CANADA and ONTARIO INTEREST ON STUDENT LOAN TAX CREDIT

What is it?

This non-refundable tax credit allows students to reduce their tax payable if they have paid interest on eligible student loans. Eligible loans must have been issued under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or comparable provincial legislation.^[1]

Credit Amount:

The credit amount is the total interest paid. There is no income-based reduction. (The actual credit, as with all credit amounts, is 14.5% of the credit amount for federal tax and 5.05% for Ontario tax.)

Credit not transferable:

Only the student who received the loan can claim the interest. If someone else, such as a parent, makes the payments, those payments are considered a gift, and only the student may claim the credit.

Carryforward rules:

Unclaimed student loan interest can be carried forward for up to five years. For instance, interest paid in 2020 can be applied in any year from 2020 through 2025.

UFile Steps:

• In Interview setup, check the box for Student. Then select Tuition, education, student loans on the left, and on the right click + next to interest paid on student loans.
• Enter the amount of interest paid in the current year and/or any prior-year amounts not previously claimed.
• If the interest is entered but does not reduce tax, UFile will automatically carry it forward and display the balance in the Summary of carryforward amounts.
• If the interest could reduce tax but the student prefers to defer the claim, UFile allows the user to specify the portion to be claimed. The remainder is carried forward and will appear in the Summary of carryforward amounts.
• If any amount is being carried forward, the client should be given a printout of the Summary of carryforward amounts and advised to give it to the next year’s tax preparer.

References:

• Income Tax Act, s.118.62
• Ontario Income Tax Act, 2007, s.9(22)
• P105 Students and Income Tax