Deducting student loan interest not as easy as it seems
Post-secondary students enjoy some of the most generous tax credits available. And even though they generally can’t use them right away, they’re allowed to carry forward unused amounts for the future when they’re earning more money.
Alternatively, they can transfer credits to a spouse, parent or grandparent, advises Cleo Hamel , a senior tax analyst with H&R Block Canada.
Full-time students can claim $400 per month and part-time students $120 per month. The number of months you’re allowed to claim is indicated on your T2202A Form.
Your tax return is for the calendar year though, so if you attended school from September to December, your T2202A Form will indicate four months. And you can claim partial months if you started late or finished early, Hamel says.
One other wrinkle: Students are able to claim the interest paid on student loans granted under the Canada Student Loans Act as a tax credit. If they can’t use the credit, either because they have minimal income or sufficient other credits to reduce the tax payable to zero, they can carry it forward for five years.
But they’re not allowed to transfer it to anyone else, even if their benefactor actually paid the interest on the loan.
Note that not all types of loans qualify here, warns Jamie Golombek, managing director, tax & estate planning with CIBC Private Wealth Management.
For instance, interest paid on a line of credit from a Canadian bank -- even it's labelled as a "student program" -- won't qualify, something a pair of sisters recently discovered after a day in tax court.
Since the loans provided to the sisters weren't actually eligible under any recognized government program and therefore treated as consumer debt, the interest paid wasn't eligible for the non-refundable tax credit, the tax judge ruled.
Have you run into similar problems when dealing with the tax man? Any successes to report?