The CRA prescribed rate is an interest rate set quarterly by the Canada Revenue Agency.
It is used in several tax rules—especially those involving loans between related parties, calculating taxable benefits from low-interest or interest-free loans, and determining interest on overdue or overpaid tax balances.
Changes in the prescribed rate can create planning opportunities or tax risks.
In 2025, the prescribed rate has dropped, and that affects many taxpayers.
Read More On CRA Taxes & Rates
What is the CRA prescribed rate in 2025?
The CRA publishes prescribed interest rates quarterly to govern how much interest must be charged for certain tax-related situations.
For 2025, the prescribed rate history is as follows:
- Q1 (Jan-Mar 2025): 4 % for many purposes (e.g., loans between family members)
- Q2 (Apr-Jun 2025): stays at 4%
- Q3 (Jul-Sep 2025): drops to 3%
- Q4 (Oct-Dec 2025): remains at 3%
These rates apply to overpayments, underpayments, and certain loan-related tax rules.
What types of tax rules use the prescribed rate?
The prescribed rate is involved in several tax contexts, including:
- Loans between related persons or to a family trust: if you lend money to a spouse, common-law partner, or other related person at a rate below the prescribed rate, the “income attribution” rules may apply. To avoid those rules, the loan must carry interest at least equal to the prescribed rate for that quarter.
- Taxable benefits on interest-free or low-interest employee or shareholder loans: an employer providing a low-interest or interest-free loan to an employee must compute a taxable benefit using the prescribed rate.
- Interest on amounts owed to CRA or amounts CRA owes you: under the Income Tax Act, overdue taxes, CPP contributions, and EI premiums are charged interest, and overpayments may earn interest, all based on prescribed rates.
Because the prescribed rate can change each quarter, the rate in effect when the loan is made or when the debt arises often controls the calculation.
Why did the prescribed rate drop in 2025?
The prescribed rate is tied to market rates, particularly government 90- or 3-month Treasury bill yields.
CRA uses a formula (average of certain Treasury bill rates, rounded up) to determine the rate each quarter.
In 2025, the overall interest environment cooled. As a result, CRA lowered the prescribed rate from 4 % to 3 % in Q3, and it stayed at that level for Q4.
This drop makes some tax planning opportunities more attractive, particularly in income splitting via loans.
How does a lower prescribed rate affect you?
Here are the main impacts:
- Better income-splitting potential
If you lend money to a lower-income spouse or family member at the prescribed rate, the investment returns above that rate may be taxed in their hands instead of yours—so the lower the prescribed rate, the better the margin. - Lower taxable benefits from loans
For employee or shareholder loans, the difference between what the employee pays and what the interest would be at the prescribed rate is a taxable benefit. A lower rate reduces that benefit. - Lock-in of the rate for a loan
The rate in effect when you give the loan often becomes the benchmark for the life of that loan—even if prescribed rates later rise. - Interest on tax balances
Overdue tax amounts continue to carry interest (which is usually the prescribed rate + a premium), and overpaid amounts may attract interest payments to the taxpayer. Changes in the prescribed rate influence those amounts.
What you should watch or do now
- If you are considering making a prescribed rate loan, doing it in Q3 or Q4 2025 (when the rate is 3 %) may maximize the benefit.
- Ensure interest on that loan is paid annually (often by January 30) to maintain tax compliance.
- If you have existing loans made in earlier quarters, the rate locked in then may carry forward. Be careful about restructuring unless tax effects are clear.
- Watch future quarterly announcements of prescribed rates—if rates start rising again, opportunities narrow.
- For employee or shareholder loans, make sure you compute benefits correctly using the prescribed rate in effect at the time of the loan or the rules for home purchase loans.