Is business loan interest tax deductible?

It’s usually the second question owners ask after “can I get the loan?” — and it’s a good one, because the answer can change which way you borrow. We’re lenders, not tax agents, so we won’t give you tax advice. What we can do is explain the general principles the ATO publishes, show you where the personal-versus-business question makes things complicated, and give you the right questions to take to your accountant.

What does the ATO say in general terms?

The ATO’s guidance on business operating expenses lists “interest on money borrowed for producing assessable income or purchasing income-producing assets” among the costs a business can generally claim. Its broader deductions guidance adds three ground rules:

• the expense “must have been for your business”
• “If the expense is for a mix of business and private use, you can only claim the portion that is used for your business”
• “You must have records to prove it”

business.gov.au’s funding guide also lists interest being tax deductible as one of the general advantages of debt finance. In plain terms: if the borrowed money genuinely funds your business, the interest is generally a business cost — but the details matter.

Does it matter what secures the loan?

This is where people get caught out. Many owners assume that because a loan is secured by their home, it must be “home loan” interest and therefore not deductible — or the opposite, that anything spent near the business counts.

In general, what usually matters is what the borrowed money is used for, not what property sits behind it as security. A business loan secured by your home, used to buy business equipment, is a very different thing from a home loan top-up spent on a family car. That’s exactly why the records matter so much. Our page on home equity for business covers the lending side of that decision.

Where does mixing make it complicated?

The personal-versus-business blur is where tax treatment gets hard:

Situation	Why it’s complicated	Question for your accountant
Home loan redraw partly used for the business	One loan, two purposes	“How do we track the business portion?”
Personal loan spent on business stock	Consumer loan, business use	“Can we claim part of this interest, and what records do you need?”
Personal card carrying supplier bills	Mixed statements, mixed interest	“How do we separate the business interest?”
Company borrowing, director guaranteeing	Clean business borrowing	“Anything I should know about the guarantee or security?”
Loan used to pay an ATO balance	Special rules for ATO interest	“How is the loan interest treated now GIC isn’t deductible?”

A loan taken out in the business’s name, for a business purpose, spent through a business account, is almost always the simplest for your accountant to deal with. If you’re weighing that against borrowing personally, the borrow personally or through the business tool lays the choices side by side.

What changed with ATO interest charges?

Since 1 July 2025, the ATO confirms taxpayers “can no longer claim an income tax deduction for ATO interest charges incurred on or after 1 July 2025”. That covers the general interest charge (GIC) and shortfall interest charge (SIC). For owners carrying an ATO balance, it means the ATO debt now costs more after tax than it used to — which is one reason some choose to clear it with a business loan. See sole trader ATO debt for how lenders look at that.

When you know what you want the money for, a quick enquiry will tell you what’s realistic on the lending side while your accountant checks the tax side.

What should you ask your accountant before borrowing?

Take these to your next meeting:

1. “If I borrow for this purpose, is the interest likely to be deductible for my structure?”
2. “Should the loan be in my name, the company’s name or the trust’s name?”
3. “What records do you need from me to support the claim?”
4. “If the loan is secured by my home, does anything change?”
5. “Are there any borrowing costs or fees with special treatment?”
6. “Is there anything about my current setup — director loans, drawings, personal cards — we should fix first?”

Our guide on questions for your accountant before borrowing expands these into a full checklist.

Illustrative example: Two sole traders each borrow $80,000 against their homes. One uses the whole amount to buy a commercial kitchen fit-out and keeps the loan separate from his home loan. The other redraws on her home loan and spends part on the business and part on a family renovation. The first owner’s accountant has a simple job; the second has to trace every dollar. Both are general illustrations — neither is tax advice.

What if you’ve already mixed things up?

Tell your accountant everything, including personal loans or cards that funded the business. They can usually work out what’s claimable if the records exist. Going forward, putting business borrowing in a business-purpose loan and running it through a business account makes next year far easier. Our page on mixing personal and business debt has more on getting there.

Lending answers now, tax answers from your accountant

We’ll handle the lending side and happily talk to your accountant too. Enquiring takes about 60 seconds, doesn’t involve a credit check, and your details go to one specialist rather than a list of lenders. They’ll call you to understand what the money is for and how your business is set up. Please be accurate on the form about the purpose and your structure — that’s what lets us match the right loan first time.

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