The prescribed rate on loans to family members will be 4% in the first quarter of 2025, and the interest rate Canadians must pay on overdue tax will be 8%. That’s down from 5% and 9%, respectively, in the current quarter.
The Canada Revenue Agency (CRA) recently published the prescribed annual interest rates for amounts owed to or by the agency for the period from Jan. 1 to March 31.
In the first half of 2024, the prescribed rate was 6%, and the interest rate on amounts owed to the CRA was 10%.
In 2024’s second half, the prescribed rate dropped to 5%. The last time the prescribed rate was 4% was in the first quarter of 2023.
The prescribed rate began rising in the third quarter of 2022; until then, the rate had been 1% for two years.
The rate the CRA charges on overdue tax (including GST/HST, underused housing tax and luxury tax), Canada Pension Plan contributions and employment insurance premiums is always four percentage points higher than the prescribed rate.
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.
However, as the prescribed rate rises, so too must the expected investment return to make the strategy viable.
Other key announcements from the CRA for Q1 2025 include the following:
- The rate to be paid on corporate taxpayer overpayments will drop to 4% from 5%.
- The rate to be paid on non-corporate taxpayer overpayments will drop to 6% from 7%.
- The rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans will drop to 4% from 5%.
- The rate for corporate taxpayers’ pertinent loans or indebtedness will decrease to 7.78% from 8.53%.
Access the full list of the CRA’s prescribed interest rates.