The prescribed rate for family income-splitting loans is currently 2%.
This rate will decrease from 2% to 1% on January 1, 2014 for the first quarter of 2014.
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 interest at the applicable prescribed rate ($5,000, assuming a 1% prescribed 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 in December 2013 rather than during the first quarter of 2014, John would have to pay twice the amount of interest each year.
Accordingly, to lock in a 1% rate on an income-splitting loan, you need to make the loan during the first quarter of 2014. This is because the prescribed rate in force at the time the loan is made determines the interest rate.