Interest and Bank Charges: What Canadian Contractors Can Deduct

Interest and bank charges are among the most overlooked deductions for Canadian contractors. Every month your bank statements quietly accumulate service fees, and every year you may be paying interest on a business line of credit or credit card - all of it potentially deductible. This guide explains exactly what qualifies under CRA rules and how to claim it correctly.

What Are Interest and Bank Charges?

The CRA groups two related expense types together on Form T2125, Line 8710:

Both are fully deductible when they are incurred to earn business income.

Deductible Bank Charges

Monthly Account Service Fees

Most business chequing accounts charge a monthly fee. Whether your account costs $6 or $60 per month, the fee is fully deductible as a bank charge.

Transaction and Transfer Fees

Other Bank Fees

Merchant Processing Fees

If you accept payments by credit card or through an online platform, the processing fees are deductible as bank charges:

Important: Most Canadian bank service charges are exempt from GST/HST - financial services are generally HST-free. However, Stripe, Square, and similar international payment processors typically charge HST on their fees. Keep an eye on your invoices and separate the HST-applicable fees when tracking.

Deductible Interest Expenses

Business Loan Interest

If you borrowed money specifically to fund your business - whether for equipment, inventory, or working capital - the interest on that loan is deductible for as long as the loan remains outstanding and is used for business purposes.

Business Line of Credit Interest

A business line of credit is one of the most common financing tools for contractors. The interest charged each month on your outstanding balance is fully deductible. The key requirement: the borrowed funds must be used for business purposes, not personal ones.

Business Credit Card Interest

If you carry a balance on a credit card used exclusively for business expenses, the monthly interest charge is deductible. If the card is used for both personal and business expenses, you can only deduct the portion of interest attributable to business purchases.

Tip: Using a dedicated business credit card simplifies record-keeping considerably. Every charge is business-related by default, and you can deduct the full interest amount without prorating.

Capital Loan Interest

Did you finance business equipment, a vehicle, or other capital assets? The interest portion of your loan payments is deductible each year - separate from Capital Cost Allowance (CCA) on the asset itself.

What Is NOT Deductible

Not all interest and bank fees qualify. Here are the key exclusions:

How to Track These Expenses

Bank Service Charges

Your monthly bank statement is the primary record. Look for a line item like "Service Charges" or "Monthly Fees." In ExpenseFlow, categorize these transactions as Interest & Bank Charges when uploading your CSV or XLSX statement.

Credit Card Interest

Your credit card statement shows the interest charge at the end of each billing cycle. If you use a statement CSV export from your credit card account, these charges will appear as a transaction - just categorize them correctly.

Merchant Processing Fees

Stripe, Square, and PayPal typically provide monthly fee statements in their dashboards. Many contractors download these as CSV and upload them to their expense tracker. Alternatively, your bank statement will show net deposits (after fees are already deducted), so cross-reference your processing platform's fee reports.

Loan Interest

Your lender should provide an annual interest statement (or you can calculate it from monthly statements). Keep a copy of the loan agreement as supporting documentation.

How to Claim on Your T1 Return

Report the total of all interest and bank charges on Form T2125, Line 8710 - Interest and Bank Charges.

Add up:

Enter the annual total on Line 8710. There is no separate breakdown required - a single total is sufficient.

Record-Keeping Tips

The CRA requires you to keep records for six years. For interest and bank charges, that means:

ExpenseFlow makes this straightforward: when you upload your bank statements, transactions labelled with fees or service charges are often auto-categorized. Review the suggested category and confirm - your records are then organized and exportable for tax time.

Practical Example

Here is what a typical contractor's Line 8710 total might look like for the year:

Total Line 8710 deduction: $2,245

At a marginal tax rate of 40%, that is roughly $900 back in your pocket - from expenses you were paying anyway. Tracking them carefully is well worth the effort.