CRA Prescribed Interest Rate: Calculation, Overdue Tax, and Loans

The Canada Revenue Agency prescribed interest rate is 3% for the third quarter of 2026, covering July through September, unchanged from the second quarter.¹ That 3% is the base figure. It becomes 7% when you owe the CRA money, 5% when the CRA owes you a refund as an individual, and stays at 3% for employer loans and family income-splitting arrangements. The rate resets every quarter and is published about 30 days before the new quarter starts.

The 2026 Rate Schedule by Category

The base rate feeds into several category-specific rates, each with its own add-on. For the second quarter of 2026 (April through June), the full schedule is:²

Overdue taxes (arrears): 7%, the base rate plus four percentage points. Applies to unpaid income tax, late CPP contributions, EI premiums, and outstanding penalties.
Refunds to non-corporate taxpayers: 5%, the base rate plus two percentage points.
Refunds to corporate taxpayers: 3%, the base rate with no add-on.
Employee and shareholder loan benefits: 3%, equal to the base rate.
Corporate pertinent loans or indebtedness: 6.20%.

The same category rates apply to GST/HST, excise taxes, the fuel charge, the Underused Housing Tax, and other federal levies.²

How the Rate Is Calculated

Regulation 4301 of the Income Tax Regulations sets the formula. The CRA takes the simple average yield on Government of Canada Treasury bills that mature in roughly three months, using only the bills sold at auction during the first month of the preceding quarter.³ The rate for July through September is therefore based on T-bill auctions held in April.

If the average is not a whole number, it rounds up to the next whole percentage point.³ A 2.1% average becomes 3%. That rounding means the prescribed rate tends to sit slightly above the underlying T-bill yield.

Interest on Overdue Tax Balances

If you miss a balance-due date, interest starts accruing the day after and compounds daily until you pay in full.⁴ The arrears rate is 7% for Q2 and Q3 of 2026.² The same rate applies to insufficient installment payments and to penalties that remain unpaid after their due date.⁵

Daily compounding matters. On a $10,000 balance at 7%, each day’s interest folds into the next day’s calculation, so the effective cost runs higher than a simple 7% would suggest.

Interest paid to the CRA on overdue taxes is not deductible. Paragraph 18(1)(t) of the Income Tax Act blocks deductions for amounts paid under the Act, including interest and penalties.⁶ The true cost of carrying a CRA debt is therefore higher than the stated rate, since you get no tax relief on the interest itself.

Getting Interest Cancelled or Waived

The CRA can cancel or waive interest under the Taxpayer Relief Provisions, but relief is not automatic. You need to apply and show that your situation fits one of the recognized categories:⁷

Financial hardship. You cannot pay, and interest is a major portion of the balance. For individuals, the CRA looks at whether paying would make it difficult to afford food, shelter, medical care, or transportation. For businesses, whether payment would jeopardize operations or employees’ jobs.
CRA errors or delays. Processing delays kept you from knowing an amount was owing, or incorrect information from the CRA led you to file or pay incorrectly.
Extraordinary circumstances. Natural disasters, postal strikes, serious illness, or the death of an immediate family member.

The CRA will only consider interest that accrued within the 10 calendar years before you submit your request.⁷ A request filed in 2026 can only cover interest from 2016 onward.

Interest on Refunds and Overpayments

When the government holds more of your money than it should, it owes you interest. Individuals receive 5% for Q2 and Q3 of 2026 (base rate plus two points). Corporations receive 3% (base rate only).²

Interest does not start the moment you overpay. Under section 164 of the Income Tax Act, the clock starts on whichever of the following dates comes last:⁸

For individuals: 30 days after your balance-due day for the year, or 30 days after you filed your return, whichever is later.
For corporations: 120 days after the end of the tax year, or 30 days after filing if the return was filed past the filing-due date.
For all taxpayers: the day the overpayment actually arose.

Filing late costs you refund interest. If you file three months after the deadline, the CRA owes you nothing for those three months. Filing on time or early maximizes what you receive on any overpayment.

Employee and Shareholder Loan Benefits

When a corporation lends money to an employee or shareholder at an interest rate below the prescribed rate, the shortfall is a taxable benefit. Section 80.4 of the Income Tax Act requires the borrower to include this benefit as income for the year.⁹

Calculate interest on the outstanding balance at the prescribed rate for the period the loan was outstanding during the year, then subtract whatever interest you actually paid. The result is the taxable benefit. At a 3% prescribed rate, a $100,000 interest-free loan outstanding for a full year generates a $3,000 taxable benefit.²

You can reduce or eliminate the benefit by paying interest, but the payment must be made no later than 30 days after the end of the tax year.⁹ Miss that window and the full benefit is taxable regardless of any later payment. Shareholder loans work the same way, and the CRA watches them closely because they can disguise what is effectively a distribution of profits.

Prescribed Rate Loans for Family Income Splitting

A prescribed rate loan is one of the few income-splitting strategies the CRA explicitly permits. A higher-income spouse lends money to a lower-income spouse or a family trust at the prescribed rate in effect when the loan is made. The borrower invests the funds, and returns above the interest cost are taxed at the borrower’s lower rate.

Section 74.5(2) of the Income Tax Act provides an exemption from the attribution rules that would otherwise pull the investment income back to the lender, but only if two conditions are met:¹⁰

The loan charges interest at or above the prescribed rate in effect when it was made. That rate locks in for the life of the loan. A loan set up at 3% keeps its 3% rate even if the prescribed rate later rises to 5%.
The borrower pays the interest by January 30 of the following year. Every year.

The January 30 deadline is unforgiving. Miss it by a single day and the attribution exemption fails not only for that year but for every future year the loan remains outstanding.¹¹ All investment income from that point forward gets taxed at the lender’s higher rate, and there is no way to cure the missed payment. The arrangement is permanently broken.

The strategy delivers the most value when the prescribed rate is low. At 3%, the borrower only needs to earn above 3% on the invested funds for the split to produce real tax savings. A formal promissory note documenting the principal, interest rate, and repayment terms protects both parties if the CRA reviews the arrangement, and a calendar reminder for the January 30 payment is essential.

1
Canada Revenue Agency. Canada Revenue Agency Rates
2
Canada Revenue Agency. Interest Rates for the Second Calendar Quarter
3
Department of Justice. Income Tax Regulations – 4301
4
Canada Revenue Agency. Understanding Interest
5
Department of Justice. Income Tax Act – Section 161
6
Canada Revenue Agency. Income Tax Folio S4-F2-C1, Deductibility of Fines and Penalties
7
Canada Revenue Agency. Who Can Apply — Cancel or Waive Penalties and Interest at the CRA
8
Department of Justice. Income Tax Act – Section 164
9
Department of Justice. Income Tax Act – Section 80.4
10
Department of Justice. Income Tax Act – Section 74.5
11
Canada Revenue Agency. Archived — Interspousal and Certain Other Transfers and Loans of Property