Paying for a child’s education sometimes puts a strain on the family budget, so transferring and claiming your child’s student deductions and credits is recognized as a legitimate tax strategy by the Canada Revenue Agency. There are some exceptions to this practice, and the student loan interest credit is one.
Student Loan Interest Tax Credit
Unlike the tuition tax credit, interest paid on qualified student loans may only be claimed by the student, regardless of who made repayments on the student’s behalf. Other restrictions apply to the student as well. The only loans for which interest can be claimed are those received under terms of the Canada Student Loans Act, the Canada Student Financial Assistance Act or provincial and territorial student loans that are not administered by the federal government. Even then, if a student consolidates his education loans with other types of loans, the student loan interest credit becomes unavailable. Defaults resulting in judgements against the student loan also invalidate the tax credit.
Although you cannot claim or transfer an unused student loan interest credit from your child, he may carry the unused credit up to five tax years after the year the interest incurs. Students typically pay little federal tax while in school, so if there is already no tax owed in a year, adding the student loan interest credit will have no effect. Advise your child to retain the statements of interest paid that they receive annually from their lending institution to claim in later years when the tax credit can reduce their federal tax.
Deduction and Credit Transfers
Though you cannot claim the interest you pay on your child’s student loan, the amount reported on Schedule 11 for tuition may be eligible to you as a parent if they are not fully used or carried forward by your child. The amount eligible for transfer is limited to $5,000 annually, but this is reduced by the amount the student used to reduce his own tax. For example, if your child has $7,000 in eligible credits and he used $1,000 to reduce his own taxes to zero, you are still only allowed to receive a transfer of $4,000 from the balance of the credits.
Claiming Schedule 11 Surpluses
Tuition expenses amount are calculated by the student on Schedule 11. Totals from this schedule transfer to line 323 of the student’s Schedule 1 to add to other nonrefundable tax credits. In some cases, less than the entire amount from Schedule 11 reduces the student’s federal tax to zero. If your child does not elect to carry this amount forward, the remainder can be transferred to you by the student’s declaration on Schedule 11. You claim this amount on line 324 of your return. Your child may sign over a copy of the tuition payment certificate, form T2202A, that is issued by the school directly to the student regardless of who pays tuition. The form can support your claim for the transferred tuition amount and serve as written record for your tax information. You are not required to file a copy of your child’s Schedule 11.