Prescribed-rate spousal loans: splitting investment income without attribution (2026)

This guide is part of Tax-saving strategies for Canadians (2026).

Who this is for

Couples where one spouse is in a high tax bracket and holds investable savings, and the other has little or no income. The wider the gap between their marginal rates, and the higher the expected return above the 3% prescribed rate, the more the loan saves.

How it works

The attribution rules in ITA sections 74.1 and 74.2 say that if you transfer or lend property to your spouse, the income and capital gains it produces are taxed to you. Subsection 74.5(2) switches attribution off when three conditions are met:

1. The money is lent, not given, under a real loan.
2. The interest rate is at least the CRA prescribed rate in force when the loan is made (Income Tax Regulations section 4301). That rate is 3% for the quarter starting October 1, 2026 and was 3% in the quarter before it (CRA prescribed interest rates page, checked September 11, 2026).
3. The interest for each year is actually paid no later than January 30 of the following year, every year.

The rate is locked in for the life of the loan; later changes in the prescribed rate do not matter. The lender reports the interest received (line 12100). The borrower reports the investment income and deducts the loan interest on line 22100, since the money was borrowed to earn income from property. Net effect: the return above the loan rate is taxed at the lower-income spouse’s rate instead of the higher earner’s.

Worked example: $250,000 earner lends $300,000 at 3% (Ontario, 2026)

Spouse A earns $250,000; spouse B earns $20,000. A lends $300,000 at 3% ($9,000 of interest a year). B invests it at 5%, earning $15,000 of interest income. Tax is computed from the 2026 federal and Ontario brackets in our data files.

The saving is thin at a two-point spread between the return and the loan rate. It grows with the spread, with the size of the loan, and when the return comes as Canadian dividends or capital gains, which B can receive with little tax at $20,000 of income. The 2026 cut in the lowest federal rate to 14% slightly narrows the gap between the two spouses’ rates.

The rules that trip people up

• One missed January 30 payment ends it. Attribution applies for that year and every later year of the loan (subsection 74.5(2)). Automate the transfer.
• Paper trail. A written loan agreement, the transfer into the borrower’s own account, and a record of each interest payment. Without these the CRA can treat the arrangement as a gift.
• The rate is set at the loan date. If prescribed rates fall later, you can repay and re-lend, but the new loan must be a real repayment and a real new advance.
• Capital gains and corporate attribution. Section 74.2 attributes capital gains as well as income, and section 74.4 has a separate rule when the money goes into a corporation the spouse holds shares in. The prescribed-rate loan covers the ordinary case; corporate structures need advice.
• GAAR and shams. A loan that exists only on paper, or money that never leaves the lender’s control, is not a loan. Section 245 applies to arrangements whose only purpose is the tax result.
• Minor children. The same exception works for a prescribed-rate loan to a trust for minor children (subsection 74.1(2) income attribution), with more setup.

What to do next

Use the income tax estimator to compare the two spouses’ marginal rates: the gap is the ceiling on what this can save. The compound interest calculator shows what the borrowed money grows to at your expected return, and GIC vs HISA shows the after-tax return on the interest side. More strategies: Tax-saving strategies for Canadians (2026).