CRA announces prescribed rate for Q1 2024

It’s official: the prescribed rate on loans to family members will be 6% in the first quarter of 2024, and the interest rate Canadians must pay on overdue tax will be 10%. That’s up from 5% and 9%, respectively, in the current quarter.

On Friday, 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 last time the prescribed rate reached 6% was the second quarter of 2001.

The prescribed rate was 1%, and the amount charged on overdue taxes 5%, from the third quarter of 2020 until the rates began rising in the third quarter of 2022.

The rate the CRA charges on overdue tax, Canada Pension Plan contributions and employment insurance premiums is always four percentage points higher than the prescribed rate.

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. Loans could be made directly to a family member or to a family trust, which can then make distributions to family members in lower tax brackets as part of a properly executed prescribed-rate loan strategy. However, as the prescribed rate rises, so too must the expected investment return to make the strategy viable.

Other key announcements from the CRA for Q1 2024 include:

• the rate to be paid on corporate taxpayer overpayments will rise to 6% from 5%;
• the rate to be paid on non-corporate taxpayer overpayments will rise to 8% from 7%;
• the rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans will rise 6% from 5%;
• the rate for corporate taxpayers’ pertinent loans or indebtedness will increase to 9.16% from 8.99%.

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.