Managing increasing prescribed interest rates on tax reassessments

ARTICLE | March 24, 2023

Authored by RSM Canada

With rampant inflation and growing interest rates, Canadians everywhere are bracing for a looming recession. The interest rates applicable for tax planning in Canada have been increasing as well, leaving many tax decisions that once made sense to now being much tougher to manage economically. Interest rates applicable for tax planning refer to the prescribed interest rates, which are computed quarterly and published online by the Canada Revenue Agency (CRA).

The prescribed interest rates have been on a rapid trajectory upwards during the past year despite historical lows for the previous 10 years. In fact, starting April 1, 2023, it will be the fourth consecutive quarter of prescribed interest rate increases. Tax decision making that once relied on historically low prescribed interest rates should now be scrutinized in light of these inflationary times.

This series of two articles will explore two key considerations on how increasing prescribed interest rates can affect the middle market. This first article is going to dive into an example of how the prescribed interest rate increases can affect income tax reassessments. The second article will investigate the impact of increasing prescribed interest rates on certain loans. You can find the second article here.

Overdue taxes on reassessments

Within a certain limitation period, taxpayers can be subsequently reassessed on taxation years that have already been assessed. If not otherwise prompted by the taxpayer, this means that the CRA has made some sort of change to the taxpayer’s tax return for that year. This could be for a multitude of reasons and can either reduce or increase the taxes owing for that given taxation year. One common reason that tax returns are reassessed are due to tax audits where the CRA increases taxable income and resulting taxes owing, whether as a result of unreported income, the denial of a deduction, or many other reasons.

Interest rates are important for reassessments because an increase in taxes owing is oftentimes accompanied with interest charges. Interest is charged based on the prevailing prescribed interest rate for each quarter since the tax owing was due.

Assume an individual had an increase to their 2019 taxable income due to a CRA audit. The taxpayer engaged a dispute specialist to assist with negotiations. The taxpayer is confident in their tax position and opted not to pay the alleged outstanding amount, expecting it to be reversed in full on conclusion of the audit. The additional tax owing per the tax reassessment is $100,000.

Prescribed interest
rate remained
at 5% during
2022 and 2023

Prescribed interest
rates as currently


Approximate interest owing – 2020




Approximate interest owing – 2021




Approximate interest owing – 2022




Approximate interest owing – 2023
(assuming Q3 and Q4 interest rate = 9%)




Total approximate interest owing by end of 2023




This example shows that the risk (cost) of not promptly paying the taxes per the disputed reassessment has gone up considerably. Consideration should be given as to whether it now makes sense to pay any outstanding disputed reassessments to limit this interest risk going forward.

The take-away

Managing tax reassessments and interest therein is mostly a cost-benefit analysis. It is important to weigh expectations of a dispute result against any avoidable costs, such as interest.

Let's Talk!

Call us at (519) 426-5160 (Simcoe) or (519) 842-4246 (Tillsonburg) or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Daniel Mahne and originally appeared on Mar 24, 2023 RSM Canada, and is available online at

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.

Good Redden Klosler a proud member of the RSM Canada Alliance, a premier affiliation of independent accounting and consulting firms across North America. RSM Canada Alliance provides our firm with access to resources of RSM, the leading provider of audit, tax and consulting services focused on the middle market. RSM Canada LLP is a licensed CPA firm and the Canadian member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM Canada Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Good Redden Klosler can assist you, please call us at (519) 426-5160 (Simcoe) or (519) 842-4246 (Tillsonburg).

Share This