Second Quarter Rate Checkup

It’s April 1^st next week, and that means a number of rates for the second quarter to reflect inflation calculations.  This includes prescribed interest rates that affect how much you will receive on interest on refunds owed to you by CRA and pay on CRA overdue balances due from you.  Will seniors get a raise on their OAS payments?  What will be the prescribed interest charge on shareholder loan accounts?  Here are the details:

Prescribed Interest Rates

The prescribed interest rates are determined each quarter based on the average yield on the 3-month treasury bills in the first month of the previous quarter.  In January 2021, the average return rate on 3-month treasury bills was 0.06%.  This amount is rounded up to the next highest percentage point, yielding a prescribed rate of 1%.

This 1% rate is the minimum rate for loans to employees or shareholders without triggering a taxable benefit and the minimum interest on a spousal loan to bypass the attribution rules.  That rate will stay in place for the 2^nd quarter as well.

It is the base rate used for determining how much CRA pays taxpayers when they are late in processing refunds.  Here is how that works: for tax refunds, CRA will pay non-corporate taxpayers that 1% rate plus 2% (i.e. 3%) beginning the later of May 1 and 30 days after the tax return for the year is filed. 

Note that for 2020 returns, interest will not be charged on the balance due that taxpayers owe until April 30^th, 2022, if the following criteria are met:

• The taxpayer’s total income is less than $75,000, and
• The taxpayer received pandemic relief in 2020 in the form of CERB, CESB, CRB, CRCB, CRSB, EI, or taxable provincial or territorial emergency benefits

For overdue taxes, CPP contributions, EI premiums, or instalments, CRA will charge the prescribed rate of 1% plus 4% (i.e. 5%).

The prescribed rates have remained constant since last July, when they were reduced by 1% to 1%.

To learn more about CRA interest rate policies, stay tuned for the special Knowledge Bureau Report on the April 19, 2021 Federal Buget. Invite your friends and colleagues to sign up now and receive it!