The CRA's prescribed interest rate hits double digits: 3 ways it could affect your wallet

financialpost.com:

For the first time in more than two decades, the Canada Revenue Agency’s prescribed interest rate for overdue taxes has hit double digits — 10 per cent for the first quarter of 2024. The last time the prescribed rate was so high was back in mid-2001.

The prescribed rate is set quarterly and is tied directly to the yield on Government of Canada three-month Treasury bills, but with a lag. The calculation is based on a formula in the Income Tax Regulations that takes the simple average of three-month Treasury bills for the first month of the preceding quarter, rounded up to the next highest whole percentage point (if not already a whole number).

To calculate the “base” rate for the first quarter of 2024, you go back to the first month of the prior quarter (October 2023) and take the average of the three-month T-bill yields, which were 5.16 per cent (Oct. 10) and 5.16 per cent (Oct. 24). Since the prescribed rate is rounded up to the nearest whole percentage point, we get six per cent for the current prescribed rate.

The base prescribed rate applies to taxable benefits for employees and shareholders, low-interest loans and other related-party transactions. The rate for tax refunds is two percentage points higher than the base rate, meaning that the rate of interest is now eight per cent if the CRA owes you money.

But if you owe the CRA money, or if you’re late or deficient in one of your quarterly tax instalments, then the rate the agency charges is four percentage points higher than the base rate. This puts the interest rate on tax debts, penalties, insufficient instalments, unpaid income tax, Canada Pension Plan contributions and employment insurance premiums at 10 per cent for the current quarter.

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