Canada Revenue Agency Updates Prescribed Rate for Q4 2013

The Canada Revenue Agency (CRA) has updated the Prescribed Rate of Interest for low-interest loans, effective October 1, 2013, to 2% – up from 1% for the previous quarter (and all the way back to April of 2009).

What does this mean to you? Well, if you’re thinking about getting a Group Employee Mortgage interest subsidy, your employer can subsidize your effective interest rate down to as low as 2% before triggering a taxable benefit. The Financial Post has an article about how this affects family loans among family members. These are now taxable below 2% as are a number of other loans at effective rates below 2%.

This increase to the Prescribed Rate also affects income splitting arrangements.

If you have questions about a Group Mortgage Interest Subsidy for your employees feel free to contact us anytime.

Variety of Tax-Free Benefits for Employees

Recently, the Financial Post featured an article by Tom Nicolopoulos of KPMG in which he wrote about a variety of tax-free benefits that employers can offer their employees.

The author’s focus was on health club memberships and fitness activities that may, or may not, be non-taxable benefits to the employee. As usual with these types of benefits, the key is in the administration of the program and the interpretation of that implementation by the Canada Revenue Agency (CRA). Accountants and tax planners earn large sums of money interpreting the CRA’s rules and obtaining interpretations from the CRA directly.

The author also indicated that the CRA publishes a document called Employers’ Guide Taxable Benefits and Allowances which lists up to 75 benefits. Among them is included loans obtained as a result of employment, which is where Group Employee Mortgages come in.

The CRA publishes certain rules when it comes to employers obtaining or arranging a loan for employees, including whether or not the loan is a taxable benefit or not. I’ve included it below for your reference.

If your company is looking for ways to compensate employees for attraction and retention purposes then consider a group mortgage subsidy from GEM – it may be more effective than bonuses and other forms of compensation and, implemented properly, is a potentially non-taxable benefit that your employees will appreciate greatly.

Employers Guide to Taxable Benefits and Allowances – CRA – Canada Revenue Agency

How does a group mortgage work?

If you’re an employee of a company with a flex benefits plan that offers you something like a health care spending account, then you already have a good idea how a GEM Group Employee Mortgage can work.

Essentially, instead of arranging and paying a mortgage directly with a bank or other financial institution, under a the Group Employee Mortgage plan, your employer would arrange a mortgage for you and also subsidize a portion of the interest you pay as part of the mortgage.

The benefit to you, as the employee, is that you can earn additional funds that are directed towards your biggest expense – your mortgage – while at the same time earning this additional income in a tax-free way (*when implemented properly in compliance with CRA rules).

Your employer builds goodwill with the employees, helps to reduce your overall cost of living while demonstrating that they are a great employer worthy of your loyalty.

GEM can be an extremely tax efficient form of compensation, and a great alternative or even better, supplement, to existing group benefit plans and total rewards compensation programs.

Check out our fun little infographic below for a better idea how it works, and if you have an awesome boss, let them know about GEM – you’ll be glad you did!

group mortgage benefit