Tax Planning: Prescribed Interest Rates Remain Unchanged

As predicted by bond rates, the interest rate due on overdue taxes and the prescribed interest rate for non-arm’s length loans remains unchanged for the third quarter of 2019. However, these interest rates still have a significant impact on 2019 tax planning, particularly for those who want to avoid undue balances owing to the CRA. Knowledge Bureau’s Income Tax Estimator can help taxpayers and their tax pros employ tax-efficient strategies that reduce income tax owing that could be subject to interest.

For those dealing with the Canada Revenue Agency, the following table shows interest rates over the past two years:

When loans are provided to employees or shareholders at less than the prescribed 2% rate, the difference between the prescribed rate and the rate actually paid is a taxable benefit.

For spousal loans for investment purposes, the interest rate must be at least the prescribed rate (applicable to the date the loan was created) and interest must be paid within 30 days of the end of the tax year or the income earned on the investments will be subject to attribution.

Prescribed interest rates should be factored into 2019 tax planning – particularly for those with current or future balances owing to the CRA. Knowledge Bureau’s Income Tax Estimator is a great tool for advisors who want to focus on tax-efficient strategies that can ultimately decrease their clients’ income tax burden that leads to unexpected balances owing subject to interest charges. It’s a straight-forward calculator that helps to determine total taxes paid for individuals and/or couples based on different combinations of income sources. It is also a critical tool for every advisor who wants to show clients the benefits of an RRSP contribution, the effect of dividends on net income, how to pension income split, and how to structure income to avoid a clawback of Old Age Security or other income-tested government benefits like the Child Tax Benefit for families.

Additional educational resources : Knowledge Bureau’s complete suite of calculators is your Client Relationship Toolkit. Designed to provide you with answers to trigger questions your clients have about tax efficiency and the important financial decisions they need to make.

The calculators follow the four elements of Real Wealth Management™—Accumulation, Growth, Preservation, and Transition—but can also be used to fill random knowledge gaps. Used in order, they will support consistent client interview processes throughout the year.

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