Prescribed rate to remain at 3% in Q4

The prescribed rate will remain at 3% in the fourth quarter of 2025, and interest on overdue tax will remain at 7%, based on Government of Canada three-month Treasury Bill yields through July.

The rate the CRA charges on overdue tax, Canada Pension Plan contributions and employment insurance premiums is set four percentage points higher than the prescribed rate. The fourth quarter will be the second quarter in a row in which the prescribed rate is 3%.

Before the third quarter of 2025, the prescribed rate hadn’t been as low as 3% since the final quarter of 2022. The prescribed rate 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.

Through the first half of 2025, the prescribed rate was 4%. It dropped to 3% in the third quarter — beginning July 1 — where it will stay for the remainder of this year.

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.

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 2.66% on July 1, 2.70% on July 15 and 2.69% on July 29. As the average of those yields is 2.68%, the prescribed rate will be 3% for the fourth quarter of 2025.

Michelle Schriver

Michelle is a senior reporter for Advisor.ca and sister publication Investment Executive. She has worked with the team since 2015 and been recognized by the National Magazine Awards and SABEW for her reporting. Email her at michelle@newcom.ca.