CRA Prescribed Interest Rates for Q1 2027 Work Out to 7%, 5% and 3%
The CRA prescribed interest rates for the first quarter of 2027 were settled on 20 October 2026, when the second of October’s two Government of Canada treasury bill auctions closed. The Canada Revenue Agency has not published them yet. They are not a forecast. Income Tax Regulations s.4301 ties the quarter’s rate to auctions already held, and the arithmetic gives 7% on what you owe, 5% on what CRA owes an individual, and 3% on everything else, from 1 January to 31 March 2027. Nothing the Bank of Canada does on 9 December can reach those numbers, because the month that decides them has closed.
Below: the rule, the two auctions, the test that says whether to trust the derivation, what 7% compounded daily costs, and the one prescribed rate you can lock for the life of a loan.
The rule that sets the rate, word for word
From Income Tax Regulations s.4301 on Justice Laws, current to 19 October 2026 and last amended 18 June 2026:
4301 Subject to section 4302, for the purposes of (a) every provision of the Act that requires interest at a prescribed rate to be paid to the Receiver General, the prescribed rate in effect during any particular quarter is the total of (i) the rate that is the simple arithmetic mean, expressed as a percentage per year and rounded to the next higher whole percentage where the mean is not a whole percentage, of all amounts each of which is the average equivalent yield, expressed as a percentage per year, of Government of Canada Treasury Bills that mature approximately three months after their date of issue and that are sold at auctions of Government of Canada Treasury Bills during the first month of the quarter preceding the particular quarter, and (ii) 4 per cent;
Three other paragraphs run off the same base. 4301(b) adds 2 per cent where the Minister owes a non-corporate taxpayer and nothing where it owes a corporation. 4301(b.1) reads the same mean to two decimal points instead of rounding it up, then adds 4 per cent, for pertinent loans or indebtedness, a corporate cross-border provision under s.17.1(1) that few individuals ever touch. 4301(c) is the bare base, for “every other provision of the Act in which reference is made to a prescribed rate of interest”.
Three features of that language do real work. It is the first month of the preceding quarter, not the preceding month and not the whole quarter, so January, April, July and October are the only months that ever count. Rounding is up to the next higher whole percentage, which makes the prescribed rate a step function sitting above the market rather than one that tracks it. And the round-up applies only “where the mean is not a whole percentage”, so a mean of exactly 4.0000% stays at 4%. That has happened once in the last five years.
October’s two auctions set the first quarter of 2027
The input is the Bank of Canada’s selected treasury bill yields, three month auction averages. October 2026 held two qualifying auctions.
| Auction date | Average yield, three month |
|---|---|
| 6 October 2026 | 2.41% |
| 20 October 2026 | 2.53% |
Data as of 5 November 2026. The simple arithmetic mean of the two is 2.4700%, not a whole percentage, so it rounds up to a base of 3%.
| What it applies to | Regulation | Q4 2026, published | Q1 2027, derived |
|---|---|---|---|
| Overdue tax, CPP contributions, EI premiums, instalment interest | 4301(a) | 7% | 7% |
| Overpayment owed to a non-corporate taxpayer | 4301(b) | 5% | 5% |
| Overpayment owed to a corporation | 4301(b) | 3% | 3% |
| Taxable benefits, employee and shareholder loans, spousal prescribed-rate loans | 4301(c) | 3% | 3% |
CRA’s Q4 2026 rates announcement describes the top row as “the interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums”. The base has sat at 3% in each of the six quarters from Q3 2025 to Q4 2026, so Q1 2027 makes a seventh consecutive quarter at 7/5/3.
CRA has not published the Q1 2027 figures. The page on canada.ca that will hold them returns a page-not-found today, and the agency’s prescribed interest rates index is the place to check for yourself.
