High Prescribed Interest Rates: Plan Now

CRA has announced the fourth quarter prescribed interest rates and as expected, they rose again.  It is now very expensive to owe money to the CRA, and any taxpayer who does, is well advised to pay off that debt as soon as possible. The prescribed interest rates for October 1 to December 31 are as follows:

• 7% - the rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums
• 5% - the rate to be paid on non-corporate taxpayer overpayments by the CRA
• 3% - the rate to be paid on corporate taxpayer overpayments by the CRA
• 3% - the rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans, and for the purposes of drawing up an inter-spousal loan  

Strategies to consider in paying down tax debt:

1. Does your operating line have a lower interest rate?  If so, use the line to pay off your CRA debt this month.
2. Does CRA owe you money from errors and omissions on prior filed returns?  If so, file those tax returns or an adjustment for errors or omissions before the end of the year (note - you can go back to 2012 before the end of December).  The refunds generated will offset your tax liability.
3. Should you be drawing up an inter-spousal loan to transfer assets into that person’s hands?  The 3% prescribed rate is still quite low, and perhaps as low as it will get for some time.   Consider this strategy with a view to splitting income in the future.    
4. Do you remit quarterly tax instalment payments?  Is it necessary to do so this year if your income level has dropped?  If not, use the extra cash flow to pay off  your tax debt instead.

Bottom line: Talk to your advisors about doing a SWOT of your financial standing based on this change: Owing money to CRA is expensive and with the daily compounding, piles up more liabilities quickly.  There may be tax planning opportunities, however. 

Either way, knowledge is power; you’ll want to be proactive to avoid paying excessive interest rates on taxes due. 

Additional Educational Resources:

CONTINUING EDUCATION

1. November CE Summit Register by October 14 to save $50
2. Check out the course Real Estate: Principle Residence which focuses on the ownership of a principal residence - an important cornerstone of family wealth building and there is significant tax advantage as well. With recent financial market volatility, many clients may have, or perhaps are thinking of selling one or more of their principal residences. .

SPECIALIZED CREDENTIALS

Register by October 31 for our Tax Efficient Retirement Income Planning certificate course and save $100.

WORKPLACE TRAINING

Register by October 31 for our Tax Efficient Retirement Income Planning certificate course and save $100.

Evelyn Jacks is President of Knowledge Bureau, a national designated educational institute focused on World Class Financial Education. For information about certificate courses leading to specialized credentials see www. knowledgebureau.com or call 1-866-953-4769.

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