With Canadian real estate prices continuing to climb — especially in major urban centres — many young adults are finding it increasingly difficult to break into the housing market. For parents who have the financial means, offering support can make a big difference. There are several ways to help your children buy their first home. However, it’s important to consider the financial, legal and emotional implications of each option before making a decision.
Here’s a list of some considerations for Canadian parents when helping their children purchase a home.
Gifting money for a down payment
The most straightforward way to help is to give your child money for a down payment. In Canada, there’s no gift tax, so you won’t pay tax on the amount you give, and your child doesn’t need to report it as income. But there are still a few important things to keep in mind:
Documentation: mortgage lenders often ask for a gift letter, confirming the money is a gift, not a loan that needs to be repaid. This helps ensure your child’s debt service ratios are accurate.
Family property risks: If your child later separates, divorces or ceases to be in a common-law relationship, the gifted money could become part of their family property and be sharable with their partner if it was used to purchase a home.
To help protect the gift, you may ask that your child and their partner acknowledge that the gift is not subject to division if their relationship ends, by using a domestic contract, such as a marriage contract or cohabitation agreement. The rules regarding the division of family property can be complicated; if you’re concerned about protecting your child’s gift, seek guidance from a qualified professional.
Impact on your finances: make sure you’re not compromising your own financial plan. Your IG Advisor can help stress-test your plan to make sure it remains on track even after a significant cash gift.
Providing a loan Instead of a gift
If you’re not comfortable giving the money outright, you could structure it as a loan. This should be formalized with a promissory note and loan agreement outlining the repayment terms, interest rate (if any) and any other conditions.
Pros:
- You may retain legal rights to the funds.
- You can include terms that protect the money if your child separates from a partner.
- It may feel more equitable if you have multiple children and want to maintain fairness.
Cons:
- It could impact your child’s ability to qualify for a mortgage. Lenders will include any loan repayment obligations in their debt servicing calculations.
- It introduces complexity and may strain the parent-child relationship if the loan is not repaid.
If you go this route, consult a lawyer to draft a proper loan agreement; it protects all parties and ensures the expectations are clear.
Co-signing
Another option is to co-sign your child’s mortgage. This can make it easier for them to qualify for a mortgage, especially if they don’t have enough income on their own.
However, co-signing a mortgage is a serious commitment. While it doesn’t give you ownership of the property, it does make you legally responsible for the full loan if your child can’t make the payments. Many people co-sign without fully understanding the implications and later discover they’re on the hook for a debt they didn’t anticipate or can’t afford.
Co-signing can also affect your credit score and limit your ability to borrow in the future. It should only be considered if you’re financially prepared to take over the mortgage and are fully aware of the risks involved. Additionally, if you are co-signing a mortgage, the lender may want you to have an ownership interest in the property.
Tax-free savings options
Before giving money, explore if your child is making full use of tax-advantaged savings accounts that can be used for a home purchase:
First Home Savings Account (FHSA):
This new registered account allows Canadians to save up to $8,000 annually, up to a lifetime limit of $40,000. Generally, contributions are tax-deductible, and withdrawals (if used to buy a first home) are tax free. You can’t contribute directly to your child’s FHSA, but you can gift them the money and they can contribute it themselves.
Registered Retirement Savings Plan (RRSP) and the Home Buyers’ Plan (HBP):
Your child may be able to withdraw up to $60,000 from their RRSP under the HBP to buy a first home. It must be repaid over 15 years, starting the second year following the year of withdrawal.
TFSA:
Money gifted to your child can also be contributed to their Tax-Free Savings Account (TFSA), where it can grow tax free and be withdrawn at any time, potentially for a home purchase.
Family dynamics and fairness
Money and real estate can be emotional topics. If you have more than one child, consider how your support for one child might affect family dynamics. Will you offer the same help to your other children? If not, how will you manage potential feelings of unfairness?
Some parents choose to track gifts or loans given during their lifetime and “even things out” in their will. Others are open and transparent with their family about the reasons behind their choices. Parents who are concerned about treating their children fairly when giving gifts or loans during their lifetime should speak with a lawyer, especially if they want those amounts to be considered in their will or accounted for upon their death.
Protecting against the unexpected
You may want to build in protection in case your child breaks up with a partner, experiences financial hardship or runs into problems paying the mortgage. Some protective strategies include:
- Having a legal agreement that outlines what happens to the home (or your gift) in various scenarios.
- Keeping documentation of the gift or loan, which can help in estate planning or disputes.
Before you make a decision…
Helping your child buy their first home can be one of the most generous and impactful financial gifts you can give. But it’s also a decision that carries long-term implications, for your finances, your relationship with your child and your family as a whole.
Before making any decisions, consider speaking with your IG Advisor, tax professional and lawyer. They can help you evaluate your options and choose the one that best fits your financial plan and your values, while minimizing risks to you. If you don’t have an IG Advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Advisor.
Mortgages are offered by Investors Group Trust Co. Ltd., a federally regulated trust company, and brokered by nesto Inc. Licences: Mortgage Brokerage Ontario #13044, Saskatchewan #316917, New Brunswick #180045101, Nova Scotia #202507230; Mortgage Brokerage Firm Quebec #605058; British Columbia, Alberta, Manitoba, Newfoundland/Labrador, PEI, Yukon, Nunavut, Northwest Territories.
*In Ontario, a mortgage agent, and in New Brunswick and Nova Scotia, a mortgage broker or a mortgage associate.
*In Quebec, a mutual fund representative.
Mortgage advisors are licensed professionals and equivalent to the following titles per province: Sub Mortgage Broker/Mortgage Broker in British Columbia, Mortgage Associate/Mortgage Broker in Alberta, Associate/Mortgage Broker in Saskatchewan, Salesperson/Authorized Official in Manitoba, Mortgage Agent/Mortgage Broker in Ontario, Mortgage Broker in Quebec, Mortgage Associate/Mortgage Broker in New Brunswick, Associate Mortgage Broker/Mortgage Broker in Nova Scotia, or Mortgage Broker in Newfoundland & Labrador.
