Instalment reminder and prescribed rate loans

June 15 Instalment Reminder

Please ensure you pay your personal income tax instalments no later than June 15 if you are required to make instalment payments.

Prescribed Rate Loans

The interest rate on prescribed rate loans will increase from 1% to 2% effective July 1, 2022. Prescribed rate loans can be a highly effective tax planning strategy to reduce your family’s combined tax bill and you can maximize your tax savings if the 1% interest rate is locked in no later than June 30, 2022.

Prescribed rate loans are a common tax planning strategy to split income with a spouse or another eligible individual in a lower tax bracket. A loan can be made to this family member for investment purposes which allows them to report the investment income on their income tax return. This will result in lower income taxes payable than if the income were reported on the return of the higher income individual.

Investment income earned from loaned funds from a family member is generally attributed back to the lender. However, these attribution rules do not apply if interest is charged at the prescribed rate and the interest is paid no later than 30 days after the end of the year. Each year, the lender must report the interest income on their income tax return while the borrower can claim a deduction for the interest paid. The strategy is beneficial as long as the investment income earned from the loaned funds exceeds the 1% prescribed rate.

A written agreement should be in place prior to July 1 which clearly states the prescribed rate and the effective date of the loan. The 1% prescribed rate will remain in effect throughout the term of the loan.

Please contact us if you would like to discuss any of the above further and we would be happy to assist you.

NOTE:  Please understand that any posts written in the past may not be reflective of the current applicable obligations, rights and benefits.