The CRA prescribed interest rate is 3% for the fourth quarter, which began today. It is the sixth consecutive quarter at that level and half the 6% peak of the first half of 2024. The rate on overdue taxes stays at 7%, and the rate on refunds to non-corporate taxpayers is 5%. For households using a prescribed rate loan to move investment income to a lower-bracket spouse or a family trust, the 3% is the figure that matters, because it is fixed for the life of the loan on the day the loan is made.
The rate follows a formula: the average yield on 90-day Government of Canada Treasury bills in the first month of the preceding quarter, rounded up to the next whole percentage point. July auctions averaged 2.29%, which produced the 3%, according to Investment Executive.
What the October Auctions Decide
The first quarter of 2027 will be set by the October T-bill average. The three-month yield stood at 2.40% on September 29, up 0.12 percentage points over the month, according to Trading Economics. For the rate to move to 4%, October auctions would need to average above 3.00%, a rise of more than 60 basis points.
A seventh quarter at 3% is the likelier outcome, but the direction of policy is upward. The Federal Reserve raised its range to 3.75% to 4.00% on September 16, and the Bank of Canada announces its next decision on October 28 with its policy rate at 2.25%. A fall to 2% would require T-bill yields below 2.00%, which is 40 basis points under today. The risk to the 3% window is asymmetric.
The prescribed rate rose from 1% in early 2022 to 6% in the first half of 2024 and has since stepped down to 3%, where it has stayed for six quarters. The history shows how much the date a loan is made matters.
The rate is the average 90-day Government of Canada Treasury bill yield in the first month of the preceding quarter, rounded up to the next whole percentage point. The overdue tax rate is set four points above it, at 7% for Q4 2026.
The Arithmetic of the Spread
Consider a spouse in the 29% federal bracket, which covers income from $181,440 to $258,482, lending $500,000 at 3% to a spouse in the 14% federal bracket, which covers income up to $58,523. The borrower invests the money in a non-registered account and pays $15,000 of interest by January 30. The lender reports that interest as income and the borrower deducts it.
Only the return above 3% moves between the two tax returns. Each percentage point of portfolio return above the rate shifts $5,000 of income to the lower bracket, worth $750 a year in federal tax at a 15 point differential, before provincial tax. A portfolio returning less than 3% produces no advantage, which is why a loan made at 6% in early 2024 carries a hurdle twice as high.
Registered Accounts Come First
The strategy applies to non-registered money. The TFSA limit is $7,000 for 2026, with cumulative room of $109,000 for someone eligible since 2009, and growth inside the account is tax-free without any loan. The RRSP dollar limit is $33,810 for 2026 and rises to $35,390 for 2027, according to the CRA. Households with unused room in either account have a simpler route to the same shelter, and a prescribed rate loan adds a compliance step that registered accounts do not.
Corporate shareholder loans fall under different rules and are outside this strategy, which is built for individuals and family trusts.
Two Dates and One Trap
December 31 is the last day of the quarter in which the 3% is certain. January 30, 2027 is the deadline to pay the first year of interest in full, and it recurs every January 30 for the life of the loan. If the interest is not paid in full by that date in any year, the attribution rules apply for that year and every later year, and the income splitting is lost.
Loans made from the first quarter of 2023 through the second quarter of 2025 carry rates of 4% to 6% for as long as they run. Households holding them can compare the existing rate with 3%, though repaying and re-lending requires moving assets, and that can realize capital gains.