Interest rates will rise in January, guess what?

I understand that you were captivated by my deflowering adventures last summer, so I have another one for you. My introduction to Costco.

I caught covid.

It’s amazing I escaped this time, I’ve always been a prime destination for respiratory viruses. As of 2020, I can claim an average of three colds a year, a number of people who have never encountered me for anything other than congestion.

Since the arrival of COVID-19, Awesome! What’s up! It wasn’t until I woke up on Sunday morning with blocked ears and a slight sore throat that I started to feel invincible. A quick test will show two clear, translucent lines in less than a minute. The obvious result surprised me.

I spent the next two days in bed listening to police investigation podcasts by Stéphane Berthomet (Ohdeolo). I assure you, there is no better pastime while waiting for the immune system to take over a nasty virus than the filmography of Luis de Funes. I could also hear the comforting voice of my colleague Myleene Moisson in a series on the Dupont Affair, a story of hooliganism set in Trois-Rivières in the late 1960s.

If you haven’t had a chance to listen to these podcasts (a monumental task), I sincerely wish I had a tiny microbe to swallow them all.

Despite my horizontal position, I keep looking for news, especially financial updates. When I understood that Eric Girard’s main measure to relieve Quebecers was to index the tax system to 5.08%, I could get back to my detective stories with peace of mind. The readership of Coops de l’information has known all this for more than two weeks. This is not a gift, I remind you. The importance given to this mechanical aspect that I have already explained to you makes everything look beautiful Spin.

Rising rates

Let’s let you and I continue our lead and tackle another one of these somewhat unique subjects that will undoubtedly have a specific impact on Canadian taxpayers: prescribed rates.

“But what again?” I asked this same question several years ago when a tax professional came to me with this, and tax professionals are usually very excited about this.

Specified rates, therefore. It is a set of rates established by the Canada Revenue Agency (CRA) that applies to many aspects of taxation, starting with the interest charged by tax authorities on overdue taxes. It’s usually not very exciting, but this time there was a significant highlight. From January 1 this rate will go up to 10%, which I have never seen. Over the past ten years, it has often fluctuated between 5% and 6%. From the fourth quarter of 2022, it continues to rise.

ARC hasn’t made an official announcement, but we have all the elements in hand to know what awaits us from January. Here, I must thank my friend Daniel Laverdière, a retired actuary from Trois-Rivières, who pointed all this out to me. Fixed rates are revised every quarter. They are based on the average of 90-day Treasury bill rates in the first month of the previous quarter. We take the result and round up to the next whole number. In October (the first month of the quarter) the average in question slightly exceeded 5%, bringing the base policy rate to 6%. For interest on delayed taxes, 4% shall be added to the base rate. That brings us to 10%. (At the regional level, the method of calculation is different, but the result is generally the same.)

I’m not worried about you, I know you pay your taxes on time. I am more concerned about certain self-employed workers who are not up to date with their installment payments. With 10% interest on late payments, it starts to hurt. The same rate applies to overdue GST payments.

If you have to pay 5% interest to the tax authorities, there is always a little room for a certain arbitrage, it is less urgent to pay off your debt in full if the money is better served elsewhere. At 10% interest, we cannot allow this to drag on for long.

I’m talking to you about a “set of rates” and what excites tax professionals is not what we just discussed. They only have it at the basic fixed rate, which applies to loans between spouses with the aim of splitting their income: 6% as of January.

Again, you may not be particularly concerned, as these strategies are useful for most wealthy taxpayers. Let me explain to you anyway, who knows you might become rich one day.

good Let’s assume it goes slowly for you, but not for your partner, who bought the company for a few million dollars and still has a position in managing her SME. Investment income from her salary and the proceeds from the sale of her business takes her to the top of the tax bracket: the marginal rate is 53%.

How can she reduce her tax bill? By lending the million you invest. The returns on these investments are taxed at your lower rate. For the couple, it’s a win. Splitting is any operation whereby a spouse taxed at the higher rate can transfer a portion of their income to the lower taxed spouse.

“Tut-tut-tut!”, says the taxman! In case of interest-free loan or donation, the returns are taxable in the hands of the lender. In order for the division to work, a loan must be taken at a fixed rate. The lender is taxed at 6% of the interest income (this interest is deductible to the spouse). An income splitting strategy is less interesting in these circumstances, but I would suggest that it is most profitable in years when the base rate oscillates between 1% and 2% (ie 10 years most of the time). The greater the gap between the returns on the investment and the loan rate between the spouses, the more profitable it is.

Remember when you’re rich!

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