Parents’ Guide to Gifting or Loaning a Home Down Payment

Parents used to plan financially for their children’s university tuition or contributions toward a wedding. Increasingly, however, families are prioritizing help for a home down payment. A CIBC study from June 2024 found that 31% of first-time home buyers received financial support from family, up from 20% in 2015, with the typical contribution averaging around $115,000. Given how common these gifts and loans have become, it’s important for parents to think carefully before transferring large sums to adult children.

Helping a child buy their first home can be tremendously valuable, but there are several practical and legal risks to consider. Overly generous financial assistance can reduce a child’s incentive to build independence. It can also create future problems if you later need those funds for your retirement, medical care or long-term care. Family circumstances may change as well—children can separate or divorce, and funds intended to stay in the family may be divided.

How to keep the money safe

Gifts or inheritances received during a marriage are sometimes exempt from division in a relationship breakdown. However, if the money is not documented clearly or is used to purchase a matrimonial home, courts may treat it differently and it could become part of the divisible family property. Lenders commonly request a gift letter when family funds are used for a down payment, but parents may prefer to structure the support as a loan instead.

Many families formalize a down payment advance with a written loan agreement. That agreement should be clear about interest, repayment terms and security. Courts have questioned informal loan agreements—if a loan lacks interest and repayment provisions, a court may conclude it was actually intended as a gift. Registering the advance as a second mortgage secured against the property strengthens the lender’s record, though registration alone may not be definitive proof of a loan’s character.

Another protective option is a domestic agreement—often called a pre-nuptial or cohabitation agreement—between the child and their partner to clarify ownership of assets and protect family contributions. Negotiating a pre-nup can be sensitive and emotionally charged, so families should approach the topic with care and legal guidance. For some parents and children, combining clear loan documentation with a domestic agreement provides the strongest protection.

Loan forgiveness is an option

Parents who structure assistance as a loan can choose to forgive it later, either while they are living or through estate planning after death. Forgiving a loan during your lifetime is straightforward if you are certain you will not need those funds in the future. When loans to different children vary in amount, documenting them helps ensure fairness when you settle your estate. Some wills include a “hotchpot” clause that factors outstanding loans into the final distribution so one child doesn’t receive an unintended advantage through an earlier gift or forgiven debt.

What are the tax implications of a gift or loan?

In Canada, simple gifts between adults are generally not taxable events—unlike in the U.S., where gift tax rules apply. U.S. citizens living in Canada should still be aware of their U.S. filing obligations. For Canadian residents, the main tax consequences from providing funds arise when you sell an asset at a capital gain or withdraw from a tax-sheltered account such as an RRSP to produce the cash you intend to give.

If the loan is intended for investment or business purposes, forgiving it can carry tax consequences. Interest on money borrowed to earn investment or business income is typically deductible to the borrower. If you forgive such a loan during your life, this can create a taxable event for the lender—potentially resulting in a deemed capital gain. Forgiving the loan on death through your estate generally avoids immediate tax consequences for the lender.

Another important consideration is the Canada Revenue Agency’s attribution rules. If you loan funds to an adult child for investment and the loan does not charge at least the CRA’s prescribed rate of interest (the document referenced a 5% rate at the time of writing), investment income such as interest, dividends, rental and business income can be attributed back to you and taxed in your hands. Capital gains are generally taxed in the child’s hands. To avoid unintended attribution, some parents choose to gift investment funds outright rather than provide an interest-free loan.

Before you loan or gift money for a down payment…

First and foremost, make sure you can support the gift or loan without jeopardizing your own financial security. Consider your retirement plans and potential future care needs. Get professional advice to understand family law, estate planning and tax implications specific to your situation. Proper legal documentation—clear loan agreements, registered mortgages, or domestic agreements—and informed estate planning can protect both parents and children while preserving family relationships.

Read more about financial gifts:

• 6 things to consider before borrowing from the Bank of Mom and Dad for your first home
• Financial gifts: What you need to know before giving money or investments
• The tax implications of gifting adult children money and more
• Do you ever have a legal obligation to pay RESP money back to your parents?