The Canada Revenue Agency confirmed Friday that the prescribed rate on loans between family members will hold at 3% for the fourth calendar quarter of 2026, running October 1 through December 31. It is the sixth consecutive quarter at that level. The rate charged on overdue tax stays at 7%, and the rate for corporate taxpayers' pertinent loans or indebtedness eased slightly to 6.29% from 6.30% the prior quarter.
On its own, a sixth flat quarter reads as a non-event. What has changed is what sits next to it. Government of Canada 10-year yields closed at 3.73% on Monday, within a few basis points of the more than two-year high touched in late August, driven by the reignited Canada-US trade dispute and renewed Strait of Hormuz risk. The prescribed rate is not indexed to that yield directly, but the two have historically moved in the same direction over multi-quarter stretches, and the gap between them is now wider than at any point since the rate first settled at 3% in the third quarter of 2025.
Why 3% Will Not Last Indefinitely
Section 4301 of the Income Tax Regulations sets the prescribed rate 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. The rate now in effect for Q4 2026 was set from July's auctions. The rate for the first quarter of 2027, the one that actually matters for anyone weighing a new loan, will be set from October's auctions instead, and those are the auctions running directly through the current window of elevated yields.
Three-month T-bill yields do not move in lockstep with the 10-year, but the same inflation and trade-risk pressure pushing the long end higher has been visible at the short end since the capital gains and tariff-driven yield moves of late August. A prescribed rate that has sat at 3% since mid-2025 has not had to clear a 3.5% average T-bill yield to round up to 4%. This is the first quarter since that reset where the setup makes clearing it plausible rather than remote.
What Locks and What Does Not
A prescribed-rate loan carries the rate in effect on the day it is advanced for the life of the loan, regardless of what happens to the rate afterward, as long as the borrower pays interest annually and settles each year's interest within 30 days of that year-end. Miss the 30-day window even once and the CRA attributes all investment income on the loan back to the lender for that year and every year after. The mechanic rewards advancing capital before a rate reset, not after one.
This applies across the three structures that use the prescribed rate for income splitting: a direct loan to a lower-income spouse or common-law partner, a loan to a family trust that distributes income to beneficiaries in lower brackets, including minor children, and the corporate PLOI rate for CCPCs with related non-resident shareholders. Each locks in separately at the rate prevailing when that specific loan is advanced. A family that has been sitting on a planned income-splitting strategy has a live reason to move before December 31 rather than into the new year.
The prescribed rate dropped from 4% to 3% in the third quarter of 2025 and has held there for six consecutive quarters. Q1 2027 will be the first quarter set from auction yields recorded during the current trade and Middle East risk premium.
The rate's six-quarter plateau has made the prescribed-rate loan strategy easy to defer. Nothing about the rate itself was creating urgency. What has changed is the input to the next quarter's calculation, not the current quarter's number, and that distinction is the entire planning window.
What This Does Not Change
The prescribed rate reset has no bearing on the capital gains inclusion rate, which remains at 50% following the cancellation of the proposed two-thirds increase, or on the Lifetime Capital Gains Exemption, indexed to $1,275,000 for 2026. Those remain separate planning tracks. The prescribed-rate question is narrower and more time-sensitive: whether a loan gets advanced under the current 3% rate or a higher one that has not yet been set but is more likely than it has been in over a year.