The prescribed interest rate in Canada is increasing from 1% to 2% on July 1, 2022. A prescribed rate loan – or a spousal loan – is a type of income splitting strategy where the higher income-earning spouse lends funds to the lower income-earning spouse at the prescribed interest rate. This strategy works if one spouse is in the highest tax bracket while the other has no or little income and/or if the main income earner has substantial funds available to invest in a non-registered, personal account.  Couples contemplating this type of planning should do so before the rate increases to take advantage of the lower borrowing costs.

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