10 February 1999 Ministerial Letter 9833788 - INTEREST PAID ON STUDENT LOAN

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.

XXXXXXXXXX

February 10, 1999

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your letter addressed to the Honourable Paul Martin, Minister of Finance, concerning a tax credit for the interest paid on your student loan. Mr. Martin sent a copy of your letter to Mr. Dhaliwal on November 2, 1998.

As indicated in your letter, you are a resident of Montreal and are permanently employed there. You have a student loan in the Netherlands with the XXXXXXXXXX Bank for which you are currently paying monthly interest of approximately $XXXXXXXXXX Canadian. The loan was taken for your XXXXXXXXXX training and you are asking if you could receive a tax credit in respect of the amount of the interest on the loan. You are also asking about restructuring the loan in Canada and the effects that would have on the tax credit.

Under proposed law, for the purpose of computing an individual’s tax payable for the year, an individual will be able to deduct 17% of the amount of interest he or she paid in the year by the individual or that a person related to the individual paid in the year on a loan made to the individual, 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. This law, if enacted as proposed, will apply for 1998 and subsequent taxation years. As it does not appear that your student loan was made under any of the above-mentioned laws, the interest paid on the loan would not be eligible for the tax credit on your Canadian income tax return. If you decide to borrow money in Canada to pay off the existing loan with the XXXXXXXXXX Bank, the new loan would have to be made under the above-mentioned laws in order for the interest to be eligible for the tax credit.

While your loan with the XXXXXXXXXX Bank is still outstanding, any interest paid to that bank while you are a Canadian resident would be subject to Part XIII withholding tax. Pursuant to Article 11 of the Canada - Netherlands Income Tax Convention (1986), interest arising in Canada and paid to a resident of the Netherlands is subject to withholding tax of 10 per cent of the gross amount of the interest. I have enclosed Information Circular 76-12 R4, Applicable Rate of Part XIII Tax on Amounts Paid or Credited to Persons in Treaty Countries, which will be of assistance to you with respect to your responsibility to withhold and remit Part XIII tax.

I appreciate the opportunity to be of assistance.

		Yours sincerely,

		Bill McCloskey
		Assistant Deputy Minister

Attachment

Gwen Moore
January 26, 1999
952-1506