CRA announces increase in prescribed rate for Q1 2023

The prescribed rate on loans to family members will rise to 4% in the first quarter of 2023, up from 3% in the current quarter.

The Canada Revenue Agency (CRA) published the prescribed annual interest rates for amounts owed to or by the agency for the period from Jan. 1 to March 31.

The increase in the prescribed rate marks the third consecutive quarter that the prescribed rate will rise by a percentage point. The rate had been at 1% from the third quarter of 2020 until it began rising in the third quarter of 2022.

The prescribed rate is calculated based on the average of three-month Treasury Bills for the first month of the preceding quarter, rounded up to the next highest percentage point.

Prescribed rate loans can be used to split investment income with a spouse, common-law partner or other family member with a lower income. Loans could be made directly to a family member or to a family trust, which can then make distributions to family members in low tax brackets, as part of a properly executed prescribed rate loan strategy.

The CRA also indicated that the interest rate it charges on overdue taxes, Canada Pension Plan contributions and employment insurance premiums will increase to 8%, up from 7% in the fourth quarter.

Here are the other key changes:

• the rate to be paid on corporate taxpayer overpayments will be 4%, up from 3%;
• the rate to be paid on non-corporate taxpayer overpayments will be 6%, up from 5%;
• the rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans will be 4%, up from 3%;
• the rate for corporate taxpayers’ pertinent loans or indebtedness will be 8%, up from 6.45%.

Access the full list of the CRA’s prescribed interest rates.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.