Tax Letters: The honeymoon is back on for Canadian couples! CRA has announced prescribed interest rate decrease

Date: January, 2014

CRA lowers prescribed rate for first quarter of 2014 to one per cent

Now couples can split again without cheating…income split that is. The CRA has announced that they have decreased the prescribed rate for the first quarter of 2014 from 2% to 1%, effective January 1, 2014. Consequently, Canadian taxpayers now have another opportunity to lock-in prescribed rate family loans at the lowest possible level and potentially achieve significant tax savings by utilizing this income splitting strategy. Specifically, eligible Canadians will be able to lock-in the 1% rate if they enter into their lending arrangements between January 1, 2014, and March 31, 2014. (Family loans entered into after September 30, 2013, and prior to January 1, 2014, are subject to a higher 2% prescribed rate).

In addition to being used for calculating the taxable benefits on loans among family members, the prescribed interest rate is used for calculating the benefits on employee and shareholder loans. It is also the basis for the rate charged on overdue taxes and the interest paid on excess tax remittances. Specifically, the interest rate for penalties and overdue taxes has declined from 6% to 5%, and refund interest from overpaid remittances for non-corporate and corporate accounts has declined from to 3% (from 4%) and 1% (from 2%), respectively.

Given the volatility of today’s interest rate environment, you may want to consider entering into income-splitting loans before March 31, 2014 in order to take advantage of future tax savings before the prescribed rate increases again in the future. So split before it is too late.

For further information about the benefits of low interest spousal loans, please refer to our previous article titled “The honeymoon is over for Canadian couples: CRA expected to announce prescribed interest rate increase.”

For further information about the benefits of low interest spousal loans, please refer to our previous article titled “The honeymoon is over for Canadian couples: CRA expected to announce prescribed interest rate increase.”

Originally written by: Henry Korenblum

This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article.

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