How Student Loans Are Considered for Taxes

Who is eligible for a student loan?

The federal and most provincial governments cooperate to offer grants and loans to students in financial need. To be eligible, you have to be: 

• A Canadian citizen, permanent resident, or protected person.
• A permanent resident of a province or territory that issues student loans.
• Able to demonstrate your financial need.

You must also be enrolled in an eligible degree, diploma, or certificate program. There are different requirements and course thresholds for full-time students, part-time students, and students with permanent disabilities.

Do you pay income tax if you have a student loan?

This depends on how much taxable income you earn during the year. Every taxpayer claims a basic personal amount (BPA) on their return, so the BPA reduces their taxable income by the same amount. In 2023, the BPA was $15,000, so if your total taxable income was that amount or less, you wouldn’t owe any taxes at all.

If you made more than $15,000, you might have to pay income tax, but you can reduce your bill by claiming the interest you paid on your student loans. You’ll receive 15% of your interest paid back as a tax credit.

Are student loans tax deductible in Canada?

Your student loan is not tax-deductible, but you can claim any interest you’ve paid on your loan in the preceding five years as a non-refundable tax credit.

As an example, let’s say Fahad repaid his student loan which included $300 of interest in 2023. With the 15% tax credit, he can reduce his tax bill by $45. ($300 x 15% = $45).

How do you claim student loan tax credits in Canada?

Step 1: Check your loan’s eligibility

First, you have to make sure your student loan is eligible for the tax credit. You can only claim the interest paid to your student loans if you received the loan under:

• The Canada Student Loans Act.
• The Canada Student Financial Assistance Act.
• The Apprentice Loans Act.
• Similar provincial or territorial government laws.

If you’ve consolidated your student loan with other debts (also known as using another loan to make payments on all your debts), you won’t be able to claim the credit.

Step 2: Claim the credit

If your loan is eligible, you can make the claim directly on your tax return.4 Before tax time, you’ll receive a T4A—an official slip you use for tax purposes—that shows how much you’ve paid back in the previous year. 

Once you’re ready, input the information from all your tax slips into your return and the software will automatically account for it. 

The amount you’ve paid back on your student loans can be found on Line 31900 for federal income tax purposes. Remember to check for any provincial or territorial credits for student loan interest and claim them accordingly.

If you’re using TurboTax, the software will automatically detect and apply this credit.

Do you have to claim OSAP on your taxes?

If you’re in Ontario, this may apply to you. 

The Ontario Student Assistance Program (OSAP) offers student loans and grants to help pay for school. You have to pay back OSAP student loans, while grants are money you don’t have to repay. 

When you file your taxes, you include any OSAP grants as income, but not your student loans. For example, let’s say Noelle, who lives in Ontario, was repaying a student loan and received an OSAP grant for $1,000. If they used TurboTax, the software would calculate the tax credit for interest paid on the student loan.

How much of your student loan interest should you claim? 

You should claim as much of your tax credit as you can use and leave the rest for following years when you might be making more money. You can use unclaimed credits for up to five years. The student loan interest tax credit is worth the same 15% to everyone, but it’s only beneficial to use it when you owe taxes. 

In other words, if you have low income, you probably won’t want to claim the credit. If you have medium or high income, you can use it to lower the amount of taxes you owe. 

What happens when you can’t pay a student loan in Canada?

Finishing school and entering the job market is challenging, and between inflation and the job market, it can be tough to make your bill payments. If you’re having trouble paying back a student loan, the first thing you need is to get support.

Missed payments can mess up your credit score and cause huge problems down the road if you want to get a mortgage or take out a loan. 

As of April 1, 2023, Canada Student Loans and Canada Apprentice Loans won’t charge any interest on loans. If you have other types of student debt, you might be able to reduce your monthly payments or get repayment assistance.

Additionally, some Canadian provinces have student loan forgiveness plans.

But what happens if you just can’t pay? After nine months of non-payment, your federal loan will be sent to the CRA for debt collection, and you’ll no longer be able to get financial aid. 

The process for provincial or territorial loans varies, so it’s best to contact your student aid office.

Do you get your tax refund, or will it go to your student loan?

The student loan tax credit is non-refundable, which means it will reduce any money you owe but won’t come back to you as a refund. However, if you end up having a tax refund after you file, you will receive your money directly. It won’t automatically go toward your student loan.

If the federal portion of your student loan has gone to the CRA for collections, tax refunds may be kept to reduce your debt.

It’s a small silver lining, but if you’ve made any payments towards your loans, you can still claim the tax credit—even if you’ve defaulted on your student loan.

TurboTax Canada has your back this tax season

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