The Government pays interest in respect of overpayments of most taxes and other levies. The applicable interest rate for a quarter is equal to the average yield of three-month Government of Canada Treasury Bills sold in the first month of the preceding quarter, rounded up to the nearest percentage point, plus 2 percentage points. The rate applicable to taxpayers in respect of overdue taxes is equal to the same rounded average yield, plus 4 percentage points.
A 2009 Auditor General’s report noted that the Canada Revenue Agency was effectively paying interest in respect of tax overpayments at a higher rate than its own cost of borrowing. In response to this report, Budget 2010 proposes, effective July 1, 2010, to decrease the interest rate payable to corporations in respect of tax overpayments by 2 percentage points. This new rate for corporations will apply in respect of most taxes and other levies, including income tax, GST/HST, employment insurance premiums, Canada Pension Plan contributions, and most excise tax and duty.
Accordingly, Budget 2010 increases the difference between interest payable by the Minister on tax overpayments and interest payable by corporate taxpayers on overdue taxes. The interest rate calculations in respect of non-corporate taxpayers will not change.