For many Canadians—especially in the Greater Toronto Area (GTA), and other high-priced markets—owning a home has become an increasingly difficult dream. A downturn in the housing market hasn't made homes more affordable; in fact, persistent economic uncertainty, high interest rates, and stringent mortgage stress tests have only widened the affordability gap.
That’s why more first-time buyers are leaning on the so-called "Bank of Mom and Dad" to get into the market. But while borrowing from family may seem like a quick solution, it comes with serious financial, legal, and emotional considerations—especially if things go wrong.
Whether you're a parent offering support or a child hoping to buy your first home, here’s what you need to know to plan wisely, avoid pitfalls, and protect everyone involved.
Family Help is on the Rise—But It’s Complicated
According to a recent CIBC report, 31% of first-time Canadian homebuyers received financial help from family, with the average gift in Ontario and B.C. reaching $128,000 and $204,000, respectively. Back in 2015, that figure was only 20%, illustrating how dependent young Canadians have become on intergenerational wealth transfers.
Many parents are tapping into their own home equity or downsizing to provide this support—often as part of an informal "early inheritance." But without a well-thought-out financial and legal strategy, even the most generous intentions can backfire.
Gift or Loan? You Must Choose—and Document It
Before providing funds to help a child buy a home, parents must clearly decide whether the money is a gift or a loan. This isn't just a semantic distinction—it can have major legal consequences, especially during a separation or divorce.
❓ Why It Matters:
- If the money is a gift, it generally belongs to the recipient and may become shareable property if used to purchase a matrimonial home, according to Ontario’s Family Law Act.
- If it’s a loan, and properly documented, it may be excluded from equalization on marriage breakdown and can be repaid from proceeds of sale.
✔ Best Practices:
- Gifts should be accompanied by a gift deed or letter, confirming that the money is not expected to be repaid.
- Loans should include a promissory note, outlining the terms of repayment, interest (if any), and be supported with evidence like bank transfers and emails.
Without proper documentation, your intentions may be contested—and the courts may side against you. For instance, in Massaar v. Moneck (2024), a mother successfully proved that nearly $200,000 given to her daughter and son-in-law was a legitimate non-interest-bearing loan, thanks to consistent documentation and clear legal steps.
The Legal Test for Gift vs Loan
If a dispute reaches court, judges apply a legal test to determine the nature of the financial support. Key questions include:
- Are there written documents indicating a loan?
- Was a repayment plan discussed or followed?
- Was interest charged or repayment demanded?
- Have similar advances been made to other children?
- Is there any evidence of repayment or enforcement?
In Chao v. Chao (2017 ONCA 701), the Ontario Court of Appeal emphasized that the totality of evidence—not just a signed letter—matters.
Protecting Your Gift with a Domestic Contract
Even if funds are clearly gifted, they could still be lost in the event of a marital breakdown if used to buy a matrimonial home.
Parents who want to ensure that a down payment remains with their child should encourage their child and their partner to sign a marriage or cohabitation agreement that designates the gift as excluded property.
A domestic contract can:
- Prevent the gifted funds from being divided on separation.
- Provide clarity and reduce future disputes.
- Safeguard intergenerational wealth transfers.
Koroll & Company is an accounting firm located in Newmarket, Ontario. We provide a full range of services including accounting, auditing, taxation and business advisory services. Our clients represent a broad cross section of small to large owner managed business and not-for-profit organizations. Contact us today!
