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 consolidated loans would qualify for the proposed tax credit in respect of interest on student loans, contained in proposed section 118.62.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
Upon consolidation of loans, a new debt to the bank (i.e., the consolidated loan) is created, while the government student loans are settled. Accordingly, the consolidated loan is not a loan made under any of the statutes described in proposed section 118.62.
May 6, 1999
Mr. Richard Gendron HEADQUARTERS
Manager M. Azzi
Ministerial Correspondence Division 957-8972
7-991170
Interest on Student Loans
This is in reply to your memo of April 27, 1999, requesting our views on whether interest paid on consolidated loans would qualify for the proposed tax credit in respect of interest on student loans.
We understand that certain individuals who had received both student loans (under federal or provincial student financial assistance legislation) and personal loans have opted to consolidate all of these loans into one loan owing to the bank, in order to benefit from lower interest rates. Accordingly, it is our understanding that upon consolidation a new debt to the bank (i.e., the consolidated loan) is created, while the government loans are settled. XXXXXXXXXX, has enquired, on behalf of the individuals, whether any portion of the interest paid on the consolidated loan would qualify for the proposed tax credit in respect of interest on student loans.
The proposed tax credit in respect of interest on student loans is contained in Bill C-72, which received first reading on March 16, 1999, and, in particular, in proposed section 118.62 of the Income Tax Act. One of the specific requirements of this provisions 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”. As the consolidated loan made by a bank, in the above-described circumstances, would not appear to be a loan made under any of the statutes described in proposed section 118.62, the interest paid on such a consolidated loan cannot qualify for the proposed tax credit.
You may also wish to advise XXXXXXXXXX that, in order for the interest to qualify for the tax credit, in the above circumstances, an amendment would be required to the Act, which is the responsibility of the Department of Finance.
We trust that these comments will be of assistance.
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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