Effective July 1, 2020, the prescribed rate of interest will drop from 2% to 1%. The 2% rate was established on April 1, 2018. It is fantastic news for those in a high tax bracket who want to transfer investment income to family members in a lower tax bracket. To do this, you simply lend funds to family members provided the rate of interest on the loan is at least equal to the CRA-prescribed rate of 1%. If you implement the loan arrangement after July 1, the 1% interest rate is locked in and will remain so for the duration of the loan. The income is taxed at the family member’s tax rate and the interest on the loan for each calendar year must be paid annually by Jan. 30 of the following year. The interest is deductible against the investment income of the family member.
