The Canada Revenue Agency set the prescribed interest rate at 3% for October 1 to December 31, the sixth quarter in a row at that level. A prescribed rate loan made this quarter fixes 3% for as long as the loan stays outstanding, and the interest for 2026 must be paid by January 30, 2027.
The rate is the average yield on three-month Government of Canada Treasury bills in the first month of the preceding quarter, rounded up to the next whole percentage point. The three-month bill yielded 2.40% on October 14, according to Trading Economics, and the October average will set the rate for the first quarter of 2027.
The CRA announced the fourth quarter rate on August 28. Before the third quarter of 2025, the rate had not been this low since the fourth quarter of 2022, Investment Executive reported.
The prescribed rate climbed from 1% to 6% between early 2022 and early 2024 and has since returned to 3%, a level it has held for six consecutive quarters.
A prescribed rate loan keeps the rate in force on the day the loan is made. The rate is set from the average three-month Government of Canada T-bill yield in the first month of the preceding quarter, rounded up to the next whole percentage point.
How a Prescribed Rate Loan Locks In the Rate
A prescribed rate loan moves investment capital from a higher-income spouse, or a family trust, to a lower-income family member at the CRA rate in force on the day the loan is made. The borrower invests the money in a non-registered account. The investment income is taxed to the borrower, and the lender reports the loan interest as income.
Without the loan, the attribution rules in the Income Tax Act return that income to the lender. The prescribed rate exception removes the attribution if interest at the prescribed rate or higher is paid every year. The rate that applies is the one in force when the loan is made, and it stays fixed while the loan is outstanding.
On a $500,000 loan, the annual interest cost is $15,000 at 3%, $30,000 for a loan made at the 6% rate of early 2024, and $5,000 for a loan made at the 1% rate of early 2022. The portfolio has to earn more than the loan rate for the borrower to end up ahead, so the hurdle for a new loan is half the hurdle for a loan made at the 2024 peak.
The January 30 Deadline Is Where Structures Fail
The exception holds only if the borrower pays the interest for each calendar year no later than 30 days after that year ends. For a loan made in the fourth quarter of 2026, the first payment is due January 30, 2027. That date falls on a Saturday, so the payment should clear by Friday, January 29.
The consequence of a miss is severe. Under subsection 74.5(2) of the Income Tax Act, a payment that is late or incomplete ends the exception for that year and every later year, and the income is attributed back to the lender. Paying late the following year does not restore it.
The interest must be paid, not accrued. A written loan agreement and a dated bank transfer from the borrower to the lender give the file its evidence. The lender reports the interest as income and the borrower deducts it, so both sides of the entry belong on the 2026 returns.
Each calendar year restarts the clock. A loan that stays outstanding for ten years needs ten on-time payments, and the lender reports that interest as income in every one of them.
What the First Quarter 2027 Reset Could Do
The October average of the three-month bill sets the rate for January 1 to March 31, 2027. The CRA announces each quarter about a month ahead, and the fourth quarter rate came on August 28. At 2.40% on October 14, the formula rounds up to 3%.
A move to 4% would need an October average above 3.00%, and a fall to 2% would need an average at or below 2.00%. The 2.40% yield sits 15 basis points above the 2.25% policy rate, which leaves 60 basis points of room on the upside and 40 on the downside. The Bank of Canada makes its next decision on October 28.
The base case on the formula is another quarter at 3%. A loan made after January 1 takes whatever the first quarter rate is, so the case for acting in the fourth quarter is the certainty of 3% and the time to complete the loan agreement, the investment and the first payment schedule before the January deadline.
Which Accounts Are In and Which Are Out
Only taxable investment income carries the structure. The borrower must invest the proceeds in a non-registered account, because interest on money borrowed to fund a TFSA, RRSP or FHSA contribution is not deductible, and income inside those plans is not taxed currently.
Registered accounts run alongside the loan rather than inside it. A spouse can give cash to the other spouse to contribute to a TFSA without attribution, and the 2026 TFSA limit is $7,000. The 2026 RRSP dollar limit is $33,810. Both are annual ceilings, and unused room carries forward, so the 2026 figures cap only the 2026 contribution.
For a couple with unused RRSP room, a spousal RRSP contribution is the registered alternative. Withdrawals within three calendar years of a contribution are attributed back to the contributor, so it suits money that will stay invested.
A loan can also go to a family trust that distributes income to family members in lower tax brackets, as Investment Executive described it. Existing loans made at 4% to 6% in 2023 and 2024 stay at those rates. Replacing one means repaying it, and selling investments to repay can trigger capital gains.