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You graduated & now face the task of repaying your student loans. While this can be distressing, were you aware you can claim your student loan interest as a tax credit on your tax return?
Claiming the Student Loan Interest Tax Credit
You can use this non-refundable tax credit on your tax return for any interest paid in 2021 or in any of the previous 5 years. By non-refundable tax credit, we mean it reduces the taxes you owe. You do not get a refund from it. As a rule, we recommend you do not claim your student loan interest in a year where you do not owe taxes. The tax credit is wasted if you do. Being as you can accumulate 5 years of interest payments; we carry it forward to a year where you owe more taxes. This gives you the biggest tax reduction on your tax return.
You don’t have to claim all the interest at one time. Also, you can only claim an amount for interest not claimed before. However, you need to ensure you don’t exceed the 5 years when carrying forward unused interest claims. If you exceed the 5 years you will lose the tax credit.
What Student Loans Are eligible for the Tax Credit?
The Canada Revenue Agency (CRA) accepts student loan interest claims on your tax returns. However, there are restrictions on the types of loans that qualify.
You cannot claim interest from personal loans or lines of credit even if you used the funds for post-secondary education. In addition, you cannot claim interest on loans received from foreign banks.
For your student loan interest to be accepted it must come from one of the following
– Canada Student Loans Act
– Canada Student Financial Assistance Act
– Apprentice Loans Act
– Provincial or territorial government laws like the acts above
Effective April 2021, the Government of Canada has suspended interest accumulation on Canada Student Loans until March 31, 2023. Any interest claimed on your 2021 taxes will be from prior to April 2021.
Do you need more information on Student Loan Interest & your personal taxes? Contact us & talk to one of our tax specialists.