Whether family down-payment help is a gift or a loan changes two things: what the mortgage lender counts (gifts usually help qualification; loans are a disclosed debt) and what happens later with taxes and repayment. There's no gift tax in Canada, but a documented loan is what preserves your claim to the money — this guide walks through both routes.
When family helps with a down payment, one early decision shapes everything: is it a gift or a loan? That choice changes how much mortgage you qualify for, what paperwork you need, and how the CRA sees the money. Here's the honest picture of both.
With down payments where they are, roughly three in ten first-time buyers in Canada now get family help. The instinct is to think of it as "Mum and Dad are helping" and move on. But lenders and the CRA both care a great deal about one distinction: was the money given or lent? Get that clear up front and you avoid a derailed mortgage approval and an awkward tax surprise.
The core difference, in one table
How it affects mortgage qualification
This is where most people get caught off guard. Mortgage lenders verify the source of your down payment, and they treat gifts and loans very differently:
- A gift doesn't count against you. If it's genuinely non-repayable, it's just money in your account. Most lenders accept a gift covering up to 100% of the down payment, as long as you still meet the minimum down payment and qualify for the mortgage on your own income.
- A loan does count against you. If the money has to be repaid, it's a debt — and lenders factor debt into your debt-service ratios, which can reduce the mortgage you qualify for. A "borrowed gift" (where the donor themselves borrowed to give it, and it must be repaid) may be rejected outright.
What a gift letter actually is
Nearly every Canadian lender requires a signed gift letter when down-payment funds come from family. It states the donor's name and relationship, the amount, and — critically — that the money is a gift that does not have to be repaid. Lenders also like to see the funds sitting in your account ahead of closing (commonly 15–30 days, or up to 90 days if the money comes from outside Canada, for anti-money-laundering checks).
The honest catch: you can't have it both ways
Here's the tension nobody likes to say out loud. The mortgage side wants a gift (non-repayable). A family that wants its money protected wants a loan (repayable). Those are opposites on the same dollars. And you cannot sign a gift letter for money that's secretly a loan — if your broker, banker, or lawyer learns the truth, they're obligated to tell the lender, and a false declaration can sink the mortgage. So decide honestly: gift or loan. If it's a loan, document it as a loan and let the lender account for it.
How the CRA treats it
The good news first: Canada has no gift tax. A genuine cash gift from a family member is not taxable to the person giving it or the person receiving it, and there's no dollar limit. Your parents can gift you $20,000 or $200,000 for a home and neither side reports it as income or pays tax on the transfer itself.
But a few things still matter:
- Income the money earns is taxable. The gift itself is tax-free, but if you invest it, the interest, dividends or capital gains are taxable in the normal way.
- Family loans + investing = attribution rules. If family lends you money at no or low interest and it's used to invest, the CRA's attribution rules can tax the resulting income back in the lender's hands — unless the loan charges at least the CRA prescribed rate. (For a down payment on a home you live in, this is usually not in play, but it matters for investment scenarios.) More on the CRA prescribed rate →
- Big transfers can draw scrutiny. Genuine gifts aren't reported, but banks report transfers over $10,000 to FINTRAC, and a large unexplained deposit can prompt CRA questions. Keep your e-transfer records and gift letter.
- Forgiving a loan later can raise debt-forgiveness considerations — another reason to be clear up front about whether it's a gift or a loan.
Where LendRight fits — honestly. LendRight is for the loan path: when the family genuinely intends to be repaid and wants that protected with a clear, signed agreement. It is not a way to produce a "gift letter" for money that's actually a loan — that's the one thing the rules forbid. If your help is a true gift, you need a lender's gift letter, not a loan agreement. If it's a loan, that's exactly what we help you document properly.
So which should you choose?
- Choose a gift if the family is genuinely fine never seeing the money again, and maximizing the buyer's mortgage qualification matters most. Use the lender's gift letter.
- Choose a loan if the family wants the money back, or wants it protected in case of a future separation, sale, or falling-out. Document it with a real loan agreement, set clear terms, and tell the lender so it's accounted for honestly.
There's no universally "right" answer — only the one that matches what your family actually intends. The mistake is leaving it vague, because that's how a generous gesture turns into a mortgage problem or a family dispute later.
If it's a loan, put it in writing — properly
LendRight turns a family loan into a clear agreement built for Canadian law both of you sign digitally. Free to draft. (For a true gift, ask your lender for their gift letter instead.)
Create my loan agreement →This article is general information about Canadian mortgage and tax rules, not legal, mortgage, or tax advice. Lender requirements vary, and tax outcomes depend on your situation. Confirm specifics with your mortgage professional and a tax advisor, and consult a licensed lawyer for a large or complex arrangement. Sources include the CRA's position that Canada has no gift tax (via TurboTax Canada and CPA commentary) and current Canadian mortgage-broker guidance on gifted down payments and gift letters.
We write plain-language guides on lending between family and friends in Canada, reviewed against current provincial and CRA rules. LendRight is not a law firm — this is general information, not legal advice.