Photo of Robert WorthingtonAdam HoffmanBy Robert Worthington and Adam HoffmanSeptember 12 2013
Tax Law

CRA’s Prescribed Interest Rate Expected to Rise in Q4

A variety of different tax and estate planning strategies use the prescribed interest rate under the Income Tax Regulations. For example, discretionary family trusts may be capitalized with prescribed rate loans. This strategy, often recommended by sophisticated financial advisors, can facilitate income splitting by taking advantage of lower income family members’ marginal tax rates. The tax savings can be substantial.

For the past several years the rate has been 1% but it is expected to rise to 2% in Q4.  While neither rate is particularly onerous, it would be beneficial to complete the implementation of any such strategies currently being contemplated before September 30, 2013 to take advantage of the favourable 1% rate before it increases.

Shea Nerland LLP always strives to convey value in terms business people can understand when discussing tax planning strategies. For example, a prescribed rate loan of $1,000,000 for an income splitting strategy completed now instead of next month will benefit by an additional Net Present Value of approximately a $38,000 (discounted at 8%) or an Internal Rate of Return on the fees of approximately 156%.

Invitation for Discussion:

If you would like to discuss any tax or estate planning matter, please do not hesitate to contact one of the lawyers in the Tax & Estate Planning group at Shea Nerland LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Related Insights

  • Be Aware of the Competition Act When Making Acquisitions
  • This Is Why We Are Careful With Your Money
  • Tax Dispute Resolution: Monthly Review
  • Finance Revisions to Income Sprinkling Proposals Not Likely to Limit the Risk of Increased Tax Disputes
  • Enforcing a Settlement Agreement
  • Early Warning Reports - When Do I Need to File?
  • The Elements of a Partnership
  • Will the Senate stop Liberals’ tax changes?