Interest Rate Reprieve, But Uncertainty Remains

Evelyn Jacks

After eight consecutive rate hikes, the Bank of Canada held its key interest rate at 4.5% on March 8, as the Canadian economy appears to be on track for an inflation rate near 3% by the summer. That’s really good news for worried borrowers, in particular small business owners, who, according a CFIB survey, continue to be burdened by rising costs of running their businesses. A key issue this month for those with a side hustle is the cash flow crunch fueled by tax debt. Tax professionals can be important advocates.

Consider that the average balance due, based on T1 filing statistics to the end of February was just under $7600.  That’s due on May 1 – just a few months from.  Taxpayers must sock away $2500 a month to pay that debt, while also budgeting for their March 15 quarterly instalment remittance.  That’s payable if T1 resulted in a balance due of $3,000 or more. 

Worse, the prescribed rate on overdue taxes – now 8% - is expected to rise to 9% in April.  That’s the interest rate payable if tax debt is not paid off on time or instalments are insufficient. Note that the rate compounds daily too.  Paying off CRA is therefore a priority. 

No surprise:  small business owners want relief from the government.   According to the CFIB survey, 94% of small businesses want the federal government to address rising prices, while reducing the overall tax burden is a priority for 92%. Ensuring labour policies are reasonable for employers (90%) round out the top three most important issues.  Noteworthy is the fact that borrowing costs are causing difficulties for 37% of businesses, more than half over the historical average for this indicator. 

So what can tax professionals do? It’s important to proactively urge business owners to get their tax returns done earlier this year to avoid late filing penalties and those 9% interest rates.  Here’s a checklist for the top three ways to put that proactivity into practice with unincorporated small business owners:

1. Set up appointments to get 2022 tax filing processes started this week.
2. Review whether a reduction in tax instalment requirements is possible – that will generate some new cash flow to pay the tax bill on May 1.
3. Calculate instalment remittances for the balance of the year, the May 1 CRA balance due and the December 31, 2023 CEBA loan repayment.Then help business owners plan their cash flow accordingly.

Bottom Line:  Providing tax filing services is so much more than just filing the return. There are many ways to add value all year long to build your relationships with your clients and garner referrals to new business.  Staying on top of the issues of the day and ensuring your professional skills are honed and recognized as a DMA-Tax Services Specialist™ matters, too.

Evelyn Jacks is the Founder and President of Knowledge Bureau and best-selling author of 55 books on personal tax preparation, planning and family wealth management.  Follow her on twitter @evelynjacks.

Additional Educational Resources from Knowledge Bureau:

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1. Take a comprehensive refresher. For those in the tax, bookkeeping or accounting industry checkout: Knowledge Bureau’s Advanced T1 Tax Update Course.

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