CRA announces prescribed rate for Q4

The prescribed rate on loans to family members will be 5% in the fourth quarter of 2023, and the interest rate Canadians must pay on overdue tax will be 9%, both unchanged from the current quarter.

On Thursday, the Canada Revenue Agency (CRA) published the prescribed annual interest rates for amounts owed to or by the agency for the period from Oct. 1 to Dec. 31.

The fourth quarter will be the second in a row in which the prescribed rate did not rise. The prescribed rate had been 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 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.

The rate the CRA charges on overdue tax, Canada Pension Plan contributions and employment insurance premiums is set 4 percentage points higher than the prescribed rate.

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 low 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.

Here are other key announcements from the CRA:

• the rate to be paid on corporate taxpayer overpayments will remain 5%;
• the rate to be paid on non-corporate taxpayer overpayments will remain 7%;
• the rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans will remain 5%;
• the rate for corporate taxpayers’ pertinent loans or indebtedness will increase to 8.99%, from 8.44%.

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.