It’s official: The prescribed rate on loans to family members will be 3% in the third quarter of 2025, and the interest rate Canadians must pay on overdue tax will be 7%. That’s down from 4% and 8%, respectively, in the first half of this year.
On Monday, the Canada Revenue Agency (CRA) published the prescribed annual interest rates for amounts owed to or by the agency for the period from July 1 to Sept. 30.
The prescribed rate hasn’t been as low as 3% since the last quarter of 2022. It began rising in the third quarter of that year. Up until then, the rate had been 1% for two years, with the rate charged on overdue tax at 5%. The prescribed rate hit 6% in the first half of 2024 before beginning to drop.
The rate the CRA charges on overdue tax, Canada Pension Plan contributions and employment insurance premiums is always four percentage points higher than the prescribed rate.
Individual taxpayers reporting capital gains on their 2024 returns had an extended tax-filing deadline of June 2 — Monday — because of the Jan. 31, 2025, deferral of the now-defunct proposed increase to the capital gains inclusion rate. This deadline includes T1 filers who have T3 tax slips reporting capital gains (the extended deadline generally doesn’t include these taxpayers’ spouses).
Most taxpayers had an April 30 deadline to file their 2024 tax returns and pay any taxes owing. Self-employed taxpayers have a deadline of June 15, although taxes owing were due April 30.
The prescribed rate is calculated based on the average of three-month Treasury Bills for the first month of the preceding quarter, rounded up to the next highest percentage point.
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. The lower the prescribed rate, the greater the potential for income splitting using a prescribed-rate loan strategy.
Other key announcements from the CRA for Q3 2025 include:
- the rate to be paid on corporate taxpayer overpayments will be 3%, down from 4% in Q2;
- the rate to be paid on non-corporate taxpayer overpayments will be 5%, down from 6%;
- the rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans will be 3%, down from 4%;
- the rate for corporate taxpayers’ pertinent loans or indebtedness will be 6.62%, down from 7.08%.
Access the full list of the CRA’s prescribed interest rates.