The prescribed rate for family income-splitting loans has been 1%, the lowest possible rate, since April 2009.
This rate will increase from 1% to 2% on October 1, 2013.
Income-splitting loans can be used to shift income earned on investments to a low income spouse or partner or to a minor child (via a family trust). For example, Anne can make a $500,000 loan to her low-income husband John at a 1% rate. Assume that he invests the $500,000 and earns a 5% return of $25,000. So long as the loan is properly documented and John pays the interest ($5,000, with a 1% rate) by January 30 of each year, the $25,000 of investment income is not attributed back to Anne under the tax attribution rules.
If Anne made the loan on October 1, 2013 rather than by September 30, 2013, John would have to pay $10,000 of interest each year.
Accordingly, to lock in a 1% rate on an income-splitting loan you need to make the loan by September 30, 2013. This is because the prescribed rate in force at the time the loan is made determines the interest rate.
If you would like to make a family loan, please contact a member of the Fasken Martineau Tax Group.
 The prescribed rate is equal to the average annual interest rate on Government of Canada 3-month Treasury Bills sold at auction during the first month of the prior quarter, rounded upwards to the next integer. The rate increases to 2% for the last quarter of 2013 because the July 2013 average 3-month Treasury Bill rate was over 1%. If the October average rate decreases below 1%, the rate for the first quarter of 2014 will go back down to 1%. Nonetheless, interest rates are generally expected to increase over the longer term.