Nobody asks their brother for a promissory note. When a cousin needs $20,000 for a down payment or a friend from the gurdwara, the mosque, or the old neighbourhood needs help getting a trucking business started, the money tends to move on trust. A quick e-transfer, a handshake at the kitchen table, and a promise to pay it back “when things settle down.”
Years later, things have not settled down. Perhaps the borrower says the money was a gift. Perhaps a marriage has ended and the former in-laws want their money back. Perhaps a parent has died and the siblings disagree about what was owed. What makes these cases so hard is that they are two disputes at once: one about money and evidence, and one about a relationship that may never quite recover.
Please read this as general information on Ontario law rather than advice on your own situation. The answers often depend on small details, and an early conversation with a lawyer can stop a modest problem from becoming an expensive one.
The Core Question: Loan or Gift?
Most disputes come down to this. In general, the person seeking repayment has to prove on a balance of probabilities that a loan existed, meaning the parties understood the money would be paid back. A court will look at what people said and did at the time.
Things that can point toward a loan include:
- A message such as “I’ll pay you back by December” or “thanks for the loan.”
- An e-transfer memo saying “loan,” or earlier repayments by the borrower.
- A pattern of regular amounts sent back, even if small.
- A witness to the conversation, especially one with no stake in the outcome.
- The lender’s own circumstances, such as drawing on a line of credit or retirement savings, which makes a gift less likely.
- Whether the amount was treated as a debt in other documents, such as a mortgage application, a financial statement, or a separation disclosure.
Things that can point toward a gift include:
- Mortgage “gift letters” signed by the person now claiming a loan. These are often required by lenders, and they can be devastating evidence. A signed statement to a bank that the funds were a non-repayable gift puts the signer in an awkward position, however well-intentioned it was.
- Years without any request for repayment.
- Family occasions: money given at a wedding, a graduation, or the birth of a child.
- Similar payments to other children or relatives that everyone treated as gifts.
Family transfers bring in one further wrinkle. Where property moves for no consideration, the law can apply presumptions about what was intended. In Pecore v. Pecore, 2007 SCC 17, the Supreme Court of Canada explained that a gratuitous transfer from a parent to an adult child is generally presumed to create a resulting trust, leaving the recipient to show that a gift was intended. This presumption was developed in the trust context and may not map neatly onto every informal loan claim, so ask a lawyer whether it helps or hurts in your case.
What Counts as Proof
A written loan agreement is ideal, but its absence does not defeat a claim. Ontario law does not generally require a personal loan to be in writing. A promise by a third person to answer for someone else’s debt is different, since a guarantee generally must be in writing and signed under section 4 of the Statute of Frauds.
If you are preparing to claim or defend, gather the following:
- Bank records and e-transfer confirmations showing the money moving, and anything showing how it was used.
- Every text, WhatsApp message, email, and voice note that mentions the money. Export whole conversations where you can, because a screenshot of one line invites arguments about context.
- Records of any repayments, however small.
- Names of anyone who heard the conversation or knew about the arrangement.
- Tax or financial documents in which the money was described.
If key messages are in Punjabi, Urdu, Hindi, Gujarati, or another language, you may need a proper translation for court. Let your lawyer or paralegal know early.
Be careful about creating evidence in a way that looks staged. It is fine to send a calm message asking when you can expect repayment, and a reply confirming the debt can be very useful. A sudden, lawyer-scripted message after years of silence might be given less weight, and pressuring someone with threats to expose them to family or community can create separate legal problems for you.
Timing: When Does the Two Years Start?
Ontario’s basic limitation period is two years from the day the claim was discovered, under the Limitations Act, 2002. For informal loans, the starting point depends on the terms.
Fixed repayment date. If the borrower promised to repay by a set date and failed to, the clock generally starts around that missed date.
Instalments. Each missed instalment may have its own timing, unless the agreement makes the entire balance due on default.
Demand loans. Many family loans have no due date at all, and a loan that is simply repayable when asked for may be treated as a demand obligation. Section 5(3) says that for a demand obligation, the loss occurs on the first day there is a failure to perform, once a demand for performance is made. In plain terms, the two years may not begin until you demand repayment and the borrower fails to pay. This can be a big help to the lender, but it is not limitless. A 15-year ultimate limitation period runs from the date of the act or omission on which the claim is based, and courts will look closely at whether the arrangement really was on demand. “Pay me when your business is doing well” may be treated differently.
