The Canada Revenue Agency confirmed this week that the prescribed rate on family loans will hold at 3 per cent through September, the fifth consecutive quarter at that level. On the same day, the Bank of Canada held its policy rate at 2.25 per cent for a sixth straight decision, and the Government of Canada five-year bond yield that actually prices mortgage renewals closed at 3.15 per cent, up from 3.06 per cent two weeks earlier. Two rates held steady or nearly steady this week, for two very different reasons. One of those reasons is about to run out.
Why the Prescribed Rate Is Lagging the Market
The CRA sets its prescribed rate each quarter using the average yield on 90-day Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point. The rate now in effect for July through September was locked in using April's auctions, both below 2.35 per cent, well before the current escalation in the Strait of Hormuz conflict pushed yields higher across the curve. The prescribed rate is not stale by accident. It is a snapshot of a calmer bond market from three months ago, carried forward into a considerably less calm one.
The Renewal Wall Is Getting Steeper While the Loan Rate Stands Still
The five-year GoC yield has climbed roughly 0.35 to 0.40 percentage points since fighting resumed in early July, according to Mortgage Sandbox's rate tracking, and fixed mortgage pricing has moved with it. Ratehub currently lists the lowest insured five-year fixed rate at 3.94 per cent, a level unlikely to hold if yields stay elevated. Forecasts compiled by nesto ahead of this week's decision estimate that roughly 33 per cent of Canadian mortgage holders will face higher monthly payments by the end of 2026, with about three-quarters of that group holding five-year fixed terms and an average payment increase near 20 per cent at renewal.
The five-year yield and the CRA's family-loan rate started this year close together and have pulled apart sharply since the ceasefire collapsed, a gap that shows clearly when the two are tracked on the same timeline against this week's Bank of Canada decision.
The five-year yield and the prescribed rate sat within eight basis points of each other in early June. The gap has widened to roughly 16 basis points since the ceasefire collapsed, entirely on the yield side.
The Planning Window on the Prescribed Rate Loan
For clients with the means to lend within the family, either directly to a spouse or through a family trust, the math here is specific. A prescribed-rate loan set up before September 30 locks in the 3 per cent rate for the life of the loan, provided the interest is paid by January 30 of the following year, regardless of what happens to the rate afterward. The next quarter's rate, covering October through December, will be calculated from July's Treasury bill auctions, the same auctions currently absorbing the yield pressure from this month's escalation. If that pressure holds, the fourth-quarter prescribed rate has real room to move above 3 per cent for the first time since the final quarter of 2022.
A loan made now to a lower-income spouse or adult child, invested in income-producing assets, still only requires the borrower to pay 3 per cent annually to avoid attribution, with any return above that rate taxed in the lower-income borrower's hands. That spread has held for five straight quarters. It is not guaranteed to hold for a sixth.
What This Means Account by Account
The prescribed-rate loan strategy applies specifically to non-registered assets moved into a lending arrangement. It does nothing for a TFSA, where investment income is already sheltered regardless of who holds the account, and it does nothing for an RRSP, where withdrawals trigger withholding tax and full income inclusion no matter the lending structure built around them. For clients facing renewal shock on a principal residence, the more relevant registered-account lever is a TFSA withdrawal, which carries no tax consequence and no permanent loss of room, against an RRSP withdrawal, which carries both. The order of operations matters: TFSA first for near-term payment relief, prescribed-rate loans for the multi-year income-splitting position, and RRSP withdrawals treated as a last resort given the immediate tax cost.