Gifted Down Payment in Ontario: Gift Letter Rules for Buyers
You can use money from family toward your down payment when you buy a home in Ontario that you will live in. Most lenders and mortgage default insurers accept a gift from an immediate family member, such as a parent, grandparent or sibling, as long as three things are true. The gift must be non-repayable, the donor must sign a gift letter saying so, and the money must be in your account before closing, often 15 to 30 days ahead. Canada has no gift tax, so neither you nor the donor reports a cash gift as income.
Your lawyer also needs a clear paper trail. Under Law Society of Ontario rules, lawyers must record where closing funds came from and cannot accept $7,500 or more in cash on a single file, so the gift should move by bank transfer, never as cash.
RealEstateLawyers.ca LLP is an Ontario real estate law firm that closes home purchases across the province. This guide covers who can give you a gift, what the gift letter needs to say and a worked example of how a gift changes your closing costs.
Who Can Give You a Down Payment Gift
Each lender sets its own list of accepted donors, and most stick to immediate family. Ask your lender or mortgage broker for their rules before any money moves.
| Donor | Usually accepted? |
|---|---|
| Parents and grandparents | Yes |
| Siblings | Yes, with most lenders |
| Aunts, uncles and other relatives | Some lenders accept them, others do not |
| Friends, employers or a builder | Usually refused |
The property matters too. Gifted down payments are generally accepted for a home you will live in. For a rental or investment purchase, most lenders expect the down payment to come from your own savings.
What a Gift Letter Needs to Say
Many lenders supply their own gift letter template. Use it if you have one. Either way, the letter usually includes:
- The donor’s and buyer’s full names, and how they are related
- The exact amount of the gift
- The address of the property, if the lender asks for it
- A clear statement that the money is a gift, does not have to be repaid and carries no interest
- The donor’s signature and the date, and sometimes the buyer’s signature
Watch the wording. A phrase like “to be paid back when the house sells” turns the gift into a loan, and lenders treat a loan very differently from a down payment.
Documents Your Lender Will Ask For
| Document | Who provides it | What it shows |
|---|---|---|
| Signed gift letter | Donor | The money is a non-repayable gift |
| Bank statement before the transfer | Donor | Where the money came from |
| Bank statement after the deposit | Buyer | The gift arrived in your account |
| Transfer confirmation or wire receipt | Donor or buyer | The money moved directly between accounts |
Some lenders also ask for the donor’s ID. If the gift comes from outside Canada, expect extra questions and allow more time for the transfer to clear.
From Gift to Closing, Step by Step
- Confirm your lender’s gift rules, including who can give and how long before closing the money must be in your account.
- Have the donor sign the gift letter.
- Move the money by bank transfer or wire into your account. Keep every receipt.
- Send the letter and both bank statements to your lender or broker for approval.
- A few days before closing, send your closing funds to your lawyer’s trust account by wire or bank draft, as your lawyer instructs.
Your lawyer confirms the down payment matches what the lender approved, records where the funds came from and pays out the purchase on closing day. If you have not hired a lawyer yet, our guide on whether you need a lawyer to buy a house in Ontario explains what the lawyer does from offer to keys.
Worked Example: How a $25,000 Gift Changes the Numbers
A first-time buyer is buying a $600,000 home outside Toronto. Under federal down payment rules, the minimum is 5% of the first $500,000 and 10% of the rest, or $35,000. The buyer has saved exactly that, and a parent offers a $25,000 gift.
| Item | Without the gift | With a $25,000 gift |
|---|---|---|
| Down payment | $35,000 (about 5.8%) | $60,000 (10%) |
| Mortgage amount | $565,000 | $540,000 |
| Default insurance premium rate | 4.00% | 3.10% |
| Insurance premium added to the mortgage | $22,600 | $16,740 |
| 8% Ontario sales tax on the premium, paid at closing | $1,808 | $1,339 |
The gift reduces the mortgage by $25,000 and cuts the insurance premium by $5,860, because a 10% down payment moves the buyer into a lower premium tier. The premium rates come from CMHC’s mortgage loan insurance cost table.
The sales tax on the premium cannot be added to the mortgage. It is paid in cash on closing through your lawyer, and it catches many first-time buyers by surprise. Our guide on how to avoid hidden home-buying costs covers this and the other costs to plan for beyond the down payment.
When a Parent Goes on Title Instead
Some parents would rather co-own the home than give a gift. That changes the deal. The parent becomes a legal owner, signs the closing documents and shares responsibility for the property.
It can also cost you on land transfer tax. If a parent who already owns a home goes on title with you, the first-time buyer refund is reduced to your share of the home. Our guide to first-time buyer land transfer tax in Ontario shows how that reduction works. A straight gift does not affect your refund, because the refund depends only on who owns the home.
Common Mistakes That Delay Closing
| Mistake | Why it causes trouble | How to avoid it |
|---|---|---|
| Depositing the gift in cash | There is no paper trail, and lawyers cannot accept $7,500 or more in cash on a file | Use a bank transfer or wire |
| Moving the money days before closing | The lender may not have time to verify it | Transfer it within your lender’s timeline, often 15 to 30 days ahead |
| Loan wording in the letter | The lender treats it as debt | State plainly that it is a non-repayable gift |
| Using a gift for a rental purchase | Most lenders will not accept it | Confirm your lender’s rules before you make an offer |
| Mixing the gift with other deposits | The source of funds becomes hard to show | Keep the gift in one account until closing |
Get Your Closing Numbers Before the Money Moves
A gift is easier to plan when you know your full closing costs. RealEstateLawyers.ca LLP closes purchases across Ontario for a flat legal fee, with disbursements, HST and land transfer tax listed separately on your quote, and you can speak with a lawyer about how the gift fits into your closing. Our fee also includes one remote video signing appointment, available 7 a.m. to midnight (Eastern) seven days a week. Request your free quote and see what you need on closing day.
Frequently Asked Questions
Do I pay tax on a gifted down payment in Ontario?
No. Canada has no gift tax, and a cash gift is not income for you or the donor. If the donor sells investments to raise the money, the donor may owe tax on any capital gain from that sale.
How long before closing does the gift need to be in my account?
It depends on the lender. Many want the money in your account 15 to 30 days before closing. Ask early so the transfer fits your lender’s timeline.
Can a gift be used to buy a rental property?
Usually not. Most lenders accept gifted down payments only for homes the buyer will live in.
Can the donor send the money straight to my lawyer?
Sometimes, but ask your lender first. Most lenders want to see the gift in your own account. If the funds go to your lawyer directly, the lawyer must still record where they came from.
Does a gift affect my first-time buyer land transfer tax refund?
No. The refund depends only on your home ownership history. Putting a parent on title is different, because that can reduce the refund.
This article provides general information only and is not legal advice. For advice about using a gift toward your purchase, speak with a lawyer.
