The Canada Revenue Agency's prescribed interest rate for family income-splitting loans sits at 3 percent through September 30, the fifth consecutive quarter at that level. For advisors who have discussed a prescribed-rate loan strategy with clients but have not yet executed one, quarter-end is the operative deadline. A loan made before September 30 locks in 3 percent for the entire life of the loan, regardless of where the rate moves afterward.
The mechanism is what makes the deadline matter. Once a prescribed-rate loan is put in place, the rate charged on that specific loan never changes, even if the CRA's quarterly rate rises in every subsequent quarter. A client who lends to a lower-income spouse or to a family trust for minor children at 3 percent today keeps that 3 percent rate indefinitely, as long as the loan terms are respected.
How the Structure Actually Works
A prescribed-rate loan is a non-registered strategy, distinct from RRSP or TFSA contribution planning. A higher-income spouse or parent lends funds directly to a lower-income spouse, common-law partner or family trust, charging interest at no less than the prescribed rate in effect when the loan is made. The borrower invests the funds and reports the investment income and capital gains in their own hands, taxed at their lower marginal rate. The borrower then pays the lender interest at the loan's locked rate, and the lender reports that interest as income.
The strategy works when the after-tax return the borrower earns on the invested funds exceeds the 3 percent carrying cost. At the current rate, that bar is lower than it has been in years outside the past five quarters. The prescribed rate hit 6 percent in the first half of 2024 before easing to 4 percent through the first half of 2025, then to 3 percent starting in the third quarter of 2025, where it has stayed since.
The Deadline Inside the Deadline
The January 30 interest payment deadline is the part of this structure most likely to be missed, and the cost of missing it is severe. Interest owed under the loan for a calendar year must reach the lender by January 30 of the following year. If the borrower misses that date, even by a few days, the CRA's attribution rules pull all of that year's investment income back onto the higher-income spouse's return, and the loan effectively stops functioning as an income-splitting tool going forward. A formal promissory note documenting the principal, rate and payment terms is standard practice specifically to make this deadline unambiguous for both parties.
For incorporated business owner clients, a related but distinct figure moved this quarter. The rate for corporate taxpayers' pertinent loans or indebtedness, used in specific corporate-shareholder loan structures, rose to 6.3 percent for the third quarter, up from 6.2 percent in the second. It is a smaller move, but it is calculated on a different basis than the family prescribed rate and should not be confused with it when reviewing CCPC-related loan structures.
What Sets the Fourth-Quarter Number
The prescribed rate is recalculated quarterly from the average yield on three-month Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point. That means the rate taking effect October 1 is being determined by T-bill yields during July, the month now in progress.
As of the most recent reading, three-month T-bill yields sat near 2.25 percent, comfortably inside the band that keeps the rounded rate at 3 percent for a sixth straight quarter. But Tuesday's renewed escalation in the Strait of Hormuz, and the jump it produced in longer-duration Canadian bond yields, is a live reminder that the input feeding October's number is being set in real time. A short-term T-bill is less sensitive to a single day's geopolitical headline than a five or ten-year bond, but it is not insulated from a sustained repricing of inflation expectations if the energy shock proves durable rather than transitory.
The rate's five-quarter run below its 2024 peak is the context that makes this window worth acting on before it closes, rather than a certainty about where it goes next.
The reference line marks the 6% rate in effect through the first half of 2024, the most recent peak before the current five-quarter run at 3%. The fourth-quarter 2026 rate has not yet been announced.
None of this is a recommendation to lend a specific amount or to fund the loan with any particular investment. The math depends entirely on the borrower's expected after-tax return relative to the 3 percent carrying cost, and on whether the family's income split actually produces a lower combined tax bill once the lender's interest income is counted. That calculation belongs to each client's individual circumstances, not to a general rule.