In Canada a loan between private individuals is allowed, but since 1 January 2025 the Criminal Code bans any annual rate above 35 %, interest received is taxable and each province sets its own debt recovery rules.
Powers shared between Ottawa and the provinces
The federal government sets the criminal ceiling on interest and supervises the banks, while each province governs contracts, consumer protection and securities. A family loan in Halifax or Winnipeg is therefore subject to two separate layers of rules that both need checking.
Section 347 of the Criminal Code: the 35 % APR ceiling
Since 1 January 2025, section 347 makes any annual percentage rate above 35 %, fees and penalties included, a criminal rate. Previously the threshold was 60 % as an effective rate. A private lender remains bound by this limit, even for a favour between colleagues.
Quebec, the only civil law province
In Quebec, lending money falls under the Civil Code of Québec, which lets the court reduce unconscionable interest. The other nine provinces apply common law, where an acknowledgement of debt often takes the form of a signed promissory note.
Put the loan in writing, even within the family
No Canadian law imposes an official form, but a dated document avoids inheritance disputes and proves the money is not a gift. Use our private loan agreement template as a starting point and adapt it with a lawyer in your province.
Interest received: line 12100 of the T1 return
The Canada Revenue Agency treats interest earned on a private loan as investment income to report on line 12100. Quebec residents also declare it to Revenu Québec. Our page on the taxation of private loans covers the general principles to follow.
Lending to a spouse and the attribution rules
Lending interest-free to a spouse so they can invest the money may trigger the attribution rules of the Income Tax Act: the income generated is then taxed in the lender's hands. The quarterly prescribed rate published by the CRA serves as the benchmark.
Crowdfunding: the CSA and provincial regulators
Peer-to-peer lending platforms fall under the securities commissions grouped within the Canadian Securities Administrators. The AMF in Quebec, the OSC in Ontario and the BCSC in British Columbia publish lists of registered dealers along with investor warnings.
Payday lenders: 14 $ per 100 $ borrowed
Payday lenders holding a provincial licence enjoy an exemption from the criminal rate, now capped at 14 $ in fees per 100 $ borrowed. A private person copying this model without a licence risks prosecution, whatever the amount lent.
Recovering an unpaid debt in small claims court
If the borrower defaults, the lender goes to small claims in their province: 15 000 $ in Quebec, 50 000 $ in Ontario since October 2025, 100 000 $ in Alberta. The limitation period is three years in Quebec and generally two years elsewhere.
The loan frauds most often reported in Canada
The Canadian Anti-Fraud Centre, run by the RCMP, the Competition Bureau and the Ontario Provincial Police, lists the advance-fee scam as a classic. The fake lender demands fees by Interac e-Transfer, gift cards or a cryptocurrency ATM before vanishing.
Where to report a fake private lender
Call the Anti-Fraud Centre on 1-888-495-8501, then file a report with your local police and warn your financial institution. Our guide to reporting a private loan scam also lists the evidence to keep: screenshots, receipts and transaction numbers.
Six major cities, six private lending realities
Needs vary widely: international students in Montreal and its peer-to-peer loans, newcomers in Toronto, housing costs in Vancouver, energy workers in Calgary and Edmonton. Each local page names the relevant courts, professional orders and consumer associations.
Arranging a private loan that complies with Canadian law
- Calculate the annual percentage rate including every fee, and make sure it stays well below the 35 % criminal ceiling.
- Draft a loan agreement or promissory note setting out the amount, term, schedule, interest and consequences of late payment.
- Pay out the funds by traceable Interac or bank transfer with a clear reference to the loan, rather than in cash.
- Keep a record of repayments and interest received, useful for the T1 return and, in Quebec, for Revenu Québec.
- For a stranger or a platform, use the CSA National Registration Search and check your province's warning list.
- For a large amount or a mortgage guarantee, have the deed drawn up by a Quebec notary or a provincial lawyer.
Indicative costs and ceilings in Canada
| Item | Indicative amount | Detail |
|---|---|---|
| Rate agreed between individuals | Free up to 35 % APR (indicative) | Above that, an offence under section 347 of the Criminal Code |
| Authorised payday loan | 14 $ per 100 $ borrowed (indicative) | Reserved for lenders with a provincial licence |
| Tax on interest received | Federal and provincial marginal rate | Interest reported as investment income |
| Notarial deed or lawyer's advice | Variable fees in CAD | Recommended for a mortgage or a large sum |
| Small claims filing | Court fees depending on the province | Limits from 15 000 $ to 100 000 $ by province |
| Fees demanded by a fake lender | Total loss of the sums paid | No legitimate lender asks for a gift card advance |
Documents to prepare in Canada
- Provincial photo ID or Canadian passport
- Loan agreement or promissory note signed by both parties
- Repayment schedule in Canadian dollars
- Void cheque or bank statement showing the account numbers
- Borrower's CRA notice of assessment or pay stubs
- Confirmation of the initial Interac or bank transfer
- Equifax or TransUnion credit report if both parties wish
Traps and scam warning signs in Canada
- Adding processing fees that push the annual rate above 35 %, making the interest clause illegal and unenforceable.
- Paying insurance or activation fees by gift cards, cryptocurrency or Interac e-Transfer before receiving the promised loan.
- Sending your social insurance number or a photo of your bank card to a lender met on Facebook Marketplace.
- Failing to report interest received to the CRA, which can lead to a reassessment with penalties.
- Letting the provincial limitation period run out before taking recovery action against a silent borrower.
Common questions about private lending in Canada
Can a private person lend at 40 % interest in Canada?
No. Since 1 January 2025 the Criminal Code prohibits any annual percentage rate above 35 %, fees included. The lender faces criminal prosecution, and a civil court can cancel or reduce the interest clause.
Does a family loan have to be declared to the Canada Revenue Agency?
The loan itself does not need to be declared, but the interest received is taxable for the lender. An interest-free loan to a spouse can also trigger the attribution rules. Check your situation with the CRA or a tax specialist.
Are peer-to-peer lending platforms regulated in Canada?
Yes, a platform offering debt securities to investors falls under the provincial securities commissions. Before investing or borrowing, look up its name in the CSA national registration tool and in your provincial regulator's warnings.
What should you do after paying fees to a fake lender?
Stop all payments, contact your bank immediately to try to recall the transfer, report the fraud to the Canadian Anti-Fraud Centre and file a police report. Then beware of so-called fund recovery services, often run by the same scammers.