The prescribed rate will remain 3% in the second quarter of 2026, based on Government of Canada three-month Treasury Bill yields through January. The second quarter will be the fourth quarter in a row in which the prescribed rate is 3%.
The prescribed rate was 4% through the first half of 2025. Before the third quarter of 2025, the prescribed rate hadn’t been as low as 3% since the final quarter of 2022.
The rate began rising in the third quarter of 2022; up until then, it had been 1% for two years. The prescribed rate hit 6% in the first half of 2024 before beginning to drop.
The lower the prescribed rate, the greater the potential for income splitting using a prescribed-rate loan strategy.
Prescribed-rate loans can be used to split investment income with a spouse, common-law partner or other family member. Loans could be made directly to a family member or to a family trust, which can then make distributions to family members in lower tax brackets as part of a properly executed prescribed-rate loan strategy.
As long as annual interest is paid within 30 days of year-end — Friday, Jan. 30, is the deadline for 2025 interest payments — the loan can remain in effect at the prescribed rate that was current when the loan was originally made. Failure to pay by the deadline will result in any investment income earned on the loan being attributed to the lender for 2025 and all subsequent years.
The prescribed rate is calculated every quarter. According to section 4301 of the Income Tax Regulations, the prescribed rate is based on the average yield of Government of Canada three-month Treasury Bills auctioned in the first month of the preceding quarter, rounded up to the next whole percentage.
The auction yields for three-month T-Bills were 2.2% on Jan. 13, and 2.19% on Jan. 27. As the average of those two yields is 2.195%, the prescribed rate will be 3% for the second quarter of 2026.
The rate that the Canada Revenue Agency charges on overdue tax is set four percentage points higher than the prescribed rate. That means interest on overdue tax will remain at 7% in Q2.