Prescribed rate for Q3 2025 drops to lowest level since 2022
The Canada Revenue Agency has announced the prescribed rate for the third quarter of 2025, with welcome news for affected taxpayers. The rate on loans to family members—which is in effect from July 1st, 2025 to September 30th, 2025—will decrease to 3 per cent from 4 per cent, its lowest level since the fourth quarter of 2022.
The prescribed rate is based on the three-month average of Government of Canada Treasury bill yields.
As outlined in previous updates, (ADD LINK https://www.krp.ca/prescribed-rate-holds-steady-for-q2-2025 ) the prescribed rate is the interest rate on any tax balances owed to the CRA or balances owed to individuals or corporations by the Agency. It is “used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans.”
The prescribed rate reached historic lows during the COVID-19 pandemic, before increasing to 6 per cent in 2024. The interest rate on debts owed to the CRA climbed as high as 10 per cent.
Other CRA interest rates for Q3 2025 include the following:
- The rate on overdue taxes, CPP contributions and EI premiums: 7 per cent (down from 8 per cent in Q2 2025)
- The rate on non-corporate taxpayer overpayments: 5 per cent (down from 6 per cent in Q2 2025)
- The rate on corporate taxpayer overpayments: 3 per cent (down from 4 per cent in Q2 2025)
- The rate used to calculate taxable benefits for employees and shareholders for interest-free and low-interest loans: 3 per cent (down from 4 per cent in Q2 2025)
- The rate for corporate taxpayers’ pertinent loans or indebtedness: 6.62 per cent (down from 7.08 per cent in Q2 2025)
A reduction in the prescribed rate is positive on the tax planning front for Canadian business owners and families. It provides additional flexibility and will have an influence on tax mitigation strategies. The rate may drop even further if ongoing trade tensions with the U.S. results in further interest rate reductions by the Bank of Canada.
But even with a lower rate, quickly clearing outstanding tax balances owed to the CRA is always recommended. Failing to do so could risk debt interest and non-compliance penalties.
Armando Iannuzzi, Co-Managing Partner
For tax planning assistance, or to discuss the prescribed rate’s impact on your personal or corporate financial situation, contact a member of our team.
