The short answer
Since 1 January 2025, it is a criminal offense in Canada to enter into an agreement to receive interest above 35% APR, unless an exemption applies. Commercial loans to corporations above $500,000 are not capped at all. That single threshold now shapes how many cross-border private mortgage deals are structured.
Where the rule comes from
The rule lives in section 347 of the Criminal Code, R.S.C. 1985, c. C-46. The Budget Implementation Act, 2023, No. 1 amended section 347 to replace the old 60% effective annual rate with 35% measured as an annual percentage rate. McMillan confirms loans entered into before 1 January 2025 that complied with the old cap remain enforceable under the prior rules.
The exemptions sit in the Criminal Interest Rate Regulations, SOR/2024-114. Anyone who knowingly enters, offers or receives interest at a criminal rate risks prosecution: MLT Aikins notes exposure of up to five years' imprisonment on indictment, or a fine up to $25,000 and up to two years on summary conviction.
The three tiers that matter to private lenders
| Loan | Borrower | Purpose | Criminal rate |
|---|---|---|---|
| Any amount | Individual (natural person) | Any | 35% APR |
| $10,000 or less | Any | Any | 35% APR |
| Over $10,000 up to $500,000 | Not a natural person | Business or commercial | 48% APR |
| Over $500,000 | Not a natural person | Business or commercial | No cap |
Source: Criminal Interest Rate Regulations, SOR/2024-114, as summarized by Torys and Lexology.
All three conditions must be met for the commercial exemption. A $2 million bridge loan to an individual investor is capped at 35% APR, however sophisticated the borrower. A loan to a holding company for a personal residence may fail the business-purpose test.
What counts as "interest"
Section 347(2) defines interest broadly. It captures charges and expenses of every kind paid for advancing credit, including lender fees, commitment fees, bonuses, discounts and certain penalties. It excludes a short list of items such as repayment of principal, certain insurance charges and specified official fees.
For private lenders, this means the stated coupon is rarely the whole picture. A 12% loan with a 3% lender fee, a broker fee paid by the borrower to the lender's affiliate, and a short term can produce an APR far above the coupon. Lexpert calls this risk "accidental loan sharking".
How courts treat an offending loan
The leading authority is Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7. The Supreme Court held that a court may use "notional severance" to read down the interest to the legal maximum, rather than voiding the whole contract. The remedy depends on factors including the purpose of the legislation, whether the parties were sophisticated and whether the lender acted in good faith.
Notional severance is discretionary, not guaranteed. A lender who designs a fee structure to evade the cap should expect a court to refuse relief. Well-drafted Canadian loan agreements include a "savings clause" reducing any charge that would breach section 347. Courts have given these clauses weight, but they are not a substitute for a compliant structure.
The Interest Act still applies
Section 347 is not the only federal rule. The Interest Act, R.S.C. 1985, c. I-15, adds three rules that catch US lenders by surprise:
- Section 4 — annual rate disclosure. If interest is expressed for a period of less than a year (for example, 1.5% per month), the contract must state the equivalent annual rate. If it does not, interest above 5% per year is not recoverable.
- Section 8 — no penalty on arrears. A mortgage on real property cannot impose a fine, penalty or rate that increases the charge on arrears beyond the rate on principal not in arrears. In Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, the Supreme Court held that a "discount" structure that in substance raised the rate after default breached section 8.
- Section 10 — five-year prepayment. Where a mortgage term exceeds five years and the borrower is not a corporation, the borrower may prepay after five years with three months' interest.
What this means for US lenders lending into Canada
US lenders often price default interest as a rate step-up. In Canada, that step-up on a real property mortgage can breach section 8 of the Interest Act. Use a single rate that applies before and after default, and price risk through fees that are tested against section 347.
US lenders also tend to quote monthly or "per point" pricing. Always add the section 4 annual-rate statement. Finally, calculate APR on the full cost of credit, and document the calculation in the file.
What this means for Canadian lenders
The $500,000 commercial exemption is valuable, but only for non-individual borrowers with a genuine business purpose. Structure loans to operating or holding companies where that reflects the real transaction, obtain a business-purpose certificate, and keep evidence of the use of funds.
Subsequent advances and renewals deserve attention. A renewal after 1 January 2025 is a fresh agreement and should be tested against the new cap.
Practical checklist
- Identify the borrower: natural person or entity?
- Confirm and document business or commercial purpose
- Confirm the amount of credit advanced against the $10,000 and $500,000 thresholds
- Calculate APR including every fee and charge
- Add an Interest Act section 4 annual-rate statement
- Remove default-rate step-ups on real property mortgages (section 8)
- Include a section 347 savings clause as a backstop only
Frequently asked questions
Frequently asked questions
What is the criminal interest rate in Canada in 2026?
It is 35% APR for most loans. Commercial loans to non-individuals are capped at 48% APR between $10,000 and $500,000 and are uncapped above $500,000.
Do lender fees count toward the criminal rate?
Yes. Section 347 defines interest to include fees, charges, bonuses and discounts paid for advancing credit, subject to limited exclusions.
Is a loan above the criminal rate void?
Not automatically. Under Transport North American Express v. New Solutions, courts may read the interest down to the legal maximum, but relief is discretionary.
Can a US lender charge default interest on a Canadian mortgage?
A rate increase on arrears generally breaches section 8 of the Interest Act. Get Canadian advice before using a default-rate structure.
This content is general information for industry professionals and is not legal, tax or financial advice. Laws change and apply differently to each transaction; obtain advice from qualified counsel in each relevant jurisdiction. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com