The CRA prescribed interest rate for the fourth quarter of 2026 is 3%, the figure it has carried in every quarter since July 1, 2025, according to the Canada Revenue Agency. The rate for the first quarter of 2027 will be set by October's average 3-month Government of Canada Treasury bill yield, which stood at 2.39% on October 9, according to Trading Economics. Rounded up to the next whole percent, that points to a seventh straight quarter at 3%. It matters because the rate on a prescribed-rate family loan is fixed for the life of that loan.
The window for locking in 3% is open, and the open question is how long it stays that way. The Bank of Canada holds the overnight rate at 2.25% and announces its next decision on October 28. The Federal Reserve raised rates on September 16 for the first time in more than three years. Rates abroad are rising, but this tax rule reads only Canadian bill yields, and those have not moved far.
How the Rate Is Set and Why It Is Sticky
The prescribed rate for a calendar quarter is the average 3-month Treasury bill yield in the first month of the preceding quarter, rounded up to the next whole percent. October's yields therefore set the rate for January through March 2027. At 2.39%, the average would need to rise by more than 61 basis points to push the rate to 4%, or fall to 2.00% or lower to bring it down to 2%. A quarter-point Bank of Canada hike on October 28 would lift the policy rate to 2.50%, still below the 3% line the bill average must cross.
The stepped line shows the rate used for low-interest and family loans in each calendar quarter, and the dashed line marks the 2.39% yield on 3-month Government of Canada Treasury bills on October 9. A loan made in any quarter keeps the rate that applied on the day it was made. Source: Canada Revenue Agency, Trading Economics.
The history shows how much the lock matters. The rate was 4% in the first quarter of 2023, reached 5% in the second quarter, and stood at 6% in the first and second quarters of 2024. It eased to 5% in the second half of 2024, 4% in the first half of 2025, and 3% from July 2025. A loan made in early 2024 still carries 6%, while one made today carries half that.
What the Lock Means in Dollars
Take a hypothetical $500,000 loan from a higher-income spouse to a lower-income spouse who invests the proceeds. At 3%, the required interest is $15,000 a year. At 6%, the same loan requires $30,000. If the investments earned 5%, or $25,000, the $10,000 above the interest cost would be taxed in the borrower's hands, while the lender reports the $15,000 of interest as income and the borrower deducts it. The tax benefit is the return earned above the prescribed rate, so a lower rate widens it.
The conditions are strict. The loan must carry at least the prescribed rate in effect when it is made, and the interest for each year must be paid no later than January 30 of the following year. One missed payment triggers attribution of the income back to the lender for that year and every year after. Older loans at 4% to 6% cannot simply be re-priced. Repaying and re-lending is one route, and it can realize gains on the assets sold to fund the repayment, so it calls for review before any step is taken.
The Cost of Waiting Is Not Symmetric
A household waiting for a lower rate needs the October bill average to fall to 2.00% or less, a drop of 39 basis points in a single month. A household worried about a higher rate needs the average to climb more than 61 basis points. With bills at 2.39% and the policy rate at 2.25%, neither move looks likely in one month, so the first quarter of 2027 most probably prints at 3%. The quarter after that depends on January's average, and that is where the October 28 decision and the Fed's path begin to matter.
The same CRA schedule shows what interest costs elsewhere. Overdue tax carries a 7% rate, compounded daily, and non-corporate taxpayers earn 5% on overpayments. Against those figures, a 3% family loan is inexpensive money, but only for the loan made while the rate holds.