Helping your kids buy a home with a gift or loan

Back up good intentions with proper legal planning

Although the housing market in the Greater Toronto Area (GTA) and elsewhere is currently undergoing a downturn, likely due to economic uncertainty, home ownership remains out of reach for many. For young Canadians, a home purchase is often supported (at least partially) by the “Bank of Mom and Dad.”

In 2015, 20% of first-time home buyers received financial help from family members, and this has increased to 31% over the last few years. Further, in Ontario and British Columbia, provinces with the highest unaffordability, the average first-time home buyer gift from family amounts to $128,000.00 and $204,000.00, respectively.

Even when children do not need financial assistance to purchase a home, many parents are choosing to advance funds to children during their lifetimes, which is often facilitated by parents downsizing and reaping the benefits of high housing prices on selling their principal residence.

See our past blog which touches on the “great wealth transfer” and its implications for different generational cohorts.

In the context of family law, to ensure protection on marriage breakdown between a child and his or her spouse, parents should obtain legal advice on how best to structure providing financial assistance to a child, whether by way of gift or loan, as well as how to document it properly.

Is it a gift or loan?

Importantly, if you would like to advance funds to your child, you must determine if you will do so in the form of a gift or a loan.

A gift is a voluntary transfer of property to another person without consideration, whereas a loan requires repayment, the terms of which may be documented in a loan agreement. Importantly, the intention of the donor (the person providing the gift or loan) must be clear to avoid the pitfalls and legal expense involved to determine the nature of the transfer should a dispute arise.

You cannot have your cake and eat it too; making a gift to your child and their spouse but subsequently, on their marriage breakdown, asserting that it was a loan in an attempt to recoup your gift or influence your child’s equalization calculation can lead to undesirable outcomes.

For example, the Supreme Court of Canada found in Rascal Trucking Ltd. v. Nishi, 2013 SCC 33, that a contribution to the purchase price of property without any intention to impose conditions or requirements is a legal gift.

A deed of gift or loan agreement/promissory note is often sufficient to document the true intention of a parent’s contribution, however, when the nature of the contribution is in dispute, the court undertakes a factual analysis which often relies on the credibility of witnesses to make such determination.

The legal test for gift vs. loan

In Chao v. Chao, 2017 ONCA 701, the Court of Appeal for Ontario outlined key factors to determine whether a parent’s financial contribution was a gift or a loan:

1. Whether there [are] any contemporaneous documents evidencing a loan;
2. Whether the manner for repayment is specified;
3. Whether there is security held for the loan;
4. Whether there are advances to one child and not others, or advances of unequal amounts to various children;
5. Whether there has been any demand for payment before the separation of the parties;
6. Whether there has been any partial repayment; and
7. Whether there was any expectation, or likelihood, of repayment.

The considerations enumerated above make clear that while documentary evidence is helpful, the various facts surrounding an advance as well as the enforcement of the terms of the underlying documents are relevant to the determination of whether it is a gift versus a loan.

In Massaar v. Moneck, 2024 ONSC 6889, Marian Massaar sought repayment of nearly $200,000 advanced to her daughter and son-in-law to help them purchase their first home. The ample factual evidence allowed the Court to find that it was a legitimate non-interest-bearing loan, not a gift:

1. In the 2017 gift letter required by the mortgage lender, in consultation with her financial advisor, Marian amended the language and handwrote “[the funds] reflecting a non-interest-bearing and unsecured loan from mother to daughter and son-in-law”;
2. A consistent repayment record was supported by bank statements and texts;
3. A promissory note was executed on the insistence of Marian once the couple began experiencing marital problems;
4. Multiple formal demands for repayment, including formal letters by Marian’s legal counsel, were issued; and
5. Marian had provided similar loans to her other daughters and their partners to help them purchase first homes, which were similarly documented and repaid.

Given the strength of the foregoing facts as well as the adverse credibility findings against the son-in-law, the Court readily granted a summary judgment in favour of Marian, and her loan was repaid from the property’s proceeds of sale.

The Court also noted that due to the evidence available, a summary judgment was appropriate and “would result in a savings of time and expense associated with a trial, meeting the objectives of proportionality, efficiency, and cost-effectiveness.”

How a domestic contract helps to protect your funds

Under section 4(2) of the Ontario Family Law Act, R.S.O. 1990, c. F.3, gifts and inheritances received during a marriage are generally excluded from the division of property on relationship breakdown except if they are used to acquire a matrimonial home, in which case the gift or inheritance loses its exclusion and becomes shareable property.

The legislation also provides for property the spouses have agreed by domestic contract (which includes cohabitation and prenuptial agreements) to exclude will not be subject to equalization.

Therefore, a marriage contract that clearly states that a gifted down payment will remain the recipient’s excluded property may be recommended if you would like to gift your child a down payment, but protect against matrimonial claims in the event of relationship breakdown.

Family financial support remains critical for many first-time homebuyers. But good intentions must be backed by proper legal planning. Whether you intend to gift or lend funds to a child, clear documentation and, where appropriate, domestic contracts, can protect both your estate and your family relationships from future disputes.

Nicholas André is an Associate Lawyer at O’Sullivan Estate Lawyers. His practice focuses on estate planning, estate administration, and advising executors, trustees, beneficiaries, and attorneys for property and for personal care, as well as matters directly related to these areas of the law. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

Content © 2025 by O’Sullivan Estate Lawyers LLP. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.

This article is the opinion of the writer and is meant to be general in nature, limited to the law of Ontario, Canada. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.

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