Prescribed Rate Loan Calculator
Estimate Canadian tax savings from a spousal prescribed rate loan strategy for income splitting between spouses in different marginal tax brackets.
2026 Q1–Q2 prescribed rate: 5%. Locked in at loan origination.
Spread of 2.00% over prescribed rate
Spread between spouses: 23.0%
Total Tax Savings over 10 Years
$23,000.00
$2,300.00 per year
Annual Investment Income
$35,000.00
At 7% on $500,000.00
Annual Interest Paid
$25,000.00
At 5% prescribed rate
Tax Without Strategy
$16,800.00
All taxed at higher spouse rate
Tax With Strategy
$14,500.00
Net income at lower spouse rate
How the Strategy Works
- 1Higher-earning spouse lends after-tax capital to lower-earning spouse via a written promissory note at the CRA prescribed rate.
- 2Borrowing spouse invests the funds in a non-registered account (stocks, ETFs, bonds) and reports all income earned.
- 3Borrowing spouse pays interest to lending spouse by Jan 30 each year. This interest is deductible against investment income.
- 4Lending spouse reports interest received as income. Net result: investment returns above the prescribed rate are taxed at the lower spouse’s rate.
Prescribed Rate Loans: The Income Splitting Strategy for High-Earning Canadian Couples
Canadian tax law uses attribution rules to prevent income splitting between spouses. If a high-earning spouse simply gifts $500,000 to their lower-earning partner to invest, any dividends, interest, and most capital gains earned on those funds are attributed back to the gifting spouse and taxed at their (higher) marginal rate. The prescribed rate loan is the most common legitimate workaround. By structuring the transfer as an interest-bearing loan at the CRA’s prescribed rate — and meticulously following the requirements — the investment income earned in excess of the prescribed rate is taxed in the borrowing spouse’s hands.
The CRA prescribed rate is set quarterly based on the average yield of three-month Government of Canada Treasury bills in the first month of the preceding quarter. During the ultra-low rate environment of 2020–2022, the prescribed rate sat at just 1%, making this strategy extraordinarily powerful — couples locked in $1 million+ loans at 1% interest. Since rates rose with the Bank of Canada hiking cycle, the prescribed rate climbed to 5–6% in 2023–2024 and has remained at 5% through 2026 Q2. Even at 5%, the spread between a balanced portfolio return (6–8%) and the prescribed rate (5%) plus the tax bracket arbitrage can yield meaningful annual savings.
Tax Savings Example: $1M Prescribed Rate Loan
| Scenario | High Spouse Tax | Low Spouse Tax | Total Tax |
|---|---|---|---|
| No strategy (all at 53.53%) | $37,471 | $0 | $37,471 |
| Prescribed rate 5%, return 7% | $26,765 (on interest) | $4,950 (on net) | $31,715 |
| Prescribed rate 1% (2020 era) | $5,353 | $14,850 | $20,203 |
To implement a prescribed rate loan: (1) draft a formal promissory note specifying loan amount, interest rate (at or above the prescribed rate at signing), and repayment terms; (2) the lower spouse opens a dedicated non-registered investment account and uses the loaned funds exclusively for that account; (3) the lower spouse pays the interest in cash from their own resources (not from the investment income itself) by January 30 of each year; (4) the higher spouse reports the interest as investment income on their T1; (5) the lower spouse deducts the interest paid against the investment income on their T1. Missing the January 30 deadline in any single year permanently breaks the strategy. Most fee-only financial planners and tax accountants charge $1,500–$3,000 to set up the loan documentation and provide annual reminders, which is trivial compared to the multi-decade tax savings on a six- or seven-figure loan.
Frequently Asked Questions
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Built and reviewed by Konstantin Iakovlev · Data from CRA, CMHC, Bank of Canada · MethodologyDisclaimer: This calculator provides estimates based on publicly available data from CRA and other government sources. It does not constitute financial advice. Consult a qualified advisor for decisions about your specific situation.