Earlier I wrote about CRA Prescribed Rates and how they are used.
Given that it is nearing the end of June, the CRA has not published updated prescribed rates for the third quarter yet. They traditionally publish the next quarter’s rates at the beginning of the month before the next quarter (i.e. for a second quarter announcement, they would announce the prescribed rates at the beginning of March).
I would suspect they are doing this because they are planning on increasing the prescribed rate for interest on loans to 2% from 1% currently. They would want to give as little notice as possible of this, to avoid a scurry of people making quick 1% loans to avoid interest attribution.
So for those of you that take advantage of this process, I would highly advise you to get your paperwork prepared for a quick transaction at the end of June in the event that my suspicions are correct.
Agree it is odd that not released, but rate is governed by statute, s4301….the base rate is the simple average of 90day Tbill rates of the first month of the previous quarter, rounded up to a whole percent….since the ave rate in April was .39…they have no latitude to raise rates…..Do you know that this statute has changed? or something else that would give them freedom to do so?
Jeff,
Thank you very much for your comment. I did not realize to look into the income tax act legislation – regulations, and indeed, Section 4301 of the Income Tax Regulations has the following passage:
http://laws.justice.gc.ca/eng/C.R.C.-C.945/page-23.html#anchorbo-ga:l_XLIII-gb:s_4301
(a) every provision of the Act that requires interest at a prescribed rate to be paid to the Receiver General, the prescribed rate in effect during any particular quarter is the total of
(i) the rate that is the simple arithmetic mean, expressed as a percentage per year and rounded to the next higher whole percentage where the mean is not a whole percentage, of all amounts each of which is the average equivalent yield, expressed as a percentage per year, of Government of Canada Treasury Bills that mature approximately three months after their date of issue and that are sold at auctions of Government of Canada Treasury Bills during the first month of the quarter preceding the particular quarter, and
(ii) 4 per cent;
(b) every provision of the Act that requires interest at a prescribed rate to be paid or applied on an amount payable by the Minister to a taxpayer, the prescribed rate in effect during any particular quarter is the total of
(i) the rate determined under subparagraph (a)(i) in respect of the particular quarter, and
(ii) 2 per cent; and
(c) every other provision of the Act in which reference is made to a prescribed rate of interest or to interest at a prescribed rate, the prescribed rate in effect during any particular quarter is the rate determined under subparagraph (a)(i) in respect of the particular quarter.
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I was under the very mistaken impression that there was “wiggle room” with respect to the Minister (or rather his staff) to make a call on what this rate should be, rather than a hard-coded regulation stating as such, so I was completely incorrect.
So it seems very likely that the prescribed rate for the third quarter will remain 1% for interest on loans.
Once again, thank you very much for writing. Glad you could correct me.
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