Rising interest rates have touched virtually every corner of Canada’s economy. Accordingly, the Canada Revenue Agency’s prescribed interest rate is set to increase in lockstep yet again. It will jump to 4 per cent in the first quarter of 2023, up from the current 3 per cent. This is the third consecutive quarter that the prescribed rate—which is used to calculate the interest on everything from family loans to outstanding tax debts—has risen by a full percentage point.
The prescribed interest rate is calculated quarterly. After remaining at 1 per cent from July 1st, 2020, through the acute phase of the coronavirus pandemic, the rate has climbed steadily. This has negated significant tax-planning opportunities for business-owning families or individuals that used the historically low rate to make inter-family loans for investment purposes.
Other interest rates that will increase in the first quarter of 2023 include:
- The rate on CPP contributions, EI premiums and overdue taxes: 8 per cent
- The rate on corporate taxpayer overpayments: 4 per cent
- The rate on non-corporate taxpayer overpayments: 6 per cent
- The rate for corporate taxpayers’ pertinent loans or indebtedness: 8 per cent
The increase serves as a reminder that a higher prescribed rate could be financially problematic for individuals or corporations with outstanding tax debts. The servicing costs on unpaid bills to the CRA are becoming significantly more costly to service, underscoring the importance of tackling such debts before they become unmanageable.
Contact a member of our team to discuss the impact that the latest increase to the prescribed rate could have on your personal or corporate financial situation.
Armando Iannuzzi, Co-Managing Partner
For other tax-planning assistance, contact a member of our team.