A Canadian Debt Acknowledgment is a written document in which a debtor formally acknowledges that they owe a specified sum of money to a creditor. Under Canadian law, this document serves a critical function regarding limitation periods. In Ontario, the Limitations Act, 2002 (S.O. 2002, c. 24, Sched. B) provides a basic limitation period of two years from the date the claim is discovered. Section 13 of that Act specifically provides that a written acknowledgment of a debt by the debtor restarts the limitation period.

Similar provisions exist across Canadian provinces. British Columbia’s Limitation Act (S.B.C. 2012, c. 13) provides a 2-year basic limitation period with acknowledgment restart provisions in section 24. Alberta’s Limitations Act (R.S.A. 2000, c. L-12) also sets a 2-year limitation period. In Quebec, the Civil Code of Quebec governs prescription (the civil law equivalent of limitation periods), with a general prescriptive period of three years (art. 2925 C.C.Q.) that can be interrupted by an acknowledgment of debt (art. 2898 C.C.Q.).

Canadian interest rate law is distinct from the United States. Section 347 of the Criminal Code (R.S.C. 1985, c. C-46) makes it a criminal offence to charge a criminal rate of interest, defined as an effective annual rate exceeding 60%. This rate includes all charges, fees, and penalties, not just the nominal interest rate. The Interest Act (R.S.C. 1985, c. I-15) provides additional protections, requiring that interest rates be expressed as an annual rate, and that mortgages allow early repayment after five years.

A Canadian Debt Acknowledgment is needed when a creditor wants to document an informal loan between friends or family members that was made without a written agreement. Under the Income Tax Act (R.S.C. 1985, c. 1, 5th Supp.), undocumented loans between related parties can be reclassified by the Canada Revenue Agency (CRA) as gifts, potentially triggering the attribution rules under sections 74.1 and 74.2, which attribute income earned on transferred property back to the transferor.

The document is essential when the limitation period on a debt is approaching. In Ontario, British Columbia, and Alberta, the basic limitation period is two years. Once the limitation period expires, the creditor loses the right to bring a court action to collect the debt, even though the debt itself remains valid. A written acknowledgment before the limitation period expires restarts the clock, preserving the creditor’s ability to enforce the debt through the courts.

Business contexts requiring debt acknowledgments include documenting advances made by a corporation to its shareholders or directors (which may have tax implications under section 15 of the Income Tax Act if not properly documented as bona fide debts), acknowledging debts between related corporate entities for transfer pricing and tax reporting purposes, and confirming the balance of a debt that has been partially paid or is in dispute.

In bankruptcy proceedings under the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3), a debt acknowledgment constitutes evidence of the creditor’s claim. In estate administration, it establishes that a deceased person’s estate owes money to a creditor, supporting a claim against the estate under provincial estate administration legislation such as Ontario’s Estates Administration Act (R.S.O. 1990, c. E.22).

A legally effective Canadian Debt Acknowledgment must identify the debtor and creditor by their full legal names, addresses (including province and postal code), and contact information. For corporate parties, the legal name as registered with the provincial corporate registry and the Business Number issued by the CRA should be referenced.

The specific dollar amount of the debt must be stated in Canadian dollars, including a breakdown of principal, accrued interest, and any fees or charges. The origin of the debt must be described with sufficient detail to identify the underlying obligation, including the date the debt was incurred and any reference numbers for associated contracts, invoices, or loan agreements.

Repayment terms should specify the payment schedule, amounts, and method of payment. Canadian payment methods include Interac e-Transfer (the dominant peer-to-peer electronic payment system in Canada), cheque, bank draft, wire transfer, and cash. The payment method should be clearly identified to prevent disputes about whether payments were received.

The interest rate, if applicable, must comply with section 347 of the Criminal Code, which prohibits effective annual rates exceeding 60%. The Interest Act (R.S.C. 1985, c. I-15) requires that interest rates be expressed as an annual rate. In consumer transactions, provincial consumer protection legislation may impose additional disclosure requirements and rate caps.

A governing law clause should specify the applicable province, as limitation periods, enforcement procedures, and consumer protection rules vary significantly across provinces. The document should include a clear statement that the debtor understands the acknowledgment may restart the applicable limitation period. Security interests in personal property should reference the applicable Personal Property Security Act (PPSA) in common law provinces or the hypothec provisions of the Civil Code in Quebec. Both parties must sign and date the document.