What Are Prescribed Interest Rates?
Prescribed interest rates are the rates CRA uses in four main contexts:
- Interest charged on overdue taxes, CPP contributions, and EI premiums when you owe CRA.
- Interest paid by CRA on overpayments to corporate and non-corporate taxpayers.
- Rates for calculating taxable benefits from interest-free or low-interest employee/shareholder loans.
- Rates used by corporate taxpayers for interest on certain loans or indebtedness.
CRA sets these quarterly. Knowing them helps with tax planning, cash-flow, and assessing borrowing vs paying early. (canada.ca)
The Current Rates (July 1–September 30, 2026)
| Situation | Rate |
|---|---|
| Charges on overdue taxes / CPP / EI | 7.00% (canada.ca) |
| Overpayments – corporate taxpayers | 3.00% (canada.ca) |
| Overpayments – non-corporate taxpayers | 5.00% (canada.ca) |
| Taxable benefits (employee/shareholder loans) | 3.00% (canada.ca) |
| Corporate loans / indebtedness | 6.30% (canada.ca) |
Why It Matters — Practical Implications
- If you owe CRA, those balances will grow at 7% per annum. If possible, paying sooner reduces interest costs.
- Refunds or credits, whether corporate or personal, will have modest returns — if you can anticipate overpayments, holding off or investing may yield more.
- Employees benefiting from low-interest or interest-free loans: the taxable benefit will be computed using the prescribed rate (3%). High rates can increase taxable income significantly.
- For corporate financing decisions—-borrowing vs distributing capital vs reinvestment—compare cost of debt to what federal deductions and credits offer.
How to Incorporate into Your Tax Planning
- Always model scenarios of paying earlier vs using capital elsewhere; with rates high, the cost of waiting can outweigh other uses.
- Non-corporate individuals anticipating a large refund should confirm if filing early impacts the interest amounts.
- Businesses considering offering low-interest loans internally should carefully compute the accessible benefit to avoid surprises.
- When borrowing, ensure you take account of the current corporate indebtedness rate (6.30%) and deductibility of interest to evaluate real cost.
Example
Suppose Sarah, a sole proprietor, owes $20,000 in taxes at the end of June 2026: she will incur roughly $1,167 in interest over 3 months (calculated as $20,000 × 7.00% × 3/12). If she can pay in June instead, she saves this. Conversely, if she’s expecting a large refund, knowing the overpayment rate (5.00%) helps her decide whether to keep cash in bank longer or pay down liabilities.
Key takeaway: The new prescribed interest rates significantly affect both liability management and refund expectations. Keep these numbers in mind when planning payments, loans, or investments — especially with higher cost of money contexts.