Interest Rates on Their Way Up? Stay Tuned

The prescribed interest rates set by CRA for the third quarter of 2017, July to September, have followed recent trends: there are no changes for the period except for a new 4.47% rate on an election made by foreign corporations regarding PLOIs, Pertinent Loans Or Indebtedness.

However, all of this could soon change. Understanding the June inflation data will be key to the mystery. First to the prescribed interest rates:

• 5% - the interest rate charged on overdue taxes, Canada Pension Plan contributions and employment insurance premiums
• 1% - the interest rate on corporate taxpayer overpayments
• 3% - the interest rate on non-corporate taxpayer overpayments
• 1% - the interest rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans
• A New Change: the interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 4.47%.

So, what does the inflation data tell us? The Financial Post has done a good job of reporting the implications of interest rate change.

For advisors and their clients:

• Debt and cash flow management are key first directions in summer financial planning.
•  Moving from bad debt (non-deductible) to good debt (asset-backed, deductible) should be discussed.
•  Locking in low rates on taxable benefits and low-interest loans for employees and shareholders makes sense this quarter.
• Interspousal investment loans should be discussed and initiated this quarter too.

Any upward movement in the interest rates could have serious consequences for your clients who are carrying significant debt levels. Be sure to stay on top of the trends so you can alert them and adjust their planning in a timely fashion as necessary.

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