The Canada Revenue Agency confirmed Tuesday the prescribed annual interest rate for Q3 2026: 3%, unchanged from the previous four quarters, effective July 1 through September 30. The rate is calculated from Government of Canada 90-day Treasury Bill yields in April and rounds up to the nearest whole percentage. The continued hold at 3% extends what has become, by historical standards, a notably durable window for prescribed rate loan strategies.
The prescribed rate peaked at 6% in the first half of 2024. It dropped to 3% in Q3 2025 and has remained there. Before the current run, 3% had not been seen since Q4 2022. The five-quarter persistence at this level is not a guarantee of further stability. Government of Canada 3-month T-bill yields have been drifting modestly higher in 2026, and the Bank of Canada's April 29 statement left the door open to rate increases if energy-driven inflation proves more persistent than the base case projects. A Q4 2026 rate of 4% is a realistic scenario, not a distant tail risk.
How the Strategy Works and Why 3% Matters
A prescribed rate loan is an income-splitting arrangement in which a higher-income spouse lends capital to a lower-income spouse at the CRA's prescribed rate. The borrowing spouse invests the funds, earns investment income, and pays tax on that income at their lower marginal rate. The lender reports the interest received as income but, at 3%, the interest cost is low enough that the after-tax benefit of shifting investment income to the lower-income spouse is meaningful in most high-marginal-rate households.
The planning math is straightforward. Assume a $500,000 loan at 3%: the annual interest payment is $15,000. If the portfolio earns a 6% return, the lower-income spouse reports $30,000 in investment income. If the borrowing spouse is taxed at 33% rather than 53% (the approximate Ontario difference between middle and top marginal brackets), the household saves approximately $6,000 per year in federal and provincial combined income tax. That saving accumulates tax-free to the extent the invested capital is held inside a TFSA, or tax-deferred inside an RRSP.
The chart above shows the prescribed rate history from 2022 through Q3 2026, illustrating the cycle from the historic 1% floor through the 6% peak and back to the current 3% level, with the projected breakeven zone for the strategy at different rate levels.
The prescribed rate peaked at 6% across three consecutive quarters in 2023 and early 2024, rendering the prescribed rate loan strategy uneconomic for most households. The return to 3% in Q3 2025 restored the strategy window. Green bars represent quarters where the rate enables a favourable break-even for a moderately invested portfolio.
The Lock-In Feature and Why Q4 Is the Relevant Deadline
The most consequential feature of prescribed rate loans is the lock-in: a loan established at the rate in effect on the day it is signed carries that rate for the life of the arrangement. If the prescribed rate rises to 4% in Q4 2026, loans established before October 1 continue at 3%. Loans established on or after October 1 must charge 4%.
At 3%, a $500,000 loan requires $15,000 in annual interest to maintain compliance with the attribution rules. At 4%, the same loan requires $20,000. The additional $5,000 in annual interest is deductible to the borrowing spouse, but it reduces the net household benefit of the strategy by a meaningful margin, particularly in years when the portfolio return is modest. At the current Bank of Canada overnight rate of 2.25% and with BoC language explicitly acknowledging that rate hikes remain possible if energy prices produce persistent inflation, assuming Q3 will be the last quarter at 3% is not a conservative planning posture.
Which Client Profiles Benefit and Which Accounts Are Involved
Prescribed rate loans are most valuable when three conditions are met: a material income gap exists between spouses, sufficient non-registered capital is available in the higher-income spouse's name to fund the loan, and the borrowing spouse has the capacity to manage an investment portfolio that earns a return meaningfully above 3%.
Account-type specificity matters here. The loan proceeds invested inside the borrowing spouse's TFSA generate tax-free investment income, which means the interest paid to the lender represents the only tax cost to the household -- and the interest is deductible by the borrower. This is the most tax-efficient version of the strategy. The loan proceeds invested in a non-registered account generate investment income taxed in the borrowing spouse's hands at their marginal rate, net of the interest deduction. Loan proceeds cannot be directed into an RRSP directly, as the contribution must come from the borrower's earned income, not from loan capital. A family trust as the borrowing vehicle adds complexity but allows a single loan to split income across multiple lower-income family members, including adult children.