The Canada Revenue Agency confirmed this week that the prescribed rate will remain at 3% for the fourth quarter of 2026, the sixth consecutive quarter at that level. The rate is calculated from the average yield of three month Government of Canada Treasury Bills auctioned in the first month of the preceding quarter. The July 14 and July 28 auctions both came in at 2.29%, rounding up to the 3% rate that takes effect October 1.
The rate applies most directly to prescribed rate loans, a structure used to split investment income with a spouse, common law partner, or other family member. A loan can also be made to a family trust, which then distributes income to beneficiaries in lower tax brackets. The lower the rate, the more attractive the arithmetic behind the strategy.
The Rate Locks In. The Payment Deadline Does Not
Once a prescribed rate loan is established, the rate applying to that loan is fixed for its entire term, regardless of where the prescribed rate moves in future quarters. A loan made this quarter at 3% stays at 3% even if the rate climbs to 5% by 2028. That permanence is the main appeal of the strategy and the reason advisors have been recommending origination during the six quarter run at 3%.
The part of the strategy that does not take care of itself is the annual interest payment. The borrowing family member must pay interest to the lender by January 30 of the following year, calculated at the rate locked in when the loan began. Miss that date and the CRA's attribution rules apply retroactively: investment income earned on the loaned funds is attributed back to the lender for the year the payment was missed and for every year after, unwinding the income split permanently, not just for the year in question.
The prescribed rate has fallen steadily since its 2024 peak and has now sat at the floor of its recent range for six straight quarters, a stretch of stability that is itself part of the planning case.
The prescribed rate peaked at 6% in the first half of 2024 and has held at 3% since the third quarter of 2025. The July 2026 Treasury Bill auction confirmed the rate stays at 3% through year end.
Why the Spread Matters More With Markets Where They Are
The Government of Canada 5 year bond yield closed at 3.18% on August 5, barely above the 3% prescribed rate itself. That comparison understates the case for the strategy. The relevant comparison for a family member investing borrowed funds is not the risk free rate, it is the return the invested funds are expected to generate. The S&P/TSX Composite is up 29.46% over the past 12 months, and even a materially more conservative balanced portfolio has outrun a 3% borrowing cost for most of 2026. A wider gap between the loan rate and expected investment return does not reduce the risk of the underlying investments, but it does widen the after tax benefit of the structure when the strategy performs as intended.
The Corporate Comparison
Corporate structures see a different number. The pertinent loan or indebtedness rate, which applies to certain loans between a Canadian corporation and its non-resident parent, is set separately from the personal prescribed rate and stood at 6.36% in the first quarter of 2026, more than double the personal rate. Interest on overdue tax owed to the CRA, which is set four percentage points above the prescribed rate, remains at 7% for the fourth quarter, matching where it has held since the third quarter of 2025.