BN2 - Second Quarter Changes: Prescribed Interest Rates and Old Age SecurityPosted: 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 will be changing as of April 1.
Prescribed Interest Rates
The prescribed interest rate is used to determine how much interest is collected and paid by CRA on overdue balances as well as for limits to interest rates charged on non-arms length loans such as a spousal investment loan. The rate has been at 1% since the fourth quarter of 2013 when it was 2% for that quarter. The rate is based on the average rate on 3-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% which means the prescribed rate for the second quarter will be 2%.
- The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 6%.
- The interest rate to be paid on corporate taxpayer overpayments will be 2%.
- The interest rate to be paid on non-corporate taxpayer overpayments will be 4%.
- The interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans will be 2%.
For new spousal investment loans, the minimum rate will double from the current 1% to 2% as of April 1. Those contemplating a spousal loan are well advised to make the loan this month rather than next because of this change.
For those who do not pay their taxes owning by April 6, the new 6% rate will be charges on those balances.
Old Age Security
Old Age Security payments are indexed quarterly based on increases in the consumer price index. 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. This works out to (131.3 + 130.8 + 131.7)/(130.5 + 130.4 + 130.4) = 1 = 0.4%.
The monthly rate for the first quarter was $586.66 so the rate for the second quarter will be $589.01 (an increase of $2.35 per month). Service Canada will release the official rate after the March payments have been made.
Additional educational resources: Certified Personal Tax Practitioner Diploma.