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Individual Tax Series: Student Loan Interest Deduction: Eligibility, How to Claim, and Maximizing Your Tax Savings
- Rylan Kaliel
- Jul 8
- 6 min read
Updated: Jul 9
Student debt can be a significant financial burden, but the Canadian government offers relief through the Student Loan Interest Deduction. This deduction helps offset some of the financial strain by reducing the taxes you owe. This blog will guide you through understanding eligibility criteria, how to claim the deduction, and strategies for maximizing this valuable tax benefit.
What is the Student Loan Interest Deduction?
The Student Loan Interest Deduction is a non-refundable tax credit that allows taxpayers to deduct interest paid on eligible student loans from their taxable income, directly lowering their tax liability.
Eligibility Criteria
To qualify for the deduction, the following conditions must be met:
The interest must be paid on a government-approved student loan (federal, provincial, or territorial), such as:
Canada Student Loans Act
Canada Student Financial Assistance Act
Apprentice Loans Act
Other similar provincial or territorial government laws for post-secondary education.
Only interest payments made by you or someone related to you (parent, spouse, common-law partner) are eligible.
The interest claimed must be on loans for post-secondary education.
To clarify, interest paid on private loans, personal loans, or lines of credit do not qualify, even if these loans were taken out to fund your post-secondary education. This means that if you used, for example, a line of credit, to repay your student loans the interest on this line of credit would not be eligible for this deduction.
Additionally, you should note that you cannot transfer this deduction. This means that if a person related to you paid the interest on your student loan, you cannot give them the deduction, instead you can only deduct this on your return, regardless of who paid the amount.
How Much Can You Claim?
You can claim the full amount of interest paid on eligible student loans each year without an annual limit. However, only interest payments (not principal repayments) qualify for the deduction.
Unused interest amounts can be carried forward for up to five years, allowing you to claim the deduction in a future tax year when it may be more advantageous. As this is a non-refundable tax credit, it is advised that you calculate your other credits and deductions first and then determine the amount of the student loan interest you can claim before it stops providing a benefit and only deduct this amount. Most tax preparation software will assist with this, however, it is important to be aware of this and review to ensure there are no issues.
See our Basic Personal Amount blog for a discussion of non-refundable tax credits. See below in Tax Impact of Claiming Student Loan Interest for a discussion of how to determine the appropriate amount to deduct.
Tax Impact of Claiming Student Loan Interest
As was discussed in our Basic Personal Amount blog, non-refundable tax credits are often grouped together and deducted as a total based on a fixed percentage, which in 2024 was 15%. Student loan interest is no different, it is included with the basic personal amount, spousal tax credit, and many others.
Let’s assume we have self-employment income of $45,000 and student loan interest of $5,000 in 2025. The only other credit we are entitled to is the basic personal amount. The first step would be to group the non-refundable credits and determine the reduction to taxes payable, as is shown below.
As we can see above, the inclusion of the student loan interest increases our reduction to taxes payable. This increase is roughly 15% of $5,000, or $750, a pretty reasonable reduction. Please note, the above is for federal purposes only and would be increased for the provincial impact.
As was discussed in How Much Can You Claim? there may be situations where you do not want to deduct the entire student loan interest, such as where this deduction results in the reduction for taxes payable being greater than the actual taxes payable amount.
To illustrate this, let’s assume that self-employment income is $20,000, which for federal purposes results in income taxes payable of $2,827.99. Assume that the facts above remain the same.
As we see above, the reduction to taxes payable is greater than the taxes payable. Net taxes payable cannot be less than $0 with non-refundable tax credits and therefore this defaults to $0. As the reduction to taxes payable exceeded the taxes payable we have effectively lost a reduction of $341.36, or put another way, we overused the student loan interest tax credit by $2,275.73.
In order to correct this, we would want to reduce the amount of the student loan interest that we deduct such that the reduction to taxes payable equals the taxes payable amount. The below will illustrate this.
As we can see in the above, by adjusting the student loan interest credit applied we can get a reduction to taxes payable that is equal to the taxes payable. This results in no lost credits and is optimal from a tax perspective.
Where we do not claim the entire student loan interest, this can be carried forward up to five years, as was discussed in How Much Can You Claim?. In the above situation, we would calculate our carry forward as follows.
As we can see, we retain credits of $2,275.73 for future years. This means that when we have sufficient income in future years we can use these credits to reduce our taxes payable further. This shows the importance of managing these credits appropriately to get the best tax result across multiple years.
Please note that the above related to the federal component of this credit, one should also account for the provincial component. It may be that the tax credits in your province differ, such that while we may maximize the use of this credit for federal purposes, but we do not cover the provincial component, or even overuse the credit for provincial purposes. This could be the case where the basic personal credit in your province is less than the federal basic personal amount, such that we would need to use more of the student loan interest to eliminate the taxes completely.
The same is true in the opposite situation, where the basic personal amount in your province is greater than the federal basic personal amount, which could result in an over utilization of the student loan credit. As such, it is highly advisable that you discuss the appropriate amount to deduct with a tax professional to ensure you get the best tax result.
How to Claim Student Loan Interest
Claiming the deduction is simple:
Report the total eligible interest amount paid during the tax year on Line 31900 of your personal tax return.
Obtain an official statement from your loan provider confirming the total interest paid during the year.
Retain documentation to support your claim in case of CRA verification.
Documentation Requirements
It's crucial to keep clear documentation, including:
Annual interest statements from the loan provider.
Records of all interest payments made during the year.
Common Mistakes to Avoid
Avoid these common pitfalls when claiming student loan interest deductions:
Attempting to claim interest paid on non-eligible loans (private or personal).
Forgetting to retain supporting documentation for your claim.
Not utilizing the carry-forward provision effectively if your tax savings would be higher in a future year.
To prevent these errors:
Verify loan eligibility carefully before claiming.
Maintain thorough records of interest payments.
Plan strategically when carrying forward unused interest amounts.
Strategic Tax Planning for Maximizing Savings
To optimize the student loan interest deduction:
Consider carrying forward your interest deduction if your income is low in the current year and is expected to increase in future years.
Pay student loan interest proactively if possible to maximize tax savings during high-income years.
Impact on Other Benefits
Claiming this deduction reduces your taxes payable, which may indirectly enhance your eligibility for other income-tested benefits or credits, such as the GST/HST credit or Canada Child Benefit.
Summary
The Student Loan Interest Deduction offers valuable relief to Canadian taxpayers burdened with student debt. Clearly understanding eligibility, accurate claiming, diligent documentation, and strategic tax planning can maximize your financial benefits from this deduction.
Stay tuned for our next blog, where we'll explore tuition tax credits and how to utilize them effectively.
KLV Accounting, a Calgary-based accounting firm, is here to help. Contact us today to enhance your financial strategy, minimize your taxes, and drive business success! For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.
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