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FROM: MAY-JUN 2009 ISSUE | BY DON GOODISON
There is an old expression that says if you look like a duck, walk like a duck, and are always seen in the company of ducks, you must be a duck. But when it comes to income tax, that may not be the case. In Darren Wilkins v. Her Majesty the Queen [2009 TCC61, 2008-1739(IT)I, Tax Court of Canada], the taxpayer attempted to claim interest paid on funds borrowed to finance his education.
To finance his education, Wilkins arranged a line of credit with TD Canada Trust. He paid interest on the line of credit and claimed the related tax credit on his income tax return as interest paid on a student loan. The minister of national revenue rejected the claim on the basis that the interest was not paid on a loan that qualified 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 level. Wilkins argued that it was a loan for education, and he was a student, therefore it must be a student loan.
Unfortunately for Wilkins, the Tax Court of Canada dismissed his appeal. The court rejected his argument that the purpose of the loan should dictate the eligibility to claim the tax credit. In so doing, the court quoted from Renz v. The Queen, [2002 DTC 2014], in which Justice Little noted:
In order to qualify for a tax credit, section 118.62 specifies that the interest that is paid must relate to student loans made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a Canadian Province governing the granting of financial assistance to students at the post-secondary school level. In my opinion the words of section 118.62 are clear and unambiguous on this issue and the Appellant does not come within the wording of the section.
The Income Tax Act is very clear what the requirements are in order to claim the credit and Wilkins’ loan was not made pursuant to those qualifications. Presumably, the restrictions are in place to prevent a person from claiming the interest credit on non-educational loans. However, there appears to be nothing in the Canada Student Loans Act that says the loan has to be used for education purposes. To be eligible for the loan a person must be a qualifying student, which is defined as a person:
| (a) |
who is a Canadian citizen or a permanent resident … |
| (b) |
who is qualified for enrolment or is enrolled at a specified educational institution as a full-time or part-time student for a period of studies at a post-secondary school level, and |
| (c) |
who intends to attend at a specified educational institution as a full-time or part-time student for a period of studies described in paragraph (b) if it is financially possible for that person to do so; |
There doesn’t seem to be any requirement that the student actually enroll or attend classes as he or she only has to be eligible to enroll, and intending to attend. I have been told of cases in which individuals used these loans to purchase vehicles and take vacations. These stories don’t seem outside the realm of possibility. It would appear that abuse of the tax system could result more from the looseness of the legislation governing the granting of student loans than from the Income Tax Act itself. In order to be bulletproof, the legislation should require the borrower to provide proof of enrollment and attendance. Failure to do so would result in disqualification of the loan and mandatory repayment under the terms of a normal commercial loan.
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