Ka-ching! Hear that? That’s the sound of spending oodles of money on post-secondary education. It’s certainly expensive these days, and it’s not surprising that many people find the price of education beyond their reach. One bright spot is that Ontario students have a source of money to help offset those costs: the Ontario Student Assistance Program, or OSAP for short.
But how do OSAP grants and loans affect your income tax situation and is there anything special you need to do with your taxes when you receive OSAP? What about when you’ve finished school and are paying interest on your loan? Here, we walk you through all you need to know about OSAP.
- OSAP is a financial aid program that offers loans and grants to residents of Ontario who are pursuing a post-secondary education.
- OSAP loans are not considered income for tax purposes; and while OSAP grants are considered bursaries, they are usually not taxable.
- Interest you pay when repaying your OSAP loan qualifies as a non-refundable tax credit and can reduce the amount you owe.
OSAP and taxes: the basics
OSAP exists to help residents of Ontario cover the costs of post-secondary education. (Residents of other provinces and territories, don’t despair—there are programs you can access as well.) OSAP is a financial aid program that’s specifically aimed at those who might not be able to afford to go to school otherwise.
OSAP offers grants and loans. When you apply, you’re considered for both. (But if you’re offered a loan, you don’t have to take it.) It’s also important to know that OSAP is for more than just tuition. You can use the funds to cover costs such as:
- Books and equipment
- Living expenses (if you’re a full-time student)
- Child care
When it comes to taxes, you can think of OSAP loans as having two phases: the first while you’re in school and receiving the funds, and the second when you’ve left school and have started paying them back. (Grants have only the first phase.) This will be explained in more detail later.
Can I get OSAP if I have income?
How much income is too much for OSAP? Well, it depends.
When you apply for OSAP, you have to share information such as your income and savings, plus your parents’ or spouse’s income, if it’s relevant. OSAP takes this information into account, as well as how much your program costs, when it calculates your grants and loans.
OSAP doesn’t publish an income limit. But remember, the program is designed as financial aid to help students who can’t afford education costs on their own. To get a better understanding of whether you qualify, you can try the OSAP aid estimator tool. It takes about 5 to 10 minutes to use and will give you an idea of the grants and loans you might be eligible for.
OSAP grants: Are they taxable income?
While OSAP loans are great, OSAP grants are even better, because you don’t have to pay them back. (Sweet!) But are OSAP grants taxable? If you’re a full-time qualifying student, the answer is no. If you’re a part-time student, it depends on the amount of the grant and your total costs. Why? OSAP grants are considered to be bursaries for tax purposes, which are eligible for the scholarship exemption.
Here’s how it works.
Loans are loans—you have to pay them back. But scholarships, bursaries, and fellowships are money you’re given for your education. Essentially, they’re a kind of income. So long as you’re enrolled in an eligible program (for instance, secondary school programs are not eligible) and that money is being used to support your education, you don’t have to pay tax on the money you receive.
If you’re a part-time student, only the amount that covers your tuition and the cost of materials related to your program can be claimed tax-free. If you use TurboTax, the software will help you calculate this.
Let’s look at an example. Iyawa is a full-time chemistry student at York University. In 2023, she received an OSAP grant of $2,000 and an OSAP loan of $3,500. The $2,000 grant is considered a bursary for tax purposes and is therefore regarded as income.
But, because Iyawa is a qualifying full-time student and she used the $2,000 directly for her program, that amount is eligible for the scholarship exemption and is therefore not taxable income.
How do I claim my OSAP loan on my taxes?
First up, OSAP loans aren’t considered income for tax purposes; you don’t have to claim them on your taxes while you’re in school. However, once you finish school and start paying off your loans, you can claim the interest you pay as a tax credit. More on that shortly.
Back to Iyawa. Remember that she received an OSAP loan of $3,500 in 2023, as well as an OSAP grant of $2,000. While she has to enter the grant information when she files her income tax, the loan isn’t considered income, and she doesn’t have to claim it on her taxes.
Does OSAP send you a T4 form?
You don’t get a T4 from OSAP, because T4 slips are for employment income. If you have an OSAP grant, however, you should have access to a T4A, which is where scholarship, award, and bursary income is recorded. (OSAP loans aren’t considered income, so you won’t get a T4A for those.) To download your OSAP T4A, log in to your account with the National Student Loans Service Centre (NSLSC).
For example, let’s say Omar received both an OSAP grant and an OSAP loan for the 2022-2023 school year. The grant was for $3,000 and the loan was for $4,000. When it’s time to do his taxes, Omar will log in to the NSLSC and download a T4A. The amount on that T4A will be $3,000 because it includes the grant, not the loan.
Is there an OSAP tax credit?
We’re glad you asked, because we love this answer: Yes, there’s a tax credit for those who are paying off their OSAP loans. This non-refundable credit for interest paid on student loans helps lower the amount of income tax you have to pay. Not all loans are eligible; but because OSAP funding is an official government loan, you get the benefit of this tax credit.
Bonus: You can carry your OSAP interest amounts forward for up to 5 years, which is helpful for new graduates who might not have much income—or much income tax payable—in the first couple of years after school. Remember that non-refundable tax credits lower the amount of tax you have to pay, but they can’t lower it below zero. If you have no tax payable for the year, it’s a good idea to put aside your student loan interest tax credit for a future year, when it will save you more money.
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