Prescribed charge
The prescribed charge is set by the Canada Income Company (CRA) every quarter and applies to loans made throughout that quarter. The present rate of interest used for low-interest loans is 3% as of Q1 2026.
It fell to 1% in 2020 for two years following the pandemic onset and was 1% as effectively for a number of years throughout the 2010s. In consequence, a number of taxpayers took benefit of this low threshold and established loans which are nonetheless at that very same low charge.
Repaying a spousal mortgage
You aren’t required to repay a spousal mortgage, although you’re required to make the annual curiosity funds by January 30 to keep away from earnings attribution. It’s possible you’ll want or select to repay the mortgage in some unspecified time in the future.
The borrower pays again the spousal mortgage principal utilizing any supply, together with the investments bought with the borrowed funds. The borrower may use their earnings or different property to repay a mortgage.
Promoting investments bought with the borrowed funds can set off capital features.
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Forgiving a spousal mortgage throughout your life
In the event you forgive a spousal mortgage throughout your lifetime, particular tax guidelines referred to as “debt-forgiveness guidelines” might apply to the partner who borrowed the cash. The borrower might have to scale back their non-capital or capital loss carryforwards, if they’ve any, by as much as the quantity of the debt forgiven.
In any other case, they should scale back the adjusted value base for depreciable or capital property to extend the long run capital achieve on sale for these property.
Any remaining forgiven quantity is included within the borrower’s earnings as a capital achieve within the 12 months the mortgage is forgiven.
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Forgiving a spousal mortgage on demise
A spousal mortgage will not be required to be repaid or forgiven. In truth, it may possibly stay excellent for a few years with the preliminary rate of interest when the mortgage was made persevering with to use.
If the lender dies and the mortgage is forgiven upon their demise, the debt forgiveness guidelines don’t apply. Nor do the spousal attribution guidelines apply to earnings earned from property bought by the borrower with the spousal mortgage.
Abstract
Spousal loans require correct documentation, tax reporting, and adherence to the annual curiosity cost guidelines.
There may be opposed tax implications if a mortgage is forgiven. Though a spousal mortgage doesn’t must be repaid, there could also be instances the place it is sensible to take action.
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