Is a down payment made by parents a loan or gift? The Ontario Superior Court of Justice recently addressed whether a down payment made by a parent will be classified as a loan. They discussed if it would be excluded from the calculation of net family property.

Or would it be considered a gift to be included as family property for equalization? In a case, the Respondent’s father had provided $90,000 to the parties for a down payment on the matrimonial home.

The father paid an additional $67,000 for the payment of bills associated with the matrimonial home.

Key issue: Down payment made by parents, or was it a loan or a gift?

Was The Money A Loan Or Gift?

The main issue at trial was whether the monies advanced by the Respondent’s father were a loan or a gift.

If the money was a loan to be repaid, it would be excluded from the calculation of net family property. If it was classified as a gift, it would be included in the calculation of net family property.

It would then be divided into the equalization of property between the parties.

Justice Fitzpatrick articulated that the resulting trust principle applied when determining whether the down payment was a loan or a gift. Resulting trust principles apply when a parent gratuitously transfers real property to a child.

A parent loans money to a child

It also applies when the parent loans money to a child or gives the child some other form of property. The presumption is that the child is holding the property for the parent and the parent didn’t intend for it to be a gift.

However, the presumption can be rebutted by the evidence.

Whether the presumption will be rebutted depends on the facts of the case.

Justice Fitzpatrick listed the following to look at when determining whether the presumption should be rebutted:

-Whether there were any documents evidencing a loan

-The manner for repayment is specified

-Where there is security held for the loan

-Whether there are advances to one child and not others or advances on equal amounts to various children

-Has there been any demand for payment before the separation of the parties?

-Whether there has been any partial repayment

-Whether there was an expectation or likelihood of repayment

Down Payment Made by Parents

Justice Fitzpatrick was not convinced the down payment or additional monies were loans. The Respondent had not provided evidence to support that any of the money was given as a loan.

There was no evidence that he expected to be paid back.

Justice Fitzpatrick stated that the monies were “intended as a gift as they were advanced with no clear intention or expectation that the funds would be returned [and] only became characterized as loans following separation.”

As a result, the down payment and the additional funds were included in the calculation of net family property for equalization.

Understanding the Financial Implications of Loans vs. Gifts

Justice Fitzpatrick also gave some advice for parents advancing money to their children. If they intend for the money to be a loan, the loan should be documented similarly to what any other financial lender would require.

Justice Fitzpatrick suggests that “if at all possible, the lender should retain counsel to prepare documentation confirming the loan amounts, the applicable interest rates and the repayment schedule or a stipulation that the loan is repayable on-demand, along with any other material details…”

The Emotional Dynamics: Down Payment Made by Parents

In addition, “the borrowers should have their own counsel and if the loan is to one spouse alone then each spouse should have independent counsel.”

Determining whether a down payment made by parents is a loan or a gift is tricky. Do you have questions about loans from family members? Do you want to know how they may be affected by your separation or divorce?

Want to protect a down payment made by parents? Contact us. We can connect you with a law firm.

How much can be gifted for a down payment in Canada?

There is no specific limit to the amount that can be gifted for a down payment on a home. However, the amount of the gift may affect the amount of the mortgage loan that a buyer is eligible for, and the lender may have requirements for gifts that are used for down payments.

The lender often will require that the gift funds be verified and documented, and may also require a gift letter from the donor. The gift letter should state that the funds are a gift and not a loan and that the donor does not expect to be repaid.

What are gifted down payments and how do they work?

Gifted down payments refer to money given to a buyer as a gift to be used towards a home purchase. Unlike a loan, a gift does not need to be repaid. The gifted funds can be used for the down payment and closing costs, allowing the buyer to reduce the amount of money needed for the mortgage loan.

The process for using a gifted down payment typically involves documenting the gift and proving its legitimacy to the lender. This may involve obtaining a letter from the giver confirming that the funds are a gift and not a loan, and providing proof of the giver’s ability to gift the funds, such as bank statements.

It’s important to note that gifted down payments may have tax implications for both the giver and the recipient.

What Are Parenting Family Law Issues?

There are four things you need to consider as a parent when going through a separation. When parents are not living together, these things must be dealt with. You have rights and responsibilities as a parent.

1. Contact with the child– Contact isn’t part of parenting arrangements.

2. Parenting arrangement– This is the time that the partner spends with the child.

3. Guardianship– This relates to someone who regularly cared for the child but might not be the biological parent.

4. Responsibilities– Taking care of the child.

Down Payment Made by Parents

On March 18, 2013, the Family Relations Act changed to the Family Law Act in British Columbia. We have defined some terms below. These terms are helpful regardless of the province you are getting separated in.

Access- Having communication with the child.

Sole custody- You are the only guardian. You have all the responsibility and most of the parenting time.

Custody- You have guardianship.

Joint custody- You and the other parent have the same parenting time and responsibilities.

Can my parents loan me money to buy a house in Canada?

Yes, your parents can loan you money to buy a house in Canada. There are no restrictions on who can loan you money to purchase a property, as long as the funds are obtained legally and the loan agreement complies with Canadian law.

However, if your parents decide to loan you money, it’s important to have a written loan agreement that outlines the terms of the loan, such as the interest rate, repayment schedule, and any security for the loan.

This will help avoid misunderstandings and ensure that both parties have a clear understanding of their rights and obligations. It’s also advisable to consult with a financial advisor or a lawyer to ensure that the loan complies with all applicable laws and regulations.

Should Parents Give a Loan or Gift: Down Payment Dilemma

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