Should parents gift or loan money for a down payment in Canada?

You've decided to help your child buy a home — a wonderful, increasingly common thing to do in Canada, where roughly one in seven recent buyers got down-payment help from family. But "I'll help" hides a bigger decision than most parents realize: should the money be a gift you never expect back, or a loan you do? The choice ripples through your child's mortgage approval, your own retirement, the tax picture, fairness among your other children, and — the one almost nobody thinks about until it's too late — what happens to the money if your child's relationship ends. This is a decision guide to help you choose well, and then make the choice stick.

Start with one question: can you afford to never see it again?

Before anything else, be ruthlessly honest about your own position. A gift is, by definition, gone — and the most common mistake generous parents make is giving away money they may need later. Canadians are living longer, long-term care is expensive, and a parent who hands over a six-figure down payment in their sixties can find themselves squeezed in their eighties. If parting with the money permanently would put your own retirement or care at any risk, that fact alone points toward a loan (so it can come back if you need it) or a smaller gift.

If, on the other hand, you've run the numbers and you genuinely don't need the money back under any plausible scenario, a gift becomes a real option — with the caveats below. The point is to make this a financial decision first and an emotional one second, not the other way around.

How each choice hits your child's mortgage

This is where many parents are surprised. Lenders treat gifts and loans very differently:

• A gift helps your child qualify. Because it carries no repayment obligation, it doesn't count against their debt-servicing ratios. Lenders like gifts — and they'll almost always require a signed gift letter confirming the money is genuinely non-repayable.
• A loan can shrink what they qualify for. A real loan adds a debt the lender must factor in, which can reduce the mortgage they're approved for.
• You cannot fake it. Telling the lender it's a gift when it's secretly a loan — signing a gift letter for money you expect back — is mortgage fraud. If you want it to be a loan, it has to be disclosed and structured as one.

So part of the decision is practical: if your child needs the gift letter to qualify at all, a gift may be the only route that works — and you'll need to accept the consequences of it truly being a gift. We cover this interaction in detail in our guide to down payments, mortgages, and the CRA.

The tax angle, briefly

For most parents this is simpler than feared, because Canada has no gift tax. A straightforward gift to an adult child generally creates no immediate tax for you or them. Loans can be more involved: an interest-free loan to a spouse or a minor child can trigger the CRA's income-attribution rules, and some families deliberately use prescribed-rate loans to split investment income. For a plain down-payment loan to an adult child, the main tax discipline is simply keeping a clear record of what the money was — gift or loan — because that label can matter to the CRA and others later.

The risk that changes everything: your child's divorce

Here's the consideration that flips many parents from "gift" to "loan," and it's the least understood. In Canada, the matrimonial home gets special treatment. Once your gift goes into the home your child shares with a spouse, the value of that home is generally divided between the spouses on separation — regardless of who supplied the down payment. Your gift, intended for your child, can end up effectively shared with their former partner.

This isn't theoretical. According to Statistics Canada, around four in ten Canadian marriages end in divorce, and family lawyers report a steady stream of parents trying to claw back down-payment money after a child's separation.

Sources: Statistics Canada (divorce rates); Mortgage Professionals Canada (down-payment-gift prevalence), as reported by The Globe and Mail, 2017.

How a loan can protect what a gift can't

This is the counterintuitive part. Because a documented loan is a debt, it generally has to be repaid off the top before the couple's remaining equity is divided. Structured properly — often as a loan that can be forgiven later if all goes well — it can keep the money pointed at your child rather than the marriage. Family lawyers frequently raise exactly this option for parents who want their help to stay in the family.

Source: family-law commentary, e.g. SullivanLaw and Crossroads Law (down-payment gifts and separation).

A loan isn't the only protection — a marriage contract or cohabitation agreement between the couple can also ring-fence a gift — but those require the couple's cooperation and a frank pre-wedding conversation. A loan from you to your child is something you control directly. The trade-off, as noted above, is the effect on mortgage qualification, so the two protections are sometimes combined.

Don't forget your other children

One quieter factor: fairness. If you gift one child a down payment and say nothing, you may be setting up resentment — or an estate dispute — among siblings who expected equal treatment. Some parents handle this by documenting a help to one child as a loan (to be settled or accounted for later), or by recording it as an advance on that child's inheritance. Either way, writing down what the money was protects the relationships between your children after you're gone, not just between you and one of them.

A simple way to decide

Weigh the two honestly against what matters to you:

Many parents land on a hybrid: a portion as an outright gift, and a portion as a documented (often forgivable) loan that protects the larger sum. That's a perfectly sensible answer — as long as each part is clearly recorded as what it is.

Whatever you choose, put it in writing

Notice the thread running through every section above: the gift challenged in a divorce, the loan that needs to be provable to a lender or the CRA, the fairness question among siblings, the court asking what was intended at the time. In every case, the thing that decides the outcome is whether there's a clear, contemporaneous record. A handshake doesn't survive a separation, a death, or a CRA audit. A signed document does.

If you decide a loan is the right call, the terms belong in a proper loan agreement: the amount, the date, the repayment terms (even if generous or forgivable), whether interest applies, and an explicit statement that it's a loan. If you decide a gift, a clear gift letter stating it's for your child does its own protective work. The one option that helps no one is leaving it unspoken.