Section 118.62

Loans granted pursuant to the “S.P.R.I.N.T.” program was created by a Ministerial order issued by the Quebec Ministry of Social Solidarity were therefore not granted under the terms of either the Canada Student Loans Act, the Canada Student Financial Assistance Act or similar provincial legislation, so that the interest on such loans did not qualify for the tax credit.

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.

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.

The interest paid by a Quebec student on a loan for the purchase of a microcomputer obtained under the loan guarantee program administered by the Aide financière aux études (AFE) of the Québec government was not eligible for the tax credit, given that the loan was not granted under the relevant Quebec statute governing the granting of financial assistance to post-secondary students.