return. If directors borrow personally and lend the money to the company, the treatment is more complex and needs advice.
• Trusts claim at the trust level, which affects distributions.

If you’re restructuring, for example moving from sole trader to company, ask your accountant whether existing loans should be refinanced into the new entity so the interest sits where the income is earned.

Questions to ask your accountant before you borrow

• Which entity should borrow, given how the business is structured?
• Will the interest be fully deductible, given what I’m funding?
• How will the borrowing costs be spread, and what happens if I refinance early?
• Is it better to pay the ATO debt from cash flow, a payment plan or a loan, now that GIC isn’t deductible?
• If I’m buying equipment, does timing around EOFY change the write-off?

Ready to borrow with the tax side sorted?

Once your accountant has confirmed the structure, the next step is finding a lender that suits it. Start your enquiry here; it takes about a minute. There’s no credit check to ask, we don’t forward your details to a queue of lenders, and you’ll deal with a specialist who reads your situation properly. Please give accurate answers about the entity, the purpose and any tax debt, because those details decide which lender fits.