The Canada Revenue Agency has held the prescribed rate on loans to family members at 3% for the fourth quarter of 2026, the sixth consecutive quarter at that level. A prescribed rate loan made by December 31 carries 3% for its full life, and the first interest payment on a loan made this quarter is due January 30, 2027.
The window matters because the rate has halved. It stood at 6% in the first and second quarters of 2024, eased to 5%, then 4%, and has been 3% since the third quarter of 2025. On a $500,000 loan, annual interest owed to the lender has fallen from $30,000 at the peak to $15,000 today.
How the Prescribed Rate Loan Works for Income Splitting
A higher-income spouse or common-law partner lends money at the prescribed rate to a lower-income partner, who invests it in a non-registered account. If the borrower pays interest at no less than the prescribed rate by January 30 of the following year, every year, the attribution rules do not apply, and investment income above the interest cost is taxed in the lower-income partner hands. Missing a single January 30 payment switches attribution back on for that year and every year after it.
The structure applies to non-registered accounts only. Loan proceeds placed in a TFSA, RRSP or FHSA add nothing, because income inside those accounts is already sheltered from current tax. The borrower deducts the interest as the cost of earning investment income, and the lender reports it as interest income.
At 3%, a $500,000 loan costs the borrower $15,000 a year. A portfolio earning 5% generates $25,000, so $10,000 a year of income above the interest cost is taxed at the lower-income partner rate. The breakeven is the prescribed rate itself: any return below 3% leaves the borrower paying interest on income that did not arrive.
The prescribed rate climbed from 1% in the first half of 2022 to a 6% peak in early 2024 and has now held at 3% for six quarters, a level last seen in the fourth quarter of 2022.
The rate resets each quarter from the average three-month Treasury bill yield in the first month of the preceding quarter, rounded up to the next whole percentage point. Source: Canada Revenue Agency.
Why the Q1 2027 Rate Depends on October
The rate resets 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 Q1 2027 rate therefore depends on the October 2026 average, and the CRA announces it in December. The three-month Government of Canada yield was 2.30% on September 3, against a Bank of Canada policy rate of 2.25% that was held again at the September 2 decision.
The October average would have to exceed 3% to lift the rate to 4%. The Bank of Canada decides on October 28, inside the averaging month, but even a surprise hike that day would affect only the last three business days of October. Statistics Canada reported on October 9 that Canada lost 68,300 jobs in September, which leaves the central bank with a weak labour market to weigh against energy-driven price pressure.
The Planning Bridge: What Closes Before December 31
The asymmetry favours acting this quarter. If the Q1 2027 rate stays at 3%, a loan made now loses nothing by being made now. If it moves to 4%, the loan made in Q4 keeps 3% while a later loan pays 4%.
The mechanics are checkable. For couples with unused TFSA and RRSP room, that room fills first, since the 2026 TFSA limit is $7,000 and the RRSP limit is the lesser of $33,810 or 18% of the previous year earned income. A prescribed rate loan is then the tool for non-registered assets beyond that room, where the higher-income partner is taxed at a higher marginal rate on interest, dividends and gains.
Four items complete the file before year-end: a written loan agreement at no less than 3%, funds transferred to the borrower in a documented way, investments held in the borrower name only, and a calendar entry for the interest payment due January 30, 2027.