Buying a home:

A. Bougie Before proceeding, it’s very important that a parent who wishes to make a gift or loan to their child discuss their intentions with their financial advisor. A financial projection is an essential starting point in this process, and the advisor can help identify the key factors:

• Is there a surplus in the parent’s financial situation?
• If there is a surplus, could the parent consider making a gift inter vivos to their child, while keeping part of the surplus for their own needs, in case of unforeseen circumstances?
• If there is no surplus, could they offer a loan to the child which would not jeopardize the parent’s financial independence in the years to come?

A. Bougie The parent should review their balance sheet with their advisor to identify which assets would need to be liquidated to make the gift or loan. One of the most important aspects to consider at this stage is the tax impact of the assets withdrawn. The choice will depend on the parent’s taxable income, which has already been estimated for the year.

• If the objective is to create taxable income for the year, the best option is to withdraw an asset that will create additional taxable income, such as an RRSP withdrawal.
• If the parent already has a very high taxable income, it would generally be better to withdraw an asset that generates little or no tax impact, such as non-registered investments with no latent gain, or a TFSA withdrawal.

A. Bougie In most cases, a gift for a down payment represents a significant amount. It’s important to plan it well in advance, in order to determine the best time to make the withdrawal from the parent’s portfolio, and to spread the tax impact of withdrawing certain assets.

In the case of the child receiving the money, note that there are no tax attribution rules for the recipient of the gift, provided they have reached adult age.

• It’s possible to optimize their tax situation, however, by maximizing their RRSP, if they have unused contribution room. This additional contribution can then be used to access the Home Buyers’ Plan (HBP). Note that the amount must remain in the RRSP account for at least 90 days before it can be withdrawn for the HBP.
• The child can also maximize their FHSA (if they have sufficient contribution room) and then make a qualifying withdrawal to purchase their first home.

A. Bellemare Even in the case of a substantial gift for the purchase of a home, the parent should ensure that the money is invested wisely and protected.

• If the child is single or a de facto spouse, the situation is simpler, since the child will not be subject to partition of the family patrimony and of the matrimonial regime. Parents can therefore make a gift of money to their child without fear that the child will have to share it. (Note, however, that new rules on parental union patrimony will come into force in June 2025.)
• Whether or not the child is the sole owner (whether they have chosen to buy alone or with a spouse or friend), if they are married or in a civil union, it would be wise to draw up a notarized gift deed and have the deed of purchase state that a percentage or the entire down payment comes from a gift. These solutions would protect the gift, since in the event of divorce or dissolution of the union, property acquired by gift or inheritance would be excluded from the partitionable value of the family patrimony and of a matrimonial regime.

A. Bougie From the outset, it’s important to clearly establish the terms, i.e. the applicable interest rate (if any), the loan term (repayment period), and the frequency and amount of payments. Since the loan will be used to purchase a personal residence for the adult child, the tax attribution rules will not apply, which means that the interest rate could even be zero.

A. Bellemare In the case of a loan, the parties will also have to decide whether they want to make a personal loan or a mortgage-secured loan.

• If the loan is in the form of a personal loan or an acknowledgement of debt, the parent could take legal action to recover the amounts owed in the event of default or non-compliance with the terms of the loan. This is a possible recourse, but certainly not a desirable one.
• The creditor parent should also determine whether or not, in the event of the child’s death or their own death, there will be an obligation to repay