The Canada Revenue Agency confirmed this month that the prescribed rate for family loans will hold at 3% for the third quarter of 2026, running July 1 through September 30. That makes five consecutive quarters at 3%, the longest stretch at this level since the rate first climbed off its pandemic-era floor of 1% in 2022. For any family or trust using a prescribed-rate loan to split investment income, that stability has been the whole point. It may not last.
The rate the CRA charges on overdue taxes, always four percentage points above the prescribed rate, stays at 7% for the same quarter. Neither number moved from Q2. But the mechanism that sets where the rate goes next is already in motion, and it now intersects with a Bank of Canada that has explicitly refused to rule out a hike.
What Actually Locks In at 3%
A prescribed-rate loan strategy works by lending money, typically from a higher-income spouse, parent or family trust settlor, to a lower-income family member or a family trust, at the CRA's prescribed rate. The borrower invests the funds and pays tax on the resulting income at their own, lower bracket. Under Income Tax Regulations section 4301, the borrower must pay the interest owed within 30 days of each calendar year end or the strategy unwinds, with investment income attributed back to the lender.
The detail that makes timing matter is that the rate locks in for the life of the loan. A loan made this quarter at 3% stays at 3% for as long as the loan is outstanding, even if the CRA's prescribed rate climbs to 4% or higher afterward. Families who locked in during the 2020 to 2022 window, when the rate sat at 1%, are still paying 1% today.
The Auctions That Set the Next Rate Are Happening Now
The prescribed rate is calculated from the average yield of three-month Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point. The 3% rate now in effect was set from April auctions that averaged 2.305%. The rate that will apply to the quarter beginning in October is being set from auctions running through July, the month underway right now.
The three-month T-bill yield sat at 2.25% as of the middle of this month. On its own, that level would round up to the same 3% again. The relevant question for anyone timing a new loan is not this specific data point but the direction those yields move over the next two weeks of auctions, because a meaningful climb toward and past the 3.00% threshold before the auctions close would push the next rate to 4%.
The prescribed rate's path since 2022 shows a full cycle already, a climb to 6% in early 2024 followed by four straight cuts back down to the 3% level that has now held for a year.
The rate is the average yield of three-month Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point. Source: Canada Revenue Agency.
Why Macklem's Comment Changes the Calculus
The Bank of Canada held its overnight rate at 2.25% on July 15 for a sixth straight meeting. In his press conference, Governor Tiff Macklem said a series of rate hikes remains on the table if elevated oil prices harden into persistent inflation rather than a temporary spike, language he used specifically to describe the risk from the Middle East conflict. Wednesday's close put West Texas Intermediate at $86.95 a barrel, its highest level in more than five weeks, on the eleventh consecutive night of strikes on Iran.
None of this guarantees the prescribed rate moves. Treasury bill yields and the overnight rate are related but distinct, and a single BoC comment is not a forecast. What it does mean is that the quiet, five-quarter stretch at 3% is sitting on a rate environment that the Bank's own governor has declined to call stable. A loan made today locks in the rate that exists today, not the one that may exist once October's auctions and the Bank's September 2 decision are both behind us.