Many buyers in Canada get help from their parents or other relatives. A gift can pay for part or all of your down payment, but the money must be a real gift and not a loan. Your lender will also want documents that show who gave the money and how it reached you.
Who can give you the money
Who can give depends on who insures your mortgage. If you put less than 20% down, your mortgage must have default insurance, and each insurer publishes its own wording:
- CMHC accepts “a non-repayable financial gift from a relative” as a traditional source of down payment.
- Sagen accepts a non-repayable gift from a person related to the borrower through a family or legal relationship.
- Canada Guaranty accepts a gift from a close family member.
These programs do not list friends as an accepted source. If the person giving you money is not a relative, ask your lender before you accept it.
Insured and uninsured mortgages
Insured mortgages (less than 20% down). Your lender must meet the insurer’s rules as well as its own. The minimum down payment does not change because the money is a gift. Gifted money counts the same way as savings when the insurer sets your premium, as long as it is a traditional source. The higher 4.50% premium applies to borrowed (non-traditional) down payments, not to gifts.
Uninsured mortgages (20% or more down). No insurer is involved, so each lender sets its own policy on who may give. Federally regulated lenders still follow OSFI’s Guideline B-20. It covers insured and uninsured mortgages, and it says lenders should make rigorous efforts to find out where a down payment came from. A gift should come with a letter from the giver confirming “no recourse”. This means the giver has no legal right to ask for the money back.
The gift letter
Most lenders have their own form, so ask for it first. A gift letter usually includes:
- The full names of the giver and the buyer, and how they are related.
- The exact amount of the gift.
- A statement that the money is a gift, does not have to be repaid, and gives the giver no claim on the home.
- The address of the home you are buying, if you know it.
- The date and the giver’s signature.
The letter must be true. If you have agreed to repay the money, it is a loan, and that loan is a debt your lender needs to know about. OSFI expects lenders to report suspected fraud or misrepresentation to the insurer on insured applications, so a false gift letter can put your whole mortgage at risk.
Proof of funds
A letter alone is often not enough, because your lender also needs to see where the money came from. Be ready to show:
- A statement from the giver’s account that shows the money leaving.
- A statement from your account that shows the money arriving.
- Transfer records, such as a wire confirmation, that connect the two.
Avoid cash, which is hard to trace. Ask your lender how long the money must be in your account before closing and whether the gift letter must be signed before the transfer.
Gifts from outside Canada
A gift from a parent in China, India or any other country is handled the same way, but there are more documents and more steps:
- Use a bank transfer. Keep the wire confirmation. Avoid informal transfer services and transfers through other people’s accounts, because they are hard to document.
- Expect a report to FINTRAC. Canadian banks and other reporting entities report electronic funds transfers of $10,000 or more to FINTRAC, Canada’s financial intelligence agency. This includes several transfers in 24 hours that add up to $10,000. The report is the bank’s job. It is not a tax.
- Do not split transfers to stay under $10,000. Your bank can report transactions that it finds suspicious, whatever the amount.
- Declare cash at the border. Anyone carrying $10,000 or more in cash or monetary instruments into Canada must report it to the Canada Border Services Agency.
- Check the rules in the giver’s country. Some countries limit how much money can leave each year. Ask a bank in that country.
- Allow time. Move the money well before closing, and ask whether statements in another language must be translated.
See foreign income and foreign assets for more about moving money to Canada.
Worked example
Mei earns $135,000 and has saved $35,000. She wants a $600,000 townhouse in Ontario, with property tax of $4,500 a year and heating of $125 a month. Her parents, who live overseas, offer a gift of $25,000. Her contract rate is 4.49% over 25 years, so she qualifies at 6.49%.
| Savings only | Savings + gift | |
|---|---|---|
| Down payment | $35,000 (the minimum) | $60,000 (10%) |
| Insurance premium | 4.00% = $22,600 | 3.10% = $16,740 |
| Total mortgage | $587,600 | $556,740 |
| Monthly payment | $3,249 | $3,078 |
| Qualifying payment at 6.49% | $3,932 | $3,726 |
| GDS (limit 39%) | 39.4%: does not pass | 37.6%: passes |
The gift does three things. It lets Mei pass the GDS limit, it lowers her premium by $5,860, and it lowers her payment by about $171 a month. In Ontario she must also pay 8% sales tax on the premium ($1,339 on $16,740) in cash at closing. CMHC estimates closing costs at 1.5% to 4% of the price, so she should budget for those as well.
Tax notes
- For the person who receives the gift. The Canada Revenue Agency (CRA) lists “most gifts and inheritances” among the amounts you don’t report as income. A normal cash gift from a parent is not income for you.
- For a giver in Canada. If the giver gives capital property, such as shares, the CRA treats it as sold at fair market value on the day of the gift, and the giver may owe tax on any capital gain. Selling shares to raise the cash can also create a capital gain.
- For a giver outside Canada. The giver should ask a tax adviser in that country.
Steps to take
- Ask your lender or broker for its gift letter and its list of required documents before the money moves.
- Confirm that your giver is an accepted relative under your lender’s and insurer’s rules.
- Send the money by bank transfer and keep every record.
- Use the CMHC insurance calculator to compare down payments, and add any FHSA or RRSP Home Buyers’ Plan money you will use.
- Get a pre-approval and tell the lender about the gift from the start.
Sources: CMHC, general requirements; CMHC, premiums; Sagen, New to Canada; Sagen, vacation and secondary homes; Canada Guaranty, Maple Leaf Advantage; OSFI, Guideline B-20; FINTRAC, transactions reported; CRA, amounts not reported or taxed; CRA, capital gains; Ontario, sales tax on insurance premiums. All payments were calculated with this site’s mortgage engine.