family loan interest rate

May 2022:  Starting July 1st, 2022, the interest rate for intra-family loans increased from 1% to 2%. This rate is increasing again October 1^st, 2022 to 3%. Depending on your situation, intra-family loans can help to reduce the overall family tax bill through a straightforward income splitting strategy. Income splitting involves the transfer of income from a high-income earner to a family member in a lower tax bracket. The lower income individual is taxed at a lower marginal tax rate and the family pays less tax overall. Canada Revenue Agency (CRA) restricts most forms of income splitting.  An individual in a higher marginal tax rate can’t simply give their spouse $100,000 to invest and have the spouse declare the investment income at their lower marginal tax rate. In such a situation, the investment income would be attributed back to the original individual and taxed at their higher marginal rate. There are, however, a few legitimate and effective ways to split taxable income with a spouse or other family members through an investment loan. This can make sense if the investment returns are higher than the interest charged on the loan. You need a properly constructed demand promissory note, and both parties must either pay or declare the loan interest each year.  Be sure to get professional advice first.