In the news: CRA prescribed rate unchanged, OAS increase

What the CRA charges, what pensioners get

Here’s some recent tax news from Knowledge Bureau on the Canada Revenue Agency’s prescribed rate for the third quarter, and on a hike in the monthly Old Age Security payment.

Tax planning: prescribed interest rates remain unchanged. As predicted by bond rates, the interest rate due on overdue taxes and the prescribed interest rate for non-arm’s-length loans remains unchanged for the third quarter of 2019. However, these interest rates still have a significant impact on 2019 tax planning, particularly for those who want to avoid undue balances owing to the CRA.

For those dealing with the Canada Revenue Agency, the following table shows interest rates over the past two years:

When loans are provided to employees or shareholders at less than the prescribed 2% rate, the difference between the prescribed rate and the rate actually paid is a taxable benefit.

For spousal loans for investment purposes, the interest rate must be at least the prescribed rate (applicable to the date the loan was created) and interest must be paid within 30 days of the end of the tax year or the income earned on the investments will be subject to attribution.

OAS rates increase: pensioners get a raise. Old Age Security (OAS) rates are indexed quarterly according to the consumer price index, and third-quarter rates for July to September bring good news for Canadian seniors who received no raise in the second quarter of 2019.

For seniors who started receiving the full OAS amount at age 65, the monthly rate will increase by $6.01, to $607.46 from $601.45. Newcomers who receive a partial pension will receive a 1% increase. Those who delayed starting until their 70 birthday will see their pension increase $8.17, to $826.14 per month from $817.97.

Higher-income pensioners will be subject to the OAS recovery tax if their net income exceeds $77,580. This means they’ll have to repay 15% of the lesser of the OAS they receive and their net income in excess of the $77,580 threshold.

Seniors whose net income is between $77,580 and $87,780 in 2019 are subject to two clawbacks – the age amount and the OAS recovery tax. This bumps their marginal tax rates into the stratosphere. The table below shows the marginal tax rates by province for a single senior with income of $80,000.

These rates are equal to the rates applicable to non-seniors with approximately twice as much income.

Evelyn Jacks is the founder and President of Knowledge Bureau, which brings continuing financial education in the multiple areas of specialization to advisors and their clients. She is the author of 52 books on tax and wealth planning. This article originally appeared in the Knowledge Bureau Report. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com.

Knowledge Bureau’s Income Tax Estimator is a great tool for advisors who want to focus on tax-efficient strategies that can ultimately decrease their clients’ income tax burden that leads to unexpected balances owing subject to interest charges.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.