Since the pandemic, CRA’s prescribed annual interest rate had remained at 5% from September of 2020 until the June of this year. As you may be aware, the Bank of Canada has been aggressively raising interest rates to combat our economy’s inflation. Yesterday’s rate hike marks the 6th consecutive increase for 2022. Since the prescribed rate is based on the yield of 3-month Government of Canada Treasury Bills, the Department of Finance has followed suit with their own rate increases. July saw its first increase in the prescribed rate to 6% and as of October, the prescribed rate is now 7%.
This rate is applicable for overdue taxes, instalments, CPP and EI contributions. To illustrate how being tardy with payments can hurt your pockets, let’s say you owe CRA $100,000 on March 31st, but the filing deadline was June 30th. If you paid CRA at the time of filing, the interest (compounded daily) would amount to $1,760 in just 3 months!
On the flip side, if CRA owes you interest, they will only pay at a rate of 5% (3% for corporations). They will always get their pound of flesh from somewhere. What should you do? You should consider paying CRA your tax obligations on time, especially if the same funds can’t earn you more than 7% elsewhere.
If you have any inquiries, please reach out to your Farnham + Company representative and we will be more than happy to have a discussion with you.