How Gifted Down Payments Work in Ontario
In Ontario's expensive housing market, it's increasingly common for parents or close family members to gift part or all of a down payment to help their children buy a home. Canadian lenders generally accept gifted down payments, but there are specific rules and documentation requirements. The gift must be a true gift — not a loan — and the donor must provide a signed gift letter confirming that no repayment is expected. The funds must be in the buyer's account before the mortgage closes, and lenders will want to see a paper trail showing the source and transfer of funds. Understanding these requirements upfront prevents last-minute delays in your closing.
The Gift Letter: What Lenders Require
Every lender requires a formal gift letter, and while formats vary slightly, the key elements are consistent. The letter must include: the donor's full name and relationship to the borrower, the exact gift amount, a clear statement that the funds are a gift and not a loan, confirmation that no repayment is expected or required, the property address (if known), and signatures from both the donor and the recipient. Some lenders also require the donor's bank statement showing the withdrawal and the recipient's bank statement showing the deposit. I provide all my clients with a template gift letter that satisfies every lender's requirements, so there's no guesswork.
Who Can Gift a Down Payment?
Most A-lenders (big banks and monoline lenders) accept gifts from immediate family members: parents, grandparents, siblings, and sometimes aunts and uncles. Gifts from friends, distant relatives, or business associates are generally not accepted by conventional lenders, though some alternative lenders may be more flexible. For insured mortgages (less than 20% down), CMHC, Sagen, and Canada Guaranty all require the gift to come from an immediate family member. If you're receiving help from a non-traditional source, talk to a broker first — we can identify lenders who will work with your specific situation.
Tax Implications for Donor and Recipient
Good news: Canada does not have a gift tax, so neither the donor nor the recipient pays tax on a down payment gift. However, there are some nuances to be aware of. If the donor is gifting funds from a non-registered investment account, they may trigger capital gains tax when selling investments to generate the gift. If the property is being purchased as an investment or rental property, CRA may scrutinize the arrangement more closely. Additionally, if the donor is a non-resident of Canada, the transfer may have reporting requirements. Both the donor and recipient should consult with their accountants to ensure there are no unexpected tax consequences.
Common Mistakes and How to Avoid Them
The most common mistake is not having proper documentation. Lenders want to see a clear trail: the gift money leaving the donor's account, arriving in the recipient's account, and sitting there for a reasonable period before closing (some lenders require 15–90 days of seasoning). Another mistake is mixing gift funds with other money in a way that makes the source unclear — keep gift funds in a separate or easily identifiable account. Finally, never represent a loan as a gift; if the lender discovers repayment is expected, it can void your mortgage approval. I walk every client through the documentation process step by step to ensure a smooth closing.
Frequently Asked Questions
Do I have to pay tax on a gifted down payment in Ontario?
No. Canada does not have a gift tax, so neither the person giving nor receiving a down payment gift pays tax on the transfer. However, the donor may have tax implications if they sell investments to generate the funds (capital gains tax).
Can my friend gift me a down payment for a home in Ontario?
Most conventional lenders only accept gifts from immediate family members (parents, grandparents, siblings). Gifts from friends are generally not accepted for insured mortgages. Some alternative lenders may be more flexible — consult your mortgage broker for options.
How long does gift money need to be in my account before closing?
Requirements vary by lender. Some accept gift funds deposited just before closing with proper documentation, while others require 15–90 days of 'seasoning' in your account. Your broker will advise on the specific timeline based on your lender's requirements.
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