IOU / Debt Acknowledgment (Canada)

A Canadian IOU is a simple written acknowledgment of debt that is enforceable as a contract under common law principles in all provinces, or under the Civil Code of Quebec for Quebec transactions. A promissory note is a formal negotiable instrument governed by the Bills of Exchange Act 1985, which under Section 176 requires an unconditional promise to pay a sum certain in money, signed by the maker and delivered to the payee. Unlike a promissory note, a Canadian IOU is not a negotiable instrument — it cannot be endorsed and transferred to a third party who then acquires independent rights to payment under the Bills of Exchange Act 1985. However, IOUs are simpler to draft and well-suited for informal loans where the formality of a promissory note is unnecessary. The Ontario Superior Court of Justice and provincial small claims courts have consistently upheld signed IOUs as valid contracts evidencing a debt obligation, provided the document identifies the creditor and debtor, states a specific CAD amount, and contains a repayment commitment. The forms-legal.com IOU Canada template satisfies all common law requirements for enforceability across Canadian provinces.

Yes. A signed Canadian IOU is a legally binding contract enforceable in provincial courts, provided it contains the essential elements of a valid contract — offer, acceptance, consideration, and intention to create legal relations. While it is not a negotiable instrument under the Bills of Exchange Act 1985, a written IOU serves as admissible evidence of a debt and the debtor's promise to repay. Section 13 of Ontario's Limitations Act 2002 provides that a written acknowledgment of debt restarts the two-year basic limitation period, which means a signed IOU can preserve the creditor's right to sue even after the original debt has aged. British Columbia's Limitation Act 2012 and Alberta's Limitations Act 2000 contain equivalent acknowledgment provisions. Having a witness sign the IOU adds evidentiary weight — the witness can testify in court if the debtor later disputes the authenticity of their signature. In small claims proceedings before the Ontario Small Claims Court (jurisdiction up to $35,000 under the Courts of Justice Act 1990), a signed IOU is typically sufficient to establish the plaintiff's case, shifting the burden to the defendant to explain why repayment is not owed. The Canada Revenue Agency may also rely on a signed IOU as evidence that a transfer of funds between family members was a loan rather than a gift when applying the attribution rules under Sections 74.1 to 74.5 of the Income Tax Act 1985.

As of January 1, 2025, Section 347 of the Criminal Code 1985 sets the criminal interest rate at 35% annual percentage rate, reduced from the prior effective threshold of approximately 48% by amendments introduced through Bill C-56. Charging interest at a criminal rate — or entering into an agreement to do so — is a criminal offence under Section 347 of the Criminal Code 1985 punishable by up to 5 years imprisonment on indictment or a fine and/or imprisonment up to 2 years less a day on summary conviction. This cap applies to all fees, charges, penalties, and other amounts paid or payable in connection with the loan, not merely the nominal interest rate stated in the IOU. If no interest rate is specified in the IOU, Section 3 of the Interest Act 1985 provides a default rate of 5% per annum on any court judgment. Section 4 of the Interest Act 1985 further requires that any interest rate calculated on a period shorter than one year — such as a monthly rate — must also be expressed as an equivalent annual rate, otherwise only 5% per annum is recoverable regardless of what the document states. Lenders who charge between 5% and 35% per annum are operating within the legal range, but should express the rate clearly as an annual percentage rate and include it in the IOU to avoid disputes. The Financial Consumer Agency of Canada publishes consumer guidance on interest rate disclosure requirements for federally regulated lending products.

The limitation period for collecting on a Canadian IOU varies by province. In Ontario, Section 4 of the Limitations Act 2002 sets a two-year basic limitation period running from the date the creditor discovered, or ought to have discovered, that the debt was due and unpaid. British Columbia's Limitation Act 2012 and Alberta's Limitations Act 2000 also set two-year basic limitation periods. Saskatchewan, New Brunswick, and Nova Scotia similarly apply two-year periods under their respective limitations statutes. In Quebec, Article 2925 of the Civil Code of Quebec sets a three-year prescriptive period for personal actions of a patrimonial nature. Manitoba, Newfoundland and Labrador, Prince Edward Island, and the territories apply six-year limitation periods under their older limitations statutes. A written acknowledgment of the debt under Section 13 of Ontario's Limitations Act 2002 — such as a letter confirming the debt is owed, a new signed IOU, or a signed repayment schedule — restarts the two-year clock from the date of acknowledgment. Partial payment of the debt may also restart the limitation period in most provinces. Creditors should document any partial payment or written acknowledgment carefully, including the date and the debtor's signature, to preserve their right to sue if the debtor later defaults. Once the limitation period expires, the debt becomes statute-barred and the creditor cannot obtain a judgment from the Ontario Superior Court of Justice or any other Canadian court, even though the moral obligation to repay may remain.

Yes, you can charge interest on a personal IOU in Canada, but the rate must not exceed 35% annual percentage rate under Section 347 of the Criminal Code 1985 as amended effective January 1, 2025. Interest must also comply with Section 4 of the Interest Act 1985, which requires that any rate calculated on a period shorter than one year — such as a daily or monthly rate — be expressed as an equivalent annual percentage rate. Failing to state the annual equivalent means only the default 5% per annum under Section 3 of the Interest Act 1985 can be recovered in court, regardless of what monthly rate was agreed. For example, if the IOU states "2% per month" without stating the annual equivalent of approximately 26.8%, a court may limit recovery to 5% per annum. The CRA also applies the prescribed interest rate (currently 5% for Q1 2025) to assess whether a family loan is arm's length — charging below the prescribed rate can trigger income attribution rules under Sections 74.1 to 74.5 of the Income Tax Act 1985, meaning any interest income may be attributed back to the lender rather than taxed in the borrower's hands. To avoid attribution, family IOUs should charge at least the CRA prescribed rate in effect at the time the loan is made. The Financial Consumer Agency of Canada publishes guidance on interest disclosure requirements, and provincial consumer protection legislation in Ontario (Consumer Protection Act 2002) and British Columbia (Business Practices and Consumer Protection Act 2004) impose additional transparency obligations on lenders who lend commercially.

No. A Canadian IOU does not need to be notarized to be legally binding in any province or territory. Notarization is not a legal requirement for simple debt acknowledgments under common law provinces or under the Civil Code of Quebec. A signed, dated IOU with identified parties and a specific dollar amount is enforceable as a contract in the Ontario Superior Court of Justice, the British Columbia Supreme Court, the Alberta Court of King's Bench, and all other provincial superior courts without any notarial seal. However, notarization can add evidentiary value in certain circumstances. In Quebec, an IOU executed as a notarial act under Article 2813 of the Civil Code of Quebec becomes an authentic document, meaning its content is presumed true without further proof. More importantly, a notarial act in Quebec is executory by operation of law under Article 2814 of the Civil Code of Quebec — the creditor can proceed directly to enforcement without first obtaining a court judgment, which significantly accelerates debt recovery. For IOUs involving amounts above small claims court jurisdiction — $35,000 in Ontario under the Courts of Justice Act 1990 and $5,000 in Quebec under the Code of Civil Procedure — having a notarized or witnessed document strengthens the creditor's position. A lawyer-commissioned document (a statutory declaration under the Canada Evidence Act 1985 or the provincial evidence acts) can also add formality and deter later disputes. For most informal personal loans, however, a signed IOU witnessed by a neutral third party who can attest to the voluntary signing is sufficient protection.