Published by: Geoff Smith           February 11, 2022

Gifting a House Down Payment in Canada

As housing prices have skyrocketed out of reach for many a homebuyer it has become more common for parents or families to ‘gift’ monies in order to help those starting out to buy or upsize a home. That gift takes the form of money used for a down payment on the new home. Ideally the monies should come from an immediate family member and in some cases perhaps from a relative but it cannot come from a friend for conventional mortgages. 

As a ‘gifter’ you can essentially give as much as you want and in most cases the buyer can get a mortgage with the entire down payment gifted to them unless they are self-employed, then one would be required to put up 5% of the down payment amount. There is no gift tax in Canada for gifted down payment monies on either end of the gift. You should also know as the person gifting the monies that this is in no way a loan and there can be no expectation of repayment or reimbursement and the gifter must certify this to be true. The monies also have to be proven to have come from the gifter’s personal finances and not indirectly from a third party. 

 Once you decide to go forward with the gift, you will need to provide the buyer a ‘gift letter’ for them to furnish the lender with. Be aware that a mortgage approval will still require the recipient of the gift to meet the lenders mortgage expectations regarding credit score, cash flow ie. Income, stress test, and other outstanding debts in order to service the mortgage and may still be declined in spite of the financial boost. 

One must also understand that once gifted those monies cannot be expected to be recouped upon the sale of the property whatever the reason unless the person should want to gift it back to you if they are blessed with good fortune. 

Negative Effect of Gifting on the Housing Market 

A report by CIBC in 2021 showed that the average gift to buyers in 2020 was $82,000 nationally up from $52,000 in 2015. It found that 30% of Canadians received financial help from their families in 2020. This is a further worrying trend showcasing the evermore poor housing affordability in Canada’s increasing housing market. This inflow of gifts continues to widen the gap between bolstered housing prices and the growth in wages. 

Widespread gifting becomes a self-inflicting cycle where the gifts increase the demand and further boosts the market prices which in turn necessitates higher gift amounts to facilitate a purchase. The snake is eating its own tail.