Six Quarters at the Same Number
The Canada Revenue Agency confirmed this month that the prescribed rate used for income splitting loans, shareholder loans and employee benefit calculations will hold at 3 percent for the fourth quarter of 2026, running October through December. It is the sixth consecutive quarter at that level, a run that began in the third quarter of 2025 after the rate eased down from 4 percent in the first half of that year. The rate is set from 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 mechanism that matters for planning purposes is the lock. A prescribed rate loan made this quarter, or next, carries its rate for the full term of the loan regardless of what happens to short term yields afterward. A loan established at 3 percent in November stays at 3 percent even if the rate that applies to loans made in January is higher. The rate at the moment of the loan is the only one that counts.
Why the Streak Is Not Guaranteed to Continue
The Government of Canada 10 year yield closed at 3.70 percent Tuesday, within a few basis points of the over two year high of 3.72 percent touched on August 10, having climbed roughly 13 basis points over the past month on stronger than expected Canadian manufacturing and labour market data layered on top of energy driven inflation concern tied to the Strait of Hormuz crisis. The prescribed rate itself is calculated from short term Treasury bill yields, not the 10 year, but the two ends of the curve have moved together for most of this year, and a Treasury bill auction that comes in meaningfully above the low twos that produced this quarter's 3 percent reading would round up to 4 percent for the first time since the second quarter of 2025.
The prescribed rate's history over the past eight quarters shows how narrow the current window is against where the rate has recently sat.
The prescribed rate is set quarterly from the average yield on 90 day Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the nearest whole percent. Source: Canada Revenue Agency.
What This Means by Account Type
For a prescribed rate loan to a spouse, common law partner or family trust, interest at the prescribed rate must be paid by January 30 of the following year. Miss that deadline once and the investment income the loan generates gets attributed back to the lender for that year and every year after, not just the year the payment was missed. A loan structured now at 3 percent, with interest properly paid each January, remains the least expensive income splitting tool CRA permits for as long as the loan is outstanding.
For shareholder and employee loans governed by section 80.4 of the Income Tax Act, the calculation runs the other direction. The taxable benefit is the prescribed rate charged on the outstanding balance, less whatever interest the employee or shareholder actually paid. A rate increase in a future quarter raises the benefit only on loans outstanding during that quarter, so an existing low interest loan does not retroactively become more expensive, but any new loan advanced after a rate increase is priced at the higher figure from day one.