The Canada Revenue Agency confirmed the prescribed interest rate will hold at 3 percent for the fourth quarter of 2026, the sixth consecutive quarter at that level. The rate is set from the average yield on Government of Canada three-month Treasury Bills auctioned in July, rounded up to the next whole percentage point under section 4301 of the Income Tax Regulations.
For advisors running prescribed rate loan strategies with clients, the confirmation extends a planning window that has now been open longer than at any point since the 1 percent era of 2009 through 2021. A loan established at 3 percent today keeps that rate for its full term even if the prescribed rate climbs back toward the 6 percent peak it hit in late 2023 and early 2024.
The RRSP and Trust Angle Most Advisors Are Missing
A prescribed rate loan strategy works by having a higher-income spouse or common-law partner lend funds to a lower-income partner, an adult child, or a family trust at the CRA's prescribed rate. The borrower invests the funds, and any income earned above the interest cost is taxed in the lower-income hands. Where minor children are involved, the loan typically runs through a family trust rather than directly to the child, since a direct loan to a minor does not avoid the attribution rules the same way.
The mechanism only works if the interest is actually paid, in cash, by January 30 of the following year. A client who misses that deadline on even one occasion loses the exemption from attribution permanently, not just for the year in question. This is the single most common execution failure in an otherwise sound structure, and it is worth confirming directly with any client who set up a loan in a prior year rather than assuming the payment happened on schedule.
Why the Window May Not Stay Open Through 2027
The prescribed rate is anchored to short-term Treasury Bill yields, which have stayed calm even as the long end of the Canadian curve has moved. The Canada 10-year bond yield closed at 3.74 percent this week, its highest level since May 2024, driven by the same fiscal and inflation concerns that pushed the US 30-year Treasury yield to a 19-year high before the US Treasury's debt buyback intervention. Short-term Treasury Bill yields have not yet followed the long end higher to the same degree, which is exactly why the prescribed rate has been able to hold at 3 percent for six straight quarters.
That gap between short and long yields is not guaranteed to persist. If the pressure pushing long-term Canadian yields higher spreads into the short end of the curve over the next several months, the Treasury Bill yields that determine the Q1 2027 prescribed rate, calculated from October's auctions, could come in higher than the current 3 percent. Clients considering a prescribed rate loan for income splitting purposes have a real incentive to establish the loan before year-end rather than waiting for the new year, since the rate that applies is the one in effect at the time the loan is made, not the rate in effect when the strategy is finally implemented.
The CCPC and Corporate Attribution Angle
The prescribed rate also governs the corporate attribution rules for loans between related corporations and shareholders, and the pertinent loan or indebtedness rate that applies to certain cross-border corporate arrangements is set separately and currently runs well above the base prescribed rate. For clients who hold assets inside a Canadian-controlled private corporation and are weighing a shareholder loan structure against a direct prescribed rate loan to a spouse or trust, the base 3 percent rate remains the more favourable of the two mechanisms, and that gap is unlikely to close before year-end.
The prescribed rate is calculated 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. It peaked at 6 percent in late 2023 and early 2024.