The Canada Revenue Agency’s prescribed interest rates for the first and second quarters of 2026 sit at 7% on overdue taxes, 5% on refunds to individuals, 3% on refunds to corporations, and 3% for taxable-benefit and prescribed-rate loan calculations. All four figures come from a single base rate of 3%, updated every quarter under a formula tied to Government of Canada Treasury bill yields.1Canada Revenue Agency. Interest Rates for the Second Calendar Quarter
How the Base Rate Produces Every Other Rate
Regulation 4301 of the Income Tax Regulations sets the formula. The CRA takes the average yield on three-month Government of Canada Treasury bills auctioned in the first month of the preceding quarter, then rounds up to the next whole percentage point if the average isn’t already whole. That rounded figure is the base prescribed rate for the coming quarter.2Department of Justice Canada. Income Tax Regulations – Section 4301
From that single number, add-ons produce every other rate. Overdue tax balances use the base plus 4 percentage points. Refunds to individuals use the base plus 2. Corporate refunds use the base with no add-on. The rate for low-interest loans and taxable benefits is the base rate itself.2Department of Justice Canada. Income Tax Regulations – Section 4301 Learn any one rate and you can work out the others.
Rates in Effect Through June 30, 2026
Q1 and Q2 of 2026 carry identical figures on the income tax side:
- Overdue taxes, CPP contributions, and EI premiums: 7%
- Refunds to individuals (non-corporate): 5%
- Refunds to corporations: 3%
- Taxable benefit rate for low-interest loans: 3%
GST/HST rates mirror the income tax figures for Q2 2026: 7% on overdue remittances, 5% on overpayments to non-corporate taxpayers, and 3% on overpayments to corporations.1Canada Revenue Agency. Interest Rates for the Second Calendar Quarter
Where Rates Have Been
The base rate climbed through 2023 and peaked in 2024 at 6%, pushing the overdue tax rate to 10%. That 10% charge held from Q1 2024 through early 2025. Treasury bill yields dropped through mid-2025, and the base settled at 3% for the start of 2026. A balance carried through 2024 accumulated interest at the sharpest rate in more than two decades. Today’s 7% overdue rate is still meaningful, but the environment is considerably softer.
What You Pay on an Overdue Balance
Interest on unpaid income tax, CPP contributions, and EI premiums accrues at the overdue rate of 7% and compounds daily.3Canada Revenue Agency. Understanding Interest – When We Charge or Pay Interest Each day’s unpaid amount generates its own small interest charge, which becomes part of the balance the next day. Over months, the total climbs faster than a simple percentage suggests.
The same treatment applies to instalment shortfalls. If you’re required to pay quarterly instalments and you miss or underpay one, the CRA calculates instalment interest from the instalment due date through to your balance-due date. There’s a small floor: instalment interest is only charged when the total exceeds $25, but once you cross that threshold you owe the full amount.4Canada Revenue Agency. Interest and Penalty Charges – Required Tax Instalments for Individuals
Because the overdue rate can change each quarter, a debt that stretches across several quarters accrues at different rates along the way. A balance owing from January through September 2026 would use the Q1 rate for the first three months, the Q2 rate for the next three, and the Q3 rate for whatever period follows. The CRA recalculates automatically.
What the CRA Pays on a Refund
If you overpaid, the CRA owes you interest. Individuals earn 5%; corporations earn only 3%.1Canada Revenue Agency. Interest Rates for the Second Calendar Quarter The clock doesn’t start the moment you overpay. Interest begins on the latest of three dates: 30 days after your balance-due date, 30 days after you actually file, or the day of the overpayment itself.5Canada Revenue Agency. Tax Refunds Filing early doesn’t accelerate the start; filing late pushes it further out. Once it starts, it compounds daily in your favour until the refund is issued.
Note the 2-point gap between what you pay on a debt and what the CRA pays on a refund. That difference is written into the formula.
