Canada: Family income-splitting loans, reduced interest rate beginning 1 July

Canada: Family income-splitting loans, interest rate

Individual taxpayers may need to consider possible future tax savings once the Canada Revenue Agency (CRA) prescribed interest rate for family income-splitting loans falls to 1% on 1 July 2020.

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Taxpayers that want to lock in their loan arrangements at 1% need to act between 1 July 2020 and 30 September 2020—though it may be that the interest rate could remain at 1% after 30 September 2020.

Because the prescribed interest rate will soon drop to 1%, a taxpayer’s family may realize significant long-term tax benefits by entering into income-splitting loan arrangements. Similarly, employees who have entered into qualifying home purchase loans with their employers need to consider how the lower prescribed interest rate may reduce their related taxable benefit.

Read a June 2020 report prepared by the KPMG member firm in Canada

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