Education

Claiming Student Loan Interest on Your Tax Return

The Canada Revenue Agency recognizes that repaying student loans can be financially difficult in some cases. To help offset some of that burden, the CRA offers a deduction for qualifying student loan interest payments.

There are a lot of variables, but TurboTax Online can help walk you through step by step to figure this out. If you feel a bit overwhelmed understanding deductions like this, consider TurboTax Live Assist & Review and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service and have one of our tax experts do you return from start to finish.

Eligible Interest

The CRA allows you to claim the interest you have paid on many of your post-secondary student loans on your tax returns. However, there are restrictions on the types of loans that qualify:

  1. You cannot claim interest from personal loans or lines of credit even if you used the money to pay for post-secondary education. Additionally, you may not claim interest on student loans received from foreign banks.
  2. You may only claim interest payments on loans received under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial programs.
  3. If you combined any qualifying loans with non-qualifying loans, you cannot claim the interest paid as student loan interest. For example, if you took out a home equity line of credit to pay for university, that doesn’t count as a qualifying loan, and you cannot claim the interest as student loan interest on your tax return.

Understanding Non-Refundable Tax Credits

Your student loan interest reported on line 31900, with other non-refundable credits reported on lines 30000 to 33500 of your income tax and benefits return gives you a total of 15% reduction on your taxes.

The non-refundable tax credits are designed to reduce your federal tax liability to zero (taxes applied on your taxable income Part B of your Income Tax and Benefits Return). However, it doesn’t result in a negative amount or a refund. In other words, it does not reduce your Net federal tax below zero. Any negative amount will be dismissed.

For example;

Nadine has a total of $3,000 of non-refundable tax credit (after applying the 15% rate). She owes $2,000 of taxes after applying the tax rate on her total income.

Her net federal tax will be:

$2,000 – $3,000 = $0

$1,000 of her non-refundable tax credits were wasted

Maximizing Your Student Loan Interest Claim

Student loan interest payment doesn’t have to be claimed on the year it was paid. CRA allows you to accumulate 5 years’ worth of interest payments and claim them in one year. Because you cannot claim a refund for your student loan interest alone, do not claim it on a year when you don’t owe taxes. Instead, save the claim and carry it forward to any subsequent year.

For example; if the interest you paid on your student loans for the last tax year equals $500, but you owe nothing in taxes, don’t waste the claim. Instead, save it for next year or the following year, and use it to offset your taxes owed for those possibly higher earning years.

Filing Your Taxes

To claim the non-refundable tax credit for student loan interest:

  • Enter the amount of eligible interest you paid on line 31900 of your income tax return.
  • Claim any corresponding provincial or territorial credits. You may claim those credits by entering the amount of your student loan interest on line 5852 of your provincial income tax return, while Quebec residents will apply this amount to line 385 of their TP1.

If you file electronically, keep all of your receipts for payments made and interest paid on file. If you file a paper return, attach the corresponding information to your return.

TurboTax products will guide on how to apply for the credits by answering a simple step-by-step questionnaire. Consider TurboTax Live Assist & Review if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service* and have one of our tax experts do your return from start to finish.

*TurboTax Live™ Full Service is not available in Quebec.