Throughout 2022, interest rates were on the rise. Canada Revenue Agency (“CRA”) was no exception. CRA announced yet another increase in the prescribed rate effective April 1, 2023.
What is the prescribed rate?
The prescribed rate is set quarterly and based on the Government of Canada yield on 3-month treasury bills. It is effectively the interest rate that CRA charges on various balances that are owed to them or certain loan arrangements between companies and their shareholders or employees.
What does it mean for me?
Put simply, it means that not paying any balances owed to CRA can be an expensive form of financing. Interest and penalties to CRA are not tax deductible, making the cost to you or your company far more than the actual rate that CRA charges. You should ensure you do the following:
- Pay your quarterly personal instalments.
- Pay your monthly or quarterly corporate instalments.
- Pay any corporate tax owing after year-end.
- If you have corporate tax to pay after year-end and instalments paid aren’t sufficient, you only have either two or three months after your year end to pay the tax, depending on your taxable income and the type of company you are.
- Don’t miss HST payment deadlines.
- Don’t miss employee remittance deadlines.
What are the rates?
- Interest on outstanding tax is now 9%.
- Interest taxable benefit on shareholder loans or low-interest employee loans is now 5%.
- Interest to individuals on amounts overpaid to CRA is 7%
- Interest to companies on amounts overpaid to CRA is 5%.
Now more than ever it’s important to pay your amounts owing to CRA. Don’t be caught out by using them as an expensive form of financing.