Compliance
Understanding CRA’s New Prescribed Interest Rates and Payroll Deduction Formulas
CRA has released updated interest rates for overdue and overpaid taxes for Q3 2026 and introduced new payroll deduction tables effective July—here’s how individuals and businesses should take heed.
By NomadicTax Research Team • 5-8 min read • August 20, 2026
## What’s new
### Prescribed interest rates (Q3 2026)
From **July 1 to September 30, 2026**, several CRA prescribed rates apply:
- **Overdue taxes, CPP contributions, and EI premiums**: **7%** per annum.
- **Corporate overpayments**: **3%** annually.
- **Non-corporate overpayments**: **5%** annually.
- **Interest-free/low-interest loans benefit**: **3%**.
- **Corporate indebtedness**: **6.30%**. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/prescribed-interest-rates/2026-q3.html?utm_source=openai))
### Payroll Deduction Formulas—Effective July 1, 2026
CRA’s guide **T4127-Jul (123rd Edition)** updates federal and provincial/territorial payroll formulas and claim codes across provinces including British Columbia, PEI, Newfoundland and Labrador. This affects:
- Tax withholding on income, including commissions and bonuses.
- CPP/EI contribution thresholds.
- Federal vs provincial deductions. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4127-payroll-deductions-formulas/t4127-jul/t4127-jul-payroll-deductions-formulas.html?utm_source=openai))
## Why these matter
- **Businesses** will see different withholding requirements starting **mid-2026**, meaning payroll systems must be updated to avoid under/over-deductions.
- **Individuals** who have balances due or over-payments will notice different interest applied—matters more when large refunds or deficits are involved.
- **Low-income and non-corporate taxpayers** overpayments are at a higher rate (5%) than corporate ones.
## Practical implications with examples
- *Example for an individual:* Suppose an individual has an overpayment of $2,000 due to a tax credit mis-application. From July through September 2026, CRA will pay **5%** annualized interest on that overpayment—so roughly \$25 over three months.
- *Example for a corporation:* A corporation with an overpayment gets only **3%**—half of that for non-corporates.
- *Payroll scenario:* A business in BC with employees paid bi-weekly must apply new T4032BC tables for accurate deductions starting pay periods after **July 1, 2026**. Failing to do so may lead to employee under-withholding and potential penalties.
## What you should do now
- **Review payroll software settings** to ensure new formulas, brackets, and claim codes are integrated as of July 1.
- **Communicate changes** to employees especially if withholding will increase or decrease.
- **Monitor CRA statements** if you have large balances due or expect a refund—interest earned or owed will differ.
- **Small business advisors** should flag corporate overpayments vs individual cases, as interest rates differ.
## Final thoughts
Interest rates and payroll formulas matter quietly but significantly. Whether you’re filing taxes, running payroll, or expecting refunds, these mid-2026 updates could affect cash flows, tax owed, and compliance risk. Staying ahead ensures no surprises.