Personal Finance

claim student loan interest when RAP reimbursement 100%

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  • Jan 2nd, 2020 8:59 pm
[OP]
Sr. Member
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Dec 28, 2010
650 posts
296 upvotes

claim student loan interest when RAP reimbursement 100%

I worked in a tax office in 2018. It was common there to claim interest from student loans on personal tax returns, even when NSLSC had provided 100% RAP and interest was not applied to the customers loan. I questioned this practice at the time and they said: "it doesn't matter, just put the interest on the tax returns". I ended up doing it on my own tax return the year after thinking there was a valid reason to do so. I asked someone from a different tax office and they confirmed it's common. I can't come up with a reason to do this and want to know if there is something I don't know.
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2 replies
Deal Fanatic
Sep 23, 2007
5264 posts
1410 upvotes
Probably one of those things the CRA hasn't caught on yet. CRA has a ton of stuff to catch up on. Right now they got bigger fish to fry. Students cheating a bit by claiming non-existent interest is probably a minor issue to the CRA. They are after bigger things like business revenue under reporting, missing HST remittances, and principal residences declarations. Any one of these sources would recover more tax revenue than chasing a bunch of students about interest expense claims.

Let's put the numbers into perspective. Let's say a student has a loan of $35k. What's the interest rate students pay these days? Let's say 6%. That's like 2100 of interest expense. Now...a lot of people would have well under $35k in student loans. For me, I had like maybe 16k by the end and I paid it off very quickly. Suppose you graduate from school and earn 40k. You aren't exactly in a high income tax bracket. Reducing taxable income by 2100 saves how much tax? Maybe $400? Now factor in that tuition can be tax deductible and carried forward and the amount is likely even less. Sure the CRA can start sending auditors after these. Or they can chase after people making false principal residence claims where a property can be worth $1M and the capital gain is a 6 digit figure, whereby the tax recoverable is likely a 5 digit figure per case. It's going to take more than $400 worth of human resource hours to chase after this interest expense. The best thing to do is to maybe pick on it once in a while and hope the population gets the message.

Same for small business cases. One case can net you like 5-6 digit figure for back taxes and penalties. Why pursue the small fish when there are so many meaty fishes in the ocean?

Now I'm not advocating for people to be dishonest and claim whatever because the risk of being caught is low. You could...and one day you could be paying hefty back taxes and penalties on top.
Member
Mar 26, 2012
460 posts
359 upvotes
VESTEGAARD wrote: I worked in a tax office in 2018. It was common there to claim interest from student loans on personal tax returns, ...I can't come up with a reason to do this and want to know if there is something I don't know.
The Canada Revenue Agency allows you to claim a non-refundable tax credit based on interest you have paid on student loans. However, only interest paid on loans received under the Canada Student Loans Act, the Canada Student Financial Assistance Act, and similar territorial or provincial programs qualify.

If you have private, foreign, or any other type of student loans, the interest is not deductible. Additionally, if you combine student loans from any of the approved sources with an unapproved type of loan, you cannot claim the student loan tax credit.

Report your qualifying student loan interest on line 319. This non-refundable tax credit helps to reduce the tax you owe, but cannot result in a refund. If you don’t need the deduction, the CRA allows you to carry it forward for up to five years, meaning you can claim it on future tax returns.

https://turbotax.intuit.ca/tips/tax-tip ... erest-5580

PER CRA
https://www.canada.ca/en/revenue-agency ... loans.html

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