The Rate That Didn't Move
The Canada Revenue Agency confirmed this week that the prescribed rate used for family income splitting loans will stay at 3 percent for the fourth quarter of 2026, running October through December. It is the sixth consecutive quarter at that level, unchanged since the third quarter of 2025. The rate is set from the average yield on Government of Canada three month Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point, and July's auctions came in at 2.29 percent both times, comfortably inside the 3 percent band.
A prescribed rate loan lets a higher income spouse, partner or family member lend money to a lower income family member, or to a family trust, at the CRA's rate. Investment income the borrowed funds earn is taxed in the lower income hand instead of the lender's, provided interest is paid in cash by January 30 of the following year. Once a loan is put in place, the rate locks for the life of the loan regardless of where the prescribed rate moves afterward.
What Moved Instead
While the prescribed rate held flat, the market did not. The Government of Canada 10 year bond yield climbed to 3.75 percent this week, its highest level since May 2024, driven by a Canadian economy that keeps outrunning the Bank of Canada's own forecasts: second quarter GDP grew at an annualized 3.4 percent against the Bank's 2.5 percent expectation, and July employment added 75,100 jobs against a 15,000 estimate, pulling the unemployment rate down to a two year low of 6.4 percent.
The last time the 10 year GoC yield traded near 3.75 percent, in the first half of 2024, the prescribed rate itself sat at its cycle peak of 6 percent. Today the market yield has climbed back toward that level while the prescribed rate remains anchored at 3 percent, a gap of roughly 75 basis points between what a family loan costs under the CRA's rate and what the government itself pays to borrow for a decade.
The prescribed rate fell from a 6 percent cycle peak in early 2024 to 3 percent by the third quarter of 2025 and has held there for six straight quarters. Government of Canada 10 year yields have since climbed back to within a percentage point of that 2024 peak.
The Planning Window This Opens
For an unincorporated family already considering income splitting, the spread argues for locking a loan now rather than waiting. A loan made this quarter carries the 3 percent rate for its entire term regardless of what the prescribed rate does afterward, so the wider the gap between that locked rate and what the family's investable capital could otherwise earn, the more attractive the arrangement becomes. Corporate business owners weighing a loan to a family trust face the same calculus, with the added detail that the corporate pertinent loan rate for related party lending has been drifting upward alongside the same Treasury bill dynamics, currently well above the personal prescribed rate.
The mechanics still require discipline. Interest on a loan made this quarter must be paid in cash by January 30, 2027, or the attribution rules apply retroactively and for every subsequent year, eliminating the benefit entirely. RRSP and TFSA account holders should note that a prescribed rate loan strategy operates entirely in non registered space, since registered accounts do not accept third party loan contributions.
A Second Record High Worth Reviewing
The TSX Composite's fourth consecutive record close this week is a separate but related planning prompt. Clients holding appreciated non registered securities, particularly in names that have run furthest during this year's rally, can donate those securities in kind to a registered charity and eliminate the capital gain entirely while still claiming a donation tax credit on the security's full fair market value. The strategy works only for securities donated directly, not for cash proceeds from a sale, and the timing consideration is the same one that applies to any appreciated position: the larger the accrued gain, the larger the benefit of donating in kind rather than selling and donating cash.