Business owners often utilize income splitting to reduce taxes, in particular, family loans. Family loans can be made to other family members including minor children through a family trust. Over time, these family trusts can provide significant tax savings.
However, as of October 1, 2013, the Canada Revenue Agency will be increasing the prescribed interest rate for these loans from 1% to 2%.
If you lock in a family loan before September 30, the current rate of 1% is indefinite. Any family loans made after October 1, 2013 will be at 2%.
Updated January 2025
