The CRA prescribed rate on loans to family members has been 3% for six consecutive quarters, and the data point to a seventh. Each quarter rate is the average yield on three-month Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point. The July auctions yielded 2.29% on July 14 and 2.29% on July 28, which produced the 3% rate for October to December, according to Advisor.ca.
The same arithmetic governs the first quarter of 2027, which will be set from October auctions. The Bank of Canada 90-day bill yield was 2.38% on October 13. A move to 4% requires an October average above 3.00%, which is 62 basis points higher. A move down to 2% requires an average at or below 2.00%, which is 38 basis points lower.
Why October 28 Cannot Close the Gap
The Bank of Canada overnight rate is 2.25% and its next decision is on October 28. Odds of a quarter-point increase fell to about 25% from about 40% after Statistics Canada reported about 68,000 lost jobs in September, according to LSEG data cited by the Financial Post. TD Economics expects a hold, CIBC expects holds at both remaining 2026 meetings, and Capital Economics expects an increase soon to 2.75%, the midpoint of the neutral range. Even the most hawkish of those calls leaves the policy rate below 3.00%.
Three-month bills have barely reacted to the war-driven inflation story. The 90-day yield has stayed between 2.24% and 2.39% since June 1, and it rose only 4 basis points between the Federal Reserve September 16 hike, when it was 2.34%, and October 13. If bills moved one for one with the policy rate, a single 25 basis point increase would supply about 40% of the 62 basis points required, and it would take roughly two and a half such increases to lift October average above 3.00%.
Yields have stayed within 15 basis points of 2.30% through the whole period, and the 3.00% line that would lift the rate sits 62 basis points above the latest reading.
Daily yields are Bank of Canada mid-market quotes, so the July average of 2.26% on this series differs from the 2.29% auction average that set the fourth-quarter rate. The dashed green line marks the 3.00% October average that would lift the first-quarter 2027 rate to 4%.
What a 3% Loan Does and Does Not Do
A prescribed rate loan lets a higher-income spouse or common-law partner, or a family trust, lend money at the prescribed rate in effect on the day the loan is made. The rate stays fixed for the life of the loan as long as the interest is paid each year within 30 days after year-end, which makes January 30, 2027 the deadline for interest on any loan made in 2026. If a payment is late, investment income earned with the borrowed money is attributed back to the lender for that year and every later year, according to Advisor.ca.
The structure works in taxable accounts held by the lower-income spouse or a family trust. On a $500,000 loan, annual interest at 3% is $15,000, which is income to the lender and deductible to the borrower when the money is invested to earn income, so the borrower portfolio has to earn more than 3% for the structure to produce a spread. Registered accounts follow their own rules and sit outside it. The 2026 TFSA limit is $7,000, according to CRA figures reported by the Globe and Mail.
Three Dates and Four Client Segments
Three dates matter. October 28 is when both the Federal Reserve and the Bank of Canada announce decisions. December 31 is the last day a loan is certain to keep 3%, because a loan made in 2027 takes the first-quarter rate. January 30, 2027 is the interest deadline for loans made in 2026.
Clients segment cleanly. Couples with one spouse in a high bracket and one with little taxable income are the core case. Families with an existing trust add a distribution decision. Clients who already hold a prescribed rate loan have a payment to make, not a rate to watch. Retirees already splitting eligible pension income start from a different baseline, so the incremental gain is smaller.