Acknowledgments. Under section 13, a written, signed acknowledgment of a fixed debt restarts the clock from the date of the acknowledgment, and a part payment has the same effect. A message saying “I know I owe you the $15,000” can matter a great deal. A vague “I’ll sort you out” may not.
Death. If the borrower or lender dies, other rules can apply, including limits on time and evidence, so get advice right away.
If you are unsure, assume the shorter period applies and move early. A polite demand followed by a clear, dated record will generally put you in a better place than continued waiting.
When the Other Person Has Died
These claims often surface after a funeral, when a parent’s records reveal payments no one had known about, or a sibling produces a story that no one else can confirm. Ontario’s Evidence Act has a specific rule on this point. Under section 13, in an action by or against the heirs, next of kin, executors, administrators, or assigns of a deceased person, an opposite or interested party cannot obtain a judgment on their own evidence about events before the death, unless that evidence is corroborated by other material evidence.
Your own word, however sincere, is generally not enough if you are claiming against an estate. Bank records, messages, or independent witnesses become essential. Executors should also tread carefully before paying a claim or forgiving a debt, because they have duties to all beneficiaries.
Spouses, In-Laws, and Separation
Parents often advance money to a married child to help buy a home in Brampton or elsewhere in Peel. If the marriage later ends, the characterization of that money can have a large impact on what each spouse owes the other under family law. Whether it was a loan or a gift, and to whom, can affect an equalization calculation. Parents might also be drawn into the family case as witnesses or claimants.
If that describes your family, get advice from someone who works in both civil and family law, since a family proceeding and a civil claim can overlap. Our family law group can speak to the separation side of the problem. Gift letters signed for a mortgage lender often become a central issue in these disputes.
Interest Between Family Members
Most informal loans carry no agreed interest. If you win, you may still be awarded prejudgment interest under the Courts of Justice Act, generally at the rate set under that Act.
Agreed interest has to be clear. And if a private loan does charge interest, keep in mind that section 347 of the Criminal Code makes it an offence to receive interest at a criminal rate, defined as an annual percentage rate above 35 per cent, with fees and charges potentially counted. Certain exemptions exist for larger commercial loans. Casual lending arrangements with a “$500 a month on $10,000” style of interest can be well past that limit, and that would be a serious problem for the lender.
Trying to Resolve It Without Court
A lawsuit against a family member has a cost that is not measured in dollars. Before filing, consider the following.
A straightforward conversation. It might be possible to agree on a realistic repayment schedule, particularly if the borrower genuinely cannot pay all at once.
A signed repayment agreement. Even a one-page document helps: the amount owing, schedule, consequences of a missed payment, and signatures. This can also serve as an acknowledgment under the Limitations Act, 2002.
A demand letter. It clarifies your position and may begin the clock on a demand loan, so think about the timing. A lawyer’s letter can shift the tone in a family, for better or worse.
Mediation or a trusted community figure. Elders, faith leaders, or professional mediators can help preserve the relationship. An informal resolution should still be written down. If you are entering a formal process with an independent third party, ask a lawyer how it may affect limitation periods.
Going to Court
Claims up to $50,000, excluding interest and costs, can be brought in Small Claims Court, which in Brampton sits at 7755 Hurontario St. Loan claims are an example listed by the province. The rules are designed to be accessible, and many people represent themselves, although credibility-based disputes often benefit from legal help. Larger amounts go to the Superior Court of Justice, where costs and procedure are significantly heavier. See our small claim matters page for more on the process.
Expect the trial to focus on credibility. A judge who sees only two people’s conflicting memories will look for whatever objective evidence exists, and a claim with little or no paper might fail even if the lender is telling the truth. Consider also whether the borrower has any money or assets. A $30,000 judgment against someone with no income is a piece of paper.
If you are the one being sued, do not ignore the claim. The 20-day timeline to file a defence in Small Claims Court runs from service, and missing it can lead to default judgment. Gather your evidence that the funds were a gift, or that you have paid some or all of the amount, and consider whether a limitation defence is available. Avoid messages admitting anything until you have received advice. An acknowledgment made casually can undo a limitation defence.
Lending Again? A Small Precaution
If you are thinking about helping someone now, a short written note signed by both of you can save everyone a lot of pain later, and it says nothing about how much you trust them. State the amount, whether it is a loan or a gift, when and how it should be repaid, and whether there is any interest. For larger sums, a lawyer can draft a promissory note or loan agreement that suits your purpose.
Disputes like these are rarely only about the money. If you need help working out where you stand, our civil litigation team can review your records and talk through your options with care and discretion.