2024 CRA Canada Interest Rate: Comprehensive Analysis
Starting in the first quarter of 2024, the Canada Revenue Agency (CRA) is set to raise the late payment rate from 9% to 10%. This marks a four-percentage-point increase from the suggested rate for overdue taxes versus family loans. Additionally, the prescribed interest rate for loans to family members, previously at 5%, will now be adjusted to 6%, reflecting the yields of Government of Canada three-month Treasury Bills up until October.
The CRA calculates interest on overdue payments with daily compounding. Whenever the approved rate for overdue taxes changes, the CRA adjusts the interest rate for current or overdue amounts each quarter. The prescribed interest rates for loans to family members started increasing in the third quarter of 2022, driven by rising inflation. Before that, there was a two-year statute of limitations on the prescribed rates for family loans, set at 1% and 5% respectively. Keep an eye out for updates on the CRA Prescribed Interest rate in 2024.
Prescribed Rate: Understanding CRA’s Interest Rate
In Canada’s progressive income tax system, where tax rates rise as income increases, tax consultants frequently advise employing income-splitting strategies to reduce taxes. This approach proves most beneficial when there’s a significant income disparity between family members, with one spouse or partner earning more and falling into a higher tax bracket, while the other is in a lower tax bracket.
The prescribed rate is directly impacted by the three-month Treasury Bill yield of the Government of Canada. According to the calculation formula in the IT Regulations, it involves averaging the three-month TB yield for the first month of the preceding quarter and rounding it up to the next whole percentage point.
CRA Prescribed Rate 2024 Overview
For the first quarter of 2024 (January 1, 2024 – March 31, 2024), the CRA is planning to raise income tax interest rates by 1%. This change impacts taxable benefits, overpaid taxes, and underpaid taxes. To enhance the distribution of investment income among family members, including your spouse or common-law partner, you can consider employing prescribed-rate loans. A well-thought-out prescribed-rate loan strategy might involve issuing loans directly to a family member or through a family trust, facilitating the transfer of funds to family members at lower tax rates.
CRA Prescribed Interest Rate 2024
In the third quarter of 2024, officials have confirmed a 10 percent prescribed interest rate. This rate increase will have implications for businesses, intergenerational transfers, and individuals considering a prescribed-rate loan strategy with a debit balance to the Canada Revenue Agency.
If you find yourself in a debit balance with the CRA, it’s advisable to promptly reduce or settle your balance. The 10% rate will apply to various payments made to the CRA throughout the year or at year-end, including GST/HST remittances, tax instalments, and overdue income tax. As a result, missing a payment date or making insufficient installments can result in significant costs.
Rising Factors Behind the Increase in Canadian Prescribed Rate
In Canada, the prescribed rate undergoes a quarterly recalculation, as specified in Section 4301 of the Income Tax Regulations. According to this regulation, the calculated rate entails rounding up to the nearest whole percentage the average yield on Government of Canada three-month Treasury bills auctioned in the first month of the preceding quarter.
In the initial quarter of 2024, the prescribed rate is slated to increase to 6%. This change is derived from the yields of three-month T-bills in the auctions held on October 10 and October 24, both recorded at 5.16%. The 6% rate is a representation of the rounded-up average of these two yields.