Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether interest paid on student loans that are renegotiated with financial institutions, other than through the process of Consolidation, would qualify for the tax credit in respect of interest on student loans contained in section 118.62.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
Once an original loan, which would be considered an eligible loan for purposes of section 118.62, is renegotiated with financial institutions, other than through the process of Consolidation, a new debt to the financial institution is created and the new loan would not be considered to be a loan made to, or other amount owing by, the individual under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting of financial assistance to students at the post-secondary school level.
XXXXXXXXXX 2001-007421
C. Tremblay, CMA
April 5, 2001
Dear XXXXXXXXXX:
Re: Interest on Student Loans
This is in response to your letter of March 10, 2001, regarding section 118.62 of the Income Tax Act (the "Act"). In your letter, you describe a situation in which an individual who received a student loan under federal or provincial student financial assistance legislation has opted to borrow funds by way of a loan (the "Mortgage") from a financial institution secured with his personal residence in order to benefit from lower interest rates. Accordingly, a new debt to a financial institution is either created or added to and the government loans are paid. You are enquiring whether any portion of the interest paid on the Mortgage would qualify for the tax credit in respect of interest on student loans.
The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving completed transactions. Accordingly, you should submit all relevant facts and documentation to the appropriate taxation services office for their views. However, we are prepared to offer the following general comments, which may be of assistance to you.
The tax credit in respect of interest on student loans is contained in section 118.62 of the Act. One of the specific requirements of this provision is that the interest must have been paid "on a loan made to, or other amount owing by, the individual under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting of financial assistance to students at the post-secondary school level". Accordingly, interest paid on loans that are not made under any of the statutes described in section 118.62 of the Act does not qualify for this tax credit. We confirm that once an original loan, which would be considered an eligible loan for purposes of section 118.62 of the Act, is repaid with borrowed money from another source such as a Mortgage held by a financial institution and secured by a personal residence, the new loan would not be considered to be a loan made to, or other amount owing by, the individual under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting of financial assistance to students at the post-secondary school level.
Please note that the Canada Customs and Revenue Agency is responsible only for the administration of the Income Tax Act and not for any changes to the tax policy or for any amendment to the legislation. This is the responsibility of the Department of Finance. Should you wish to pursue your concern further, you may contact the Tax Policy Branch of the Department of Finance by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.
We trust that these comments will be of assistance.
Yours truly,
Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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