Lending to Family Members to Invest: Prescribed Rate Loans

How a prescribed rate loan works, paying the interest on time, and the attribution rules

Scott Tang, CPAUpdated 2026-11-052026 rules4 min read

If the higher-earning spouse simply gives the other spouse money to invest, the income is "attributed" back to the giver (see "How Can Spouses Share Income Properly?" in this series). One compliant approach is a prescribed rate loan: you lend money to your spouse (or a family trust) at the rate prescribed by the CRA, and the interest is paid on time every year. Investment returns above the interest are then taxed in the hands of the lower-income spouse.

The CRA prescribed rate for every quarter of 2026

Locked in

The rate at the time of the loan can be used until the loan is repaid

January 30

Each year's interest must be paid by January 30 of the following year

One missed payment

The income for that year and every later year is attributed back to the lender

How it works

1
Sign a loan agreement
The amount, the interest rate (no lower than the prescribed rate at the time) and the term
2
Transfer the money
From the higher-earning spouse to the other spouse
3
Spouse invests
Through an account in the spouse's own name
4
Pay interest yearly
By January 30 of the following year, out of the spouse's own money
5
Both spouses report
The lender reports the interest income; the spouse (the borrower) reports the investment income and, if the conditions are met, can deduct the interest expense

Where the savings come from

Lender (higher income)

Lends $200,000 at 3%

Receives $6,000 of interest a year

Pays tax on it at a high rate

The interest income must be reported

Borrower (spouse, lower income)

Invests the $200,000; assume it earns $14,000 in a year

Less the $6,000 of interest paid

The net $8,000 is taxed at a low rate

The more the investment return exceeds the interest rate, the more you save

Points to watch

Never pay the interest late
It must be paid by January 30 of the following year. If it isn't paid for one year, the income for that year and all later years is attributed back to the lender. Simply paying the overdue interest afterwards does not undo this; any other restructuring needs a professional assessment.
Pay from the spouse's own money
The interest must be paid from the spouse's account to the lender; the lender can't pay it out of their own pocket.
Deducting the interest is a separate question
There must be an income-earning purpose, a genuine obligation to pay interest and a reasonable amount. Investments aimed purely at capital growth, or investments held in registered accounts, can't simply follow this example.
Lock in when rates are low
The rate at the time of the loan can be used for as long as the loan lasts; once the prescribed rate rises, new loans must use the new rate.
Returns must beat the rate
If the investment return is lower than the interest rate, the arrangement brings no benefit; investments can also lose money.
For children
For minor children, this is usually done through a family trust, with the documents prepared by a lawyer.

How Sheng Qian CPA can help

First, check whether it's worth it
Based on your incomes, the amount and the expected return, we estimate roughly how much the arrangement could save each year.
Documents with your lawyer
Your lawyer prepares the loan agreement and the trust documents; we handle the tax side.
Yearly interest reminders
We remind you to pay the interest before January 30 and prepare both spouses' returns together; for prices, see "What Sheng Qian CPA Can Do for Investors: Tax Returns, Accounts and Annual Planning" in this series.

Sources

CRA: Prescribed interest rates · Prescribed interest rates – fourth calendar quarter 2026
Income Tax Act: Section 74.5
CRA: ARCHIVED IT-511R, Interspousal and certain other transfers and loans of property (Income Tax Act sections 74.1 to 74.5)

Disclaimer

This article is general information only and is not tax, legal or investment advice. Everyone's situation is different; please consult a CPA and a lawyer about your specific arrangements. Service fees are as set out in our written quote.