The prescribed rate for family income-splitting loans has been 1%, the lowest possible rate, since April 2009.[1]

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.