Late-Filing Penalty Is Separate From Interest
Filing late with a balance owing triggers a penalty on top of interest, not instead of it. The standard penalty is 5% of the balance owing plus 1% for each full month the return is late, up to 12 months, for a maximum of 17%. If you were penalized for late filing in any of the three preceding years and the CRA sent you a formal demand to file, the penalty doubles to 10% of the balance plus 2% per month, up to 20 months.6Canada Revenue Agency. Interest and Penalties on Late Taxes Daily compound interest at the prescribed overdue rate accrues on top from the day after your due date.
Employee and Shareholder Loans
When an employer gives an employee an interest-free or low-interest loan, the CRA treats the discount as a taxable benefit equal to the difference between the interest actually paid and what would be owed at the prescribed rate. For 2026 Q1 and Q2, that rate is 3%.1Canada Revenue Agency. Interest Rates for the Second Calendar Quarter A $100,000 interest-free loan from an employer produces $3,000 of taxable benefit for the year.
Shareholder loans work the same way. If you borrow from your own corporation at below the prescribed rate, the gap becomes a taxable benefit reported on your T4 or T4A. The rate used is whichever prescribed rate is in effect during the quarter the loan is outstanding, so the benefit calculation adjusts if rates shift mid-year.
Prescribed-Rate Loans for Income Splitting
The same 3% base rate powers a widely used family tax strategy. Normally, investment income earned by a spouse or minor child on money you gave them gets attributed back to you. Structure the transfer as a loan bearing interest at the prescribed rate, and the attribution rules step aside.7Department of Justice Canada. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 74.5
The mechanics: you lend to your lower-income spouse at the prescribed rate in effect when the loan is made (3% for loans set up in Q1 or Q2 of 2026). Your spouse invests and earns, say, 6%. The investment return is taxed at your spouse’s lower marginal rate. You report the 3% interest your spouse pays you as income. Net across the household, the savings can be substantial.
The rate that matters is the one in effect the day the loan is made, and it locks in for the life of the loan. A loan established when the prescribed rate was 1% (as it was through much of 2020 and 2021) keeps that 1% rate no matter how rates move later, which is why tax advisors push clients to lock in when rates fall.8Canadian Tax Foundation. Refinancing Prescribed-Rate Loans Used for Income Splitting
The January 30 Deadline
This planning comes with one strict annual rule. The borrowing spouse must pay the prescribed interest for the preceding calendar year no later than January 30. Section 74.5 requires that interest be “paid not later than 30 days after the end of” each taxation year, and it requires the same for every preceding year.7Department of Justice Canada. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 74.5
Miss the deadline by a day and the consequences reach well beyond the current year. Because timely payment is a continuing condition, a single late payment can cause all future investment income from the loaned funds to be attributed back to the lender for as long as the loan stays outstanding. The only cure is to repay the loan in full and start over, potentially at a higher prescribed rate. Set a calendar reminder.
How Interest You Pay or Receive Is Taxed
The tax treatment isn’t symmetrical. Interest the CRA pays you on a refund counts as taxable income, reported on line 12100 in the year you receive it. The amount appears on your notice of assessment.9Canada Revenue Agency. Line 12100 – Interest and Other Investment Income
Interest you pay to the CRA on overdue personal income tax is not deductible. The list of eligible carrying charges on line 22100 does not include interest on tax debts.10Canada Revenue Agency. Line 22100 – Carrying Charges, Interest Expenses, and Other Expenses One narrow exception: if the CRA reassesses and you have to repay refund interest you previously reported as income, you can claim that repayment as a deduction on line 22100.
Asking for Interest and Penalty Relief
The CRA can cancel or waive interest and penalties when circumstances beyond your control kept you from meeting your obligations. Serious illness, natural disasters, and CRA processing delays are the common qualifying situations. Requests generally must be filed within 10 years of the tax year in question, through the CRA’s online portal or by mail. Approval is not automatic; finding the amount unfair isn’t enough on its own. You need to show that extraordinary circumstances made timely payment impossible.