Prescribed Rate
Taux prescrit in French
Quick definition
The prescribed rate is the interest rate the CRA resets every quarter based on 90-day Treasury bill yields. It anchors family income-splitting loans, the taxable benefit on cheap employee loans, and the higher rate charged on overdue tax.
A quarterly rate with tiers
Every three months the CRA publishes a fresh prescribed rate, calculated from the average yield on 90-day Government of Canada Treasury bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage point. For the third quarter of 2026, July 1 to September 30, the base rate is 3%, its fifth consecutive quarter at that level (as of July 2026).
Several rates hang off that base. The base rate itself governs family loans and the taxable benefit an employee reports on a low-interest loan from an employer. Overdue tax costs the base plus 4 points, so 7% right now, compounded daily. And when the CRA owes you money, refund interest accrues at a gentler tier than what the agency charges.
The family loan strategy
The attribution rules normally tax investment income back to the person who supplied the money, which blocks the obvious move of handing capital to a lower-income spouse. A loan at the prescribed rate is the sanctioned exception: lend money to your spouse, or to a family trust for the household, at the prescribed rate with a signed promissory note, and attribution does not apply.
The borrower invests the money and pays the lender the 3% interest each year. That interest is taxable to the lender and deductible to the borrower, so its net cost is the rate gap between them. Everything the portfolio earns above the prescribed rate stays with the borrower, taxed at their lower marginal tax rate.
The rate in effect when the loan is made is locked for the life of the loan, no matter where rates go afterward. Families who signed loans at the 1% pandemic-era rate still enjoy that spread today, which is why the strategy is most attractive in low-rate quarters and why each new quarter's rate is watched closely.
The January 30 rule
The exception has one unforgiving condition: each year's interest must actually be paid by January 30 of the following year. Not accrued, not recorded as a bookkeeping entry, but paid, with a transfer you can show. Miss the deadline once, even by a day, and attribution applies to that loan for that year and every year after; the only cure is to unwind the arrangement and start a new loan at the current rate.
The paper trail matters as much as the payment: a signed promissory note dated when the money moves, a traceable transfer of the loaned funds, and interest paid from the borrower's own account. If the CRA ever asks, the documents are the strategy.
Where it fits among income-splitting options
A prescribed-rate loan is the heavyweight tool in the income splitting kit: no dollar limit, usable during your working years, effective for spouses and, through a family trust, for children. The price is real capital to lend, paperwork and annual discipline, so simpler routes usually come first: a spousal RRSP, filling both partners' TFSAs, or pension income splitting in retirement. The loan earns its complexity for households with substantial non-registered money and a wide rate gap between partners.
In Canada
The formula gives the prescribed rate a floor of 1%, where it sat from mid-2020 to mid-2022; family loans locked in that era still run at 1%, untouchable by later rate hikes. Because the rate is computed from Treasury bill auctions a quarter in arrears, the next quarter's figure is known weeks in advance, occasionally creating a short window to sign a loan before an increase. Québec publishes its own prescribed rates for provincial purposes, and Revenu Québec applies its own premium on overdue provincial balances.
Worked example
Chloé earns $220,000 a year; her spouse Marc earns $30,000. In July 2026 she lends Marc $400,000 at the 3% prescribed rate, documented with a promissory note; the rate is now locked for the loan's life. Marc invests in a balanced portfolio returning about 6%, roughly $24,000 a year.
Each January, before the 30th, Marc pays Chloé $12,000 of interest. She reports it as income at her top rate; he deducts it against his investment income. The remaining $12,000 of return is taxed in Marc's low brackets instead of Chloé's top bracket. With roughly a 25-point gap between their marginal rates, the household saves in the neighbourhood of $3,000 of tax a year, every year the loan runs, and more as the portfolio grows.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026