Prescribed interest rate

Subject to section 4302, which sets a separate monthly rate for two provisions, provisions of the Act that mention a prescribed rate of interest use the rate that section 4301 sets for the quarter in question. In a deal, it can matter where a loan carries interest: subsection 56(4.2), for example, refers to the prescribed rate in effect when the loan was made, among other conditions. See also the seller note interest rate and a family loan used to buy a business.

How the rate is set

Section 4301 sets the rate in effect during a quarter by reference to the average equivalent yields of Government of Canada treasury bills that mature about three months after issue and are sold at auction during the first month of the preceding quarter. Separate paragraphs apply to interest paid to the Receiver General, interest the Minister pays a taxpayer, subsection 17.1(1) of the Act, and every other provision. The CRA publishes the rates by quarter.

What to check or ask

• Which provision of the Act applies, and so which paragraph of section 4301
• What the rate was in the quarter the loan was made, from the CRA’s quarterly list
• Whether interest was paid by the date the provision requires