05 Mar How to deduct student loan interest from the taxable income?
Canada student loans interest. How to deduct?
Rising tuition fees make more and more students apply for student loans. However, Canada Student Loans and Canada Apprentice Loans have supported nearly interest-free loans. There is step by step to deduct maximize your student loan interest tax credit quickly and not take lots of time.
What is the student loan interest tax credit?
After you finish the study at school, leave school or change from full-time to part-time studies, Canada Student Loans will give you six months non-repayment period. That means you don’t need to pay interest in your loan during those six months. However, interest may be charged depend on the provincial or territorial portion. But what if you can not pay your student loan while studying or six months after graduation? You will be charged with your interest. But don’t worry, here is what you can do to minimize your student loan interest.
Is the student loan interest tax deductible?
Only a few people know that they can take their money back from the student loan interest. This is a non-refundable tax credit. That means through the income tax system, the tax credit can increase the tax refund you received, or reduce the tax amount you have to pay if you owe taxes. If you do not owe any taxes or the total value of your tax credit is more than your income tax for the year, you cannot claim for the difference. But you can hold it and apply it on your tax return any time of the next five years. The good news is you may be eligible to claim an amount for the interest paid on your loan in 2019 or the preceding five years for post-secondary education. If you realize that you have not claimed the credit for the past five years, Tax-Reclaim can help you to recover student loan interest tax credit for free, pay only when your money gets back to you.
Who is eligible for student loan interest deduction?
Only you or your family members can claim that amount of interest. If your parents pay the loan for you, they can list you as a dependent on their tax return. However, you or any person relevant to you repay the student loans doesn’t affect your tax credit. Please note that if you combined your student loan with another kind of loan, you could not claim this interest tax credit. So be careful when you arrange your loans with the bank and ask them to make sure that you are qualified for this deduction. Moreover, if you can’t repay the student loan, you are not able to claim the interest you already paid.
How to claim the student loan interest tax credit?
To claim the tax credit, you can choose to fill electronic form or paper form. This article will so you how to fill the e-form. To have more information, you can read Line 319. To maximize your money, here are two forms that you can fill and deduct your tax credit.
The first form is the Federal Tax. There are six necessary steps that you need to do.
Step1: Register or login to your account on Canada.ca
Step2: After login, type “Income tax package” in search engine. The first result will be: “T1 Income tax package for 2018”. Click on that link.
Step 3: Select your province and territory. For example, I choose Ontario, but if you select other regions, the guideline still is the same.
Step 4: Look at the “Schedules” and select “Schedule 1 – Federal Tax.”
Step 5: Download and open the file 5000-s1-fill-18e.pdf
Step 6: Go to line 21 of the form, you will see the line is “Interest paid on your student loans,” type the amount of interest that you had already paid. Also, read this article to understand how to calculate student loan interest (internal link).
Not stop at this form, you can also claim the corresponding provincial or territorial non-refundable tax credit of your provincial or territorial Form 428. In this article, I do the example with the Ontario Province, but you can use these guidelines for other provinces.
Step 1: On Canada.ca website, go to “Provincial and territorial tax and credits for individuals.” Then select Ontario.
Step 2: Select “Form ON428, Ontario Tax”
Step 3: Download and open the file 5006-c-18e.pdf. Go to line 14 of the form, look at the “Interest paid on your student loans,” and fill your amount.
Note: If you fill the e-form, download a copy file to give for CRA if needed.
After filling the form, save it, and now you are ready to upload it to CRA.
Canada.ca. Government of Canada. n.d. lhttps://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-319-interest-paid-on-your-student-loans.htm. 28 November 2019.