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Q2 Changes Expected: Prescribed Interest Rates and OAS

Posted: March 19, 2018 By: Walter Harder
Posted in: Strategic Thinking, tax preparation, Financial Literacy, CRA, OAS, Financial Advisor, knowledge bureau, Canada Revenue Agency, interest rates, Bank of canada, Evelyn Jacks, tax filing, old age security, tax courses, tax education, prescribed interest rates, Walter Harder, online education, overdue taxes, unpaid taxes, spousal investment loans

Although these won’t be announced officially for a couple of weeks yet, the prescribed interest rates and Old Age Security payment amounts are expected to change as of April 1. Here’s what we are anticipating, and why that’s so important for investment and debt management planning now:

Prescribed Interest Rate Increases. Prescribed Interest Rate Increases. The prescribed interest rate is used to determine how much interest is collected and paid by CRA on overdue balances, as well as the limits to interest rates charged on non-arms-length loans, such as a spousal investment loan.

The rate has been at 1 percent since the fourth quarter of 2013, when it was 2 percent for that quarter. The rate is based on the average rate on three-month Treasury Bills for the first month of the previous quarter, rounded up to the next full percentage point. The average rate for January of 2018 was 1.18 percent, which means the prescribed rate for the second quarter will be 2 percent.

Consequently:

  • The interest rate charged by the CRA on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 6 percent.
  • The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 2 percent.
  • The interest rate to be paid by CRA on corporate taxpayer overpayments will be 2 percent.
  • The interest rate to be paid on non-corporate taxpayer overpayments will be 4 percent.

What does this mean for your financial planning activities?  You’re going to have to make a few things a priority before Easter. Try to discuss them with your tax and financial advisors now. For example:

  • For new spousal investment loans, the minimum rate will double from the current 1 percent to 2 percent as of April 1. For these reasons, spousal loans should be structured in March rather than April. 
  • In addition, shareholder loan balances should be reviewed to determine imputed interest charges. 
  • Also, for individuals who have not yet paid their outstanding taxes owing to CRA, the new 6 percent rate will be charged on those balances soon, and will definitely increase the pain to your pocketbook.  The moral: clear up your debt to CRA as soon as possible.

Old Age Security Rates Expected to Rise, too.

There is some good news for retirees: you’re getting a small rate increase come April.  Old Age Security payments are indexed quarterly based on increases in the consumer price index (CPI). The increase for the second quarter of 2018 will be the ratio of the average CPI for the months of November 2017, December 2017 and January 2018, to the average CPI for the months of August to October 2017.  The monthly rate for the first quarter was $586.66 so the rate for the second quarter is expected to be $589.01 (an increase of $2.35 per month – don’t spend it all in one place, okay?) 

Service Canada will release the official rate after the March payments have been made.

Additional educational resources: Check out Evelyn Jacks’ new Essential Tax Facts, How to Make the Right Tax Moves and Be Audit Proof, Too.  For those who want to develop new professional credentials, consider earning your Certified Personal Tax Practitioner Diploma. online with Knowledge Bureau. Call 1-866-953-4768.

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