A Canadian Family Loan Agreement is a legally binding contract that formalizes a loan between family members, establishing clear terms for the principal amount, interest rate, repayment schedule, and consequences of default. Unlike informal cash transfers between relatives, a written family loan agreement creates enforceable obligations and protects both the lender and borrower from misunderstandings that can damage family relationships.

Family loans in Canada are subject to the same federal legislation as commercial loans. The Criminal Code of Canada (s.347) makes it a criminal offence to charge an effective annual interest rate exceeding 60%, and the Interest Act (R.S.C. 1985, c. I-15) requires that all interest rates be clearly disclosed as an annual rate. If a family loan agreement states interest on a monthly or other non-annual basis without disclosing the equivalent annual rate, the lender can only recover interest at 5% per annum under s.4 of the Interest Act.

From a tax perspective, the Canada Revenue Agency (CRA) applies attribution rules under the Income Tax Act to intrafamily loans. If you lend money to a spouse or common-law partner, or to a minor child or grandchild, at a rate below the CRA's prescribed interest rate, any income or capital gains earned on the borrowed funds may be attributed back to the lender for tax purposes. To avoid attribution, the loan must be documented in writing, charge at least the prescribed rate (published quarterly by the CRA), and the borrower must pay all interest owing within 30 days after the end of each calendar year.

A family loan agreement also provides protection in the event of a family dispute, separation, or death. Without written documentation, a lender's estate may have difficulty proving the existence and terms of the loan, and the borrower's creditors may dispute the claim. A properly documented family loan agreement establishes the lender's priority as a creditor and provides evidence for CRA audit purposes.

This template is designed for loans between family members in all Canadian provinces and territories. It allows you to select your governing province, which determines the applicable limitation period for debt collection, consumer protection requirements, and court procedures for enforcement.

When lending money to a spouse, child, parent, sibling, or other family member and both parties want clear, enforceable terms for repayment to protect the family relationship and the lender's financial position.

When a parent or grandparent provides a loan to help a child or grandchild with a home purchase, education expenses, or business startup costs, and needs to document the transaction as a loan rather than a gift to avoid CRA attribution rules and preserve the lender's claim to repayment.

When a family member borrows money for a business venture and the lender wants to formalize the terms to ensure the borrower treats the obligation seriously, including interest charges, a fixed repayment schedule, and clear default consequences.

When structuring an intrafamily loan to comply with CRA prescribed interest rate requirements under the Income Tax Act, allowing the borrower to invest the borrowed funds without income attribution back to the lender.

When a family member needs financial assistance during a difficult period (job loss, medical expenses, divorce) and the lender wants to help while ensuring the obligation is documented and the terms are fair to both parties.

When a family lender wants to charge interest on the loan to compensate for the opportunity cost of lending, while ensuring the interest rate complies with the Interest Act and Criminal Code s.347 cap of 60% per annum.

When estate planning requires clear documentation of family debts to ensure the lender's estate can collect outstanding amounts and the borrower's estate properly accounts for the obligation.

Without a written family loan agreement, the CRA may reclassify the advance as a gift, the lender has no enforceable right to interest, and the family relationship is at risk of damage from misunderstandings about repayment expectations.

Parties and Relationship — Full legal names and addresses of both the lender and borrower, along with their family relationship. This establishes the context of the loan and may be relevant for CRA attribution rule analysis.

Loan Amount and Currency — The exact principal amount in Canadian dollars (CAD), the method of disbursement (cheque, bank transfer, e-transfer), and the date funds are advanced. For loans disbursed in instalments, include a draw schedule.

Loan Purpose — Optional but recommended, describing what the borrowed funds will be used for (home purchase, education, business startup, personal expenses). This helps establish the bona fide nature of the loan for CRA purposes.

Interest Rate — The annual interest rate expressed as required by the Interest Act. To avoid CRA attribution rules, the rate should be at least the prescribed rate published quarterly by the CRA. The total effective rate, including all fees, must not exceed 60% per annum under Criminal Code s.347. Specify whether the rate is fixed or variable and how interest is calculated (simple or compound).

Repayment Schedule — Payment amounts, frequency (weekly, bi-weekly, monthly), commencement date, and maturity date. Specify whether payments are interest-only, blended (principal and interest), or a lump sum at maturity. Include the total number of payments and the final payment amount.

Late Fees and Default — Define what constitutes default (missed payment, breach of covenant) and the consequences, including late payment fees, acceleration of the entire balance, and the lender's right to pursue legal remedies. Specify the grace period before a late fee is applied.

Tax Considerations — Reference to CRA attribution rules and the requirement for the borrower to pay interest within 30 days of year-end to avoid income attribution. The lender must report interest income on their tax return.

Governing Province — The province whose laws govern the agreement, determining the applicable limitation period for debt collection (2 years in Ontario, 2 years in BC, 2 years in Alberta, 6 years in other provinces) and court procedures.

Optional Clauses — Force majeure, confidentiality, indemnification, and dispute resolution (mediation or arbitration) clauses to address specific family circumstances and maintain privacy.