The Canada Revenue Agency prescribed rate for loans to family members takes effect at 3% tomorrow, Thursday, October 1, for the sixth consecutive quarter, according to Investment Executive. Any prescribed-rate loan made through December 31 locks that 3% for as long as the loan stays in place and each year of interest is paid on time. The rate on overdue tax stays at 7% and the rate on taxable benefits from low-interest employee and shareholder loans stays at 3%, the CRA confirmed in its Q4 announcement.
The rate is set by formula. The prescribed rate is the average three-month Treasury bill yield for the first month of the preceding quarter, rounded up to the next whole percentage point. The July 14 and July 28 auctions both came in at 2.29%, so the fourth quarter rate rounded up to 3%, Investment Executive reported.
What the October Auctions Decide About 2027
The first quarter 2027 rate will come from the October auctions. If the biweekly Tuesday schedule holds, those fall on October 6 and October 20. The most recent auction, on September 22, averaged 2.39%, up from 2.31% on September 8 and 2.22% on March 10, according to YCharts. For the rate to rise to 4%, the October average would have to exceed 3.00%, which is 61 basis points above the September 22 result.
The Bank of Canada decision on October 28 arrives after both auctions, so it cannot feed into that calculation. Overnight index swap pricing implied a 59% probability of a 15 basis point hike on that date as of September 25, according to BlueGamma, from a policy rate of 2.25%. On that arithmetic, HDQ expects the 3% rate to persist into the first quarter of 2027, though that is an inference from the formula and not a CRA statement. Investment Executive expects the next announcement in late November.
The prescribed rate has held at 3% for six quarters, a level last seen in the fourth quarter of 2022 before the run that took it to 6% in the first two quarters of 2024.
The series is the base rate used for prescribed-rate loans and taxable benefit calculations. Each quarter rate is set from the average three-month Treasury bill yield in the first month of the preceding quarter, rounded up to the next whole percentage point.
The Loan Arithmetic Turns on the Spread Above 3%
In a prescribed-rate loan, a higher-income spouse or a family trust lends to a lower-income family member at the prescribed rate in effect on the day the loan is made. The borrower invests in a non-registered account and pays the interest to the lender each year. Investment income above the interest cost is taxed in the hands of the borrower, not the lender. The lender reports the interest as income and the borrower deducts it.
The Government of Canada 10-year yield stood at 3.99% on September 29, up 26 basis points over a month, according to Trading Economics. On a $500,000 loan, 3% interest is $15,000 a year and a 3.99% bond yields $19,950, leaving $4,950 of income taxed at the rate of the borrower. At a 20 percentage point gap between the two marginal rates, that shifts about $990 a year in tax, HDQ arithmetic for illustration only. The strategy only pays if the portfolio earns more than 3%, and the borrower owes the full $15,000 of interest in any year it does not.
Registered Room Comes Before the Loan
The 2026 TFSA limit is $7,000 and cumulative room reaches $109,000 for someone eligible since 2009, according to The Globe and Mail. The 2026 RRSP dollar limit is $33,810, subject to 18% of prior-year earned income. A prescribed-rate loan is a tool for assets beyond registered room, where growth would otherwise be taxed annually in the hands of the higher earner.
The January 30 Payment Falls on a Saturday
For any loan outstanding in 2026, the borrower must pay the interest for that year by January 30, 2027. Missing the deadline means investment income earned on the loan is attributed back to the lender for that year and all subsequent years, Investment Executive reported. January 30, 2027 falls on a Saturday, so HDQ treats Friday, January 29 as the practical deadline. The interest must be paid from funds that belong to the borrower.