Section 118.62

Table of Contents

Administrative Policy

29 September 2020 External T.I. 2018-0757501E5 F - Crédit pour intérêts sur les prêts étudiants

capitalization of interest on a novation would constitute its payment – but novated loan would be a new non-student loan

A Quebec post-secondary student loan program provided for an initial 12-month “full exemption period” (in which the Quebec government paid the interest charged on the loan by the lender) and a subsequent six-month “partial exemption period” (during which the student borrower was required to pay interest on the loan balance). Following the expiry of this 6-month period, any unpaid interest was capitalized. In addressing whether such capitalized interest qualified as being “paid” under a “loan made” under the Quebec financial assistance program so as to generate a credit under s. 118.62, CRA stated:

… The mere addition of accrued interest to the principal amount of an original debt is generally not sufficient in itself to constitute a payment of such interest.

If … the addition of interest to the principal … qualifies as a novation … the amount of interest will be considered paid when the novation occurs and will be eligible for the credit by virtue of section 118.62, if all the conditions set out in that section are otherwise satisfied.

On the other hand, the new debt, resulting from the novation, may no longer be made to the individual under the AFAEE. If this is the case, the interest computed on this new debt would no longer meet the conditions for the application of section 118.62.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(d) capitalization of unpaid interest by way of novation constituted its payment 66
Tax Topics - General Concepts - Payment & Receipt capitalization of interest on a novation under Quebec law would constitute its payment 214

29 October 2003 External T.I. 2003-0033435 F - CREDIT POUR INTERET SUR PRETS ETUDIANTS

exclusion for amount paid in satisfaction of a judgment applies to interest that was paid during the course of the legal proceedings resulting in the judgment
Also released under document number 2003-00334350.

In responding to questions in this regard, CCRA stated

[S]ection 118.62 will apply to interest accrued before the 1998 taxation year on a qualifying loan that is paid in a taxation year after 1997. In addition, interest paid in a taxation year on a qualifying loan between the commencement of legal proceedings and the rendering of a judgment would not qualify for the tax credit under section 118.62 in that year if it is payable because of the judgment to be rendered.