The derivation reproduces twenty published quarters, including the one where rounding did not apply
A derivation is worth what its track record is worth, so we ran ours backwards over the twenty quarters from Q1 2022 to Q4 2026. That window is not a quiet one. The base moved eight times inside it, from 1% up to 6% and back to 3%, the whole rate cycle of the last five years. On the whole-percentage rates CRA publishes, the derivation reproduced the published figure twenty times out of twenty, all three rates in every quarter.
Two quarters are worth naming. Q4 2022 ran on July 2022 auctions of 2.20% and 2.70%, a mean of 2.4500%, rounded up to a base of 3%, and CRA published 7/5/3, which is the same answer we get for Q1 2027 from a mean two hundredths of a point away. Q1 2023 is the more telling one. October 2022 auctions of 3.83% and 4.17% gave a mean of exactly 4.0000%, the round-up clause did not engage, and CRA published 8/6/4 rather than the 9/7/5 an unconditional round-up produces. It is the only quarter in the window where that clause bites, and getting it right is the difference between applying the rule and approximating it.
Matching whole percentages is a coarse test on its own. A base of 3% is consistent with any mean above 2.0000% and at or below 3.0000%, so twenty matches still leave a full point of slack in the input. The Regulation supplies a finer instrument. Because 4301(b.1) requires the same mean read to two decimal places, CRA’s published pertinent-loans rate minus 4 is a direct readout of the mean CRA itself used. That turns twenty whole-percentage matches into twenty two-decimal comparisons of CRA’s input against ours:
- identical to the basis point in 12 of the 20 quarters
- within 1 basis point in 18 of the 20
- largest disagreement of 3.50 basis points, in Q2 2025, where our mean was 3.0450% and the mean implied by CRA’s published rate was 3.08%
Set that measured error against the margin on this quarter. Our Q1 2027 mean of 2.4700% sits 53 basis points below the 3.0000% boundary that would push the base to 4%, and 47 basis points above the 2.0000% boundary that would drop it to 2%. The nearer margin is roughly fifteen times the largest disagreement with CRA we can measure.
One thing that comparison does not settle, and it is the reason the comparison was run. The Bank of Canada series is labelled “average yields”; the Regulation says “average equivalent yield”. We do not assert they are the same quantity. What the twenty-quarter readout does is measure the difference between whatever CRA uses and what we use, against CRA’s own mean as it publishes it to two decimals, which places CRA’s figure within half a basis point of the readout either way. That measurement, rather than an assumption about the labels, is what the Q1 2027 figures rest on.
What 7% costs on an unpaid balance, before tax and after
Interest on an unpaid balance under Income Tax Act s.161, in both subsection 161(1) and the instalment interest of 161(2), is compounded daily by subsection 248(11), which also compounds interest on unpaid interest. Subsection 161(1) runs only “at any time after a taxpayer’s balance-due day”, which s.248(1) fixes for an individual as “April 30 in the following taxation year”. A balance owing on a 2026 return starts accruing 1 May 2027, whatever the rate is the day the return goes in, so 30 April is the date that decides whether any of this applies to you. Instalment interest under 161(2) starts earlier, from each instalment due date. Our arithmetic, compounding 7% a year daily on a 365-day basis:
| Unpaid balance | One quarter, 90 days | One year, 365 days |
|---|---|---|
| $1,000 | $17.41 | $72.50 |
| $5,000 | $87.04 | $362.50 |
| $10,000 | $174.08 | $725.01 |
| $25,000 | $435.21 | $1,812.52 |
The one-year column holds the rate at 7% for four consecutive quarters. The prescribed rate resets every three months, so read it as an illustration of what 7% does over a year rather than a forecast of a bill.
The part people miss is the tax side. Subsection 18(1) bars a deduction, “in computing the income of a taxpayer from a business or property”, for everything on the list that follows, and paragraph (t) puts “any amount paid or payable … under this Act (other than tax paid or payable under Part XII.2 or Part XII.6)” on it. Interest charged by CRA is paid with after-tax dollars. On the $1,000 row, covering $72.50 of interest takes $143.65 of income at the 49.53% combined federal and Ontario marginal rate on $250,000 of taxable income that our prescribed-rate loan work uses. That is our arithmetic: $72.50 divided by one minus 0.4953.
The two-point wedge, and which side of it is taxed
CRA charges the base plus 4 and pays an individual the base plus 2. On the same $5,000 left outstanding for a year at Q1 2027 rates, that is $362.50 charged against $256.34 paid, a gap of $106.16. The two-point spread is written into the Regulation rather than set quarter by quarter, so it does not widen or narrow with rates: it was two points when the base was 1% in 2022 and two points when it was 6% in 2024.
Two asymmetries sit on top of the spread, and both run the same direction. Interest CRA charges is not deductible under 18(1)(t), while interest CRA pays is income under paragraph 12(1)(c), which brings in “any amount received or receivable by the taxpayer in the year … as, on account of, in lieu of payment of or in satisfaction of, interest”. The clock also starts later on CRA’s side: under subsection 164(3), refund interest for an individual runs from the latest of 30 days after the balance-due day, 30 days after the day the return was filed, and the day the overpayment arose. File in April for a refund of money overpaid months earlier and the interest does not run from the day you overpaid.
Refund interest is ordinary interest income, taxed at your full marginal rate with no inclusion rate, no gross-up and no credit. Our guide to how investment income is taxed in Canada sets interest beside dividends and capital gains and shows what each one keeps after tax.
The 15 December instalment sits on the quarter line
Individual instalments are due 15 March, 15 June, 15 September and 15 December, and where a due date falls on a weekend or a CRA-recognised holiday, payment received the next business day is on time. Instalment interest is, in CRA’s words, “compounded daily at the prescribed interest rate, which can change every three months”. The practical content of this quarter’s arithmetic for an instalment payer is that nothing steps up underneath them on 1 January: a 15 December shortfall accrues at 7% under the Q4 2026 rate and keeps accruing at 7% under the Q1 2027 rate.
CRA charges by offset. A is interest on each instalment you should have paid, running from its due date to the balance due date. B is interest on each instalment you did pay, from the payment date or 1 January, whichever is later. You are charged A minus B, and only where it exceeds $25. Paying early or overpaying earns instalment credit interest, which CRA says “is not refundable and can only be used against any interest charges on insufficient or late payments for the same tax year”. The s.163.1 penalty engages only once instalment interest exceeds $1,000. All of it turns on a late or insufficient payment, so an instalment paid in full on 15 December costs nothing at any prescribed rate. Our piece on CRA tax instalments after a capital gain covers who gets put on instalments and how that penalty is computed.
The 3% a spousal loan can lock for its whole life
Of the four rates above, the 4301(c) base of 3% is the one with a planning decision attached, because of a feature none of the others have. A prescribed-rate loan between spouses takes the rate in effect on the day the loan is made and keeps it for as long as the loan runs, however high the prescribed rate goes later. Our piece on prescribed-rate loans between spouses covers the attribution rules the structure works around, s.74.5(2), the 30 January interest deadline, and the arithmetic of when it actually saves tax.
We wrote that piece on 23 September 2026, and it reached a specific conclusion: the rate is sticky, and the urgency of locking in ahead of a rise was oversold on the data available then. It also said, in terms, that October’s auctions had not been held, so the first quarter of 2027 was unknown. It is known now, and the September conclusion held. The base is 3%, with the step to 4% still out of reach. What has changed is the distance to that step, measured the same way on both dates, from the most recent auction to the 3.0000% boundary:
| Measured on | Most recent auction | Distance to the 3.0000% boundary |
|---|---|---|
| 22 September 2026 | 2.39% | 61 basis points |
| 3 November 2026 | 2.61% | 39 basis points |
The Bank of Canada raised the policy rate to 2.50% on 28 October 2026, effective the following day. The next decision is 9 December 2026, priced on 5 November 2026 at a 43% implied chance of a 25 basis point hike, or 10.78 basis points of a move, from Montreal Exchange one-month CORRA futures settlement prices. We track that pricing in our read on December rate hike odds.
Here is where the calendar bites. Q1 2027 is closed, because the October auctions that set it have already been held. The next quarter CRA sets is Q2 2027, from auctions held in January 2027, all of which fall after the December decision. For the base to step to 4% and the overdue rate to 8%, January’s mean has to come in above 3.0000%, a further 39 basis points from the 3 November level of 2.61%. Whether it gets there is not something we will forecast. The planning point that is both narrow and real: a prescribed-rate loan made at any point before 1 April 2027 is made at 3%, and that 3% never resets.
The Income Tax Act rates, and the GST and HST rates beside them
These are the rates Regulation 4301 sets under the Income Tax Act. Interest on GST and HST runs under the Excise Tax Act instead, and CRA publishes it on the same quarterly page: on the Q4 2026 announcement, overdue GST and HST remittances both carry 7%, with overpaid remittances at 5% for a non-corporate taxpayer and 3% for a corporation, the same figures as income tax that quarter. What the arithmetic does reach is the rate an individual balance runs at from 1 January: 7%, compounding daily from 1 May 2027 on anything owing for 2026, against the 3% a spousal loan written before 1 April 2027 keeps for its life.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. The rule is Income Tax Regulations s.4301, Justice Laws, regulations current to October 19, 2026 and last amended June 18, 2026; s.4302, which s.4301 is expressly subject to, was read and governs leasing property under ITA 16.1(1)(d) and Regulation 1100(1.1) only. The input is the Bank of Canada Valet series V80691303, Treasury bill auction average yields, three month, pulled November 5, 2026: October 2026 held two auctions, October 6 at 2.41% and October 20 at 2.53%, a simple arithmetic mean of 2.4700%, rounded up under 4301(a)(i) to a base of 3%. The derivation was control-tested against the twenty CRA quarterly rate pages from Q1 2022 to Q4 2026, which contain eight step changes in the base, and reproduced all three published whole-percentage rates in twenty of twenty quarters. Because 4301(b.1) makes CRA publish the same mean to two decimals in its pertinent-loans rate, our input was additionally compared to CRA’s own: identical to the basis point in 12 quarters, within 1 basis point in 18, largest disagreement 3.50 basis points, against 53 basis points of margin on the Q1 2027 mean. CRA has not published Q1 2027: the canada.ca URL that will hold it returned a page-not-found response on November 5, 2026. Daily compounding is ITA s.248(11); non-deductibility is paragraph 18(1)(t); interest received is income under paragraph 12(1)(c); refund interest timing is subsection 164(3); interest on an unpaid balance and on instalments is s.161(1) and 161(2); the instalment penalty is s.163.1. Instalment due dates, the A minus B offset method, the $25 threshold and the instalment credit interest wording are from CRA’s instalment due-dates and interest-and-penalty pages. December 9, 2026 pricing is Montreal Exchange one-month CORRA futures settlement, fetched November 5, 2026. All dollar amounts and distances to the rounding boundaries are our arithmetic, from the same engine that generates both charts. The Bank of Canada policy rate of 2.50%, its October 28, 2026 decision date and its October 29 effective date are from the Bank of Canada’s key interest rate page, confirmed against Bank of Canada series V39079. The GST and HST overdue and overpaid remittance rates for Q4 2026 are read from CRA’s own Q4 2026 announcement and are set under the Excise Tax Act, not Regulation 4301; no Q1 2027 figure is derived for them. The balance-due day is ITA s.248(1), paragraph (c) of the definition, and s.161(1) charges interest only after that day. Pertinent loans or indebtedness is ITA s.17.1(1) on Justice Laws, read November 5, 2026.
