Question 1

What are the tax implications of settling a debt for less in Canada?

Accepted Answer

Under ITA s. 80, the forgiven portion of a commercial debt may require the debtor to reduce tax attributes (loss carryforwards, UCC) or include up to 50% of the remaining forgiven amount in income. The creditor may need to issue a T4A slip if the forgiven amount exceeds CAD $200.

Question 2

What is the maximum interest rate allowed on overdue payments?

Accepted Answer

Under Criminal Code s. 347, as amended effective January 1, 2025, the criminal interest rate is capped at 35% APR for most non-exempt agreements. Charging interest above this rate is a criminal offence punishable by up to five years imprisonment.

Question 3

How long does a creditor have to collect a debt in Canada?

Accepted Answer

Provincial limitation periods apply: Ontario, BC, Alberta, and Saskatchewan have a 2-year limitation period; Quebec has 3 years; Manitoba, Newfoundland, and PEI have 6 years. Signing a settlement agreement or making a payment can restart the limitation period.

Question 4

Do I need a licence to offer debt settlement services in Ontario?

Accepted Answer

Yes. Under the Collection and Debt Settlement Services Act (Ontario), anyone offering debt settlement services for a fee must be registered with the province. This requirement applies to third-party debt settlement companies, not to individuals settling their own debts directly with creditors.

Frequently Asked Questions