The prescribed rate will be 3% in the fourth quarter of 2026, based on Government of Canada three-month Treasury Bill yields in July. This will be the sixth quarter in a row in which the prescribed rate is at that level.
Before the third quarter of 2025, the prescribed rate hadn’t been as low as 3% since the final quarter of 2022.
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30 days of the end of the year, the loan can remain in effect at the prescribed rate that was current when the loan was originally made.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 the year the interest is due 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 yield for three-month T-Bills was 2.29% on July 14, and 2.29% on July 28. As the average of those two yields is also 2.29%, the prescribed rate will be 3% for the fourth 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 Q4.