What counts as long-term
BDC describes liabilities as obligations a business owes to others, and splits them by timing: obligations due within one year are current, and those due after one year are long-term. A five-year equipment loan or a business mortgage is typically long-term debt, while a supplier bill due next month is not.
A long-term loan does not stay in one category for its whole life. As the repayment date draws closer, the principal due within the next twelve months is generally shown as a current liability, with the rest remaining long-term. Ask your accountant how this split is presented in your statements, because it affects how short-term obligations look next to your cash.
Principal and interest are different things
Each loan payment usually has two parts. The principal reduces the balance owing. The interest is the cost of borrowing. The CRA says you can generally deduct interest on money borrowed for business purposes, but not the principal portion of loan or mortgage payments. The CRA also says not to deduct interest on money borrowed for personal purposes or to pay overdue income taxes.
Deductibility is not automatic. The CRA’s interest folio looks at how the borrowed money was actually used, so records showing where the funds went matter. There are also specific limits, for example on interest for passenger vehicles and vacant land.
An illustrative example
Suppose a business borrows $60,000 over five years to buy equipment. These figures are illustrative only. When the loan is received, cash and long-term debt both rise by $60,000, and no income or expense is recorded. Each monthly payment then lowers the debt and also includes an interest charge. Only the interest flows through the income statement. If the business treated the full payment as an expense, profit would look lower than it was, and the loan balance on the balance sheet would never fall.
If the business later needs flexible borrowing for day-to-day gaps, a revolving facility serves a different purpose. See line of credit for how that differs.
What to discuss with your accountant
Bring the loan agreement, the amortization schedule and lender statements. Ask how each payment should be split, which portion is current, and whether any covenants or security could affect how you report the loan. Also ask whether the repayments fit your cash flow, since BDC advises asking for an amount you can afford to repay, including interest, without undue financial stress.
If you are comparing borrowing with bringing in an investor, read equity financing before deciding.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- BDC: LiabilitiesBDC
- BDC: How much can I borrow for my business?BDC
- Types of operating expensesCanada Revenue Agency
- Income Tax Folio S3-F6-C1: Interest deductibilityCanada Revenue Agency
- Self-employed Business, Professional, Commission, Farming, and Fishing Income (T4002): Chapter 3 – ExpensesCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.