CRA Canada Interest Rate 2024 – In-Depth Analysis{2024}

Updated on June 14, 2024

In the first quarter of 2024, the Canada Revenue Agency (CRA) will implement a 10% late payment rate, an increase from the existing 9%. This is four percentage points higher than the recommended rate for late taxes compared to family loans. The prescribed interest rate for loans to family members, which was 5%, will increase to 6% based on the yields of Government of Canada for three-month Treasury Bills through October.

Interest assessed by the CRA on overdue payments is compounded daily. If the authorized rate for overdue taxes changes, the CRA will apply a different interest rate on current or overdue amounts each quarter. The prescribed interest rates for loans to family members began to rise in the third quarter of 2022 due to increased inflation. Prior to that, there had been a two-year statute of limitations on the prescribed rates for loans to family members, which were 1% and 5%, respectively. Stay tuned 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 increase with income, tax consultants often recommend income splitting strategies to minimize taxes, especially when family members are subject to different marginal tax rates. This strategy is most effective when one spouse or partner has a higher income and is in a higher tax bracket, while the other is in a lower tax bracket.

The prescribed rate is directly influenced by the three-month Treasury Bill yield of the Government of Canada. The calculation formula in the IT Regulations uses the average of the three-month TB yield for the first month of the previous quarter, rounded up to the next whole percentage point.

CRA Prescribed Rate 2024 Overview

The CRA is set to increase the income tax interest rates by 1% for the first quarter of 2024 (January 1, 2024 – March 31, 2024). This adjustment affects taxable benefits, overpaid taxes, and underpaid taxes. To optimize investment income distribution among family members, including your spouse or common-law partner, prescribed-rate loans can be utilized. A well-crafted prescribed-rate loan strategy may involve issuing loans directly to a family member or through a family trust, facilitating the distribution of funds to family members at lower tax rates.

CRA Prescribed Interest Rate 2024

In the third quarter of 2024, officials have confirmed that the prescribed interest rate will be 10 percent. The rate hike will impact businesses, intergenerational transfers, and individuals considering a prescribed-rate loan strategy with a debit balance to the Canada Revenue Agency.

If you have a debit balance with the CRA, you may want to reduce or settle your balance as soon as possible. A 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. Therefore, overlooking a payment date or making insufficient installments can be costly.

Rising Factors Behind the Increase in Canadian Prescribed Rate

In Canada, the prescribed rate is recalculated every quarter, as outlined in Section 4301 of the Income Tax Regulations. According to this regulation, the determined rate involves 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.

For the first quarter of 2024, the prescribed rate is set to rise to 6%. This adjustment is based on the yields from the October 10 and October 24 auctions for three-month T-bills, which were both recorded at 5.16%. The 6% rate reflects the rounded-up average of these two yields.

 

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