The second quarter in a row increase to the prescribed interest rate is a signal to business owners and individuals to pay any overdue income taxes and penalties.
Following years of historically low-interest rates, the Prescribed Rate will see its second rate hike in as many quarters. The Prescribed Rate (PR) is determined by the yield on Government of Canada three-month Treasury Bills, averaged across the previous three months and rounding up to the next whole percentage. The PR is used as a base number to determine a number of interest rates including the rate paid for tax refunds, the rate for taxes owing, taxable benefits for employees and shareholders and low-interest loans, including an income splitting tactic, Prescribed Rate Loan.
For the quarter beginning October 1, 2022, the Prescribed Rate will rise to 3% (up from 2% on July 1, 2022, and 1% on April 1, 2022). As of that date, the interest rate on overdue income taxes and penalties will climb to 7%. This applies to any tax debts, penalties, insufficient instalments and unpaid income tax, regardless of when the tax was due. The interest rate on tax refunds will be 5%.
At Bateman MacKay, we recommend that all clients pay their CRA debts if possible, even if there is a disputed amount. This avoids any additional penalties owed if the disputed taxes are determined to be properly assessed and entitles refund interest if the taxes are not owed. If you have any questions about the prescribed interest rate, a prescribed interest rate loan or paying the CRA, please reach out to a Bateman MacKay Business Advisor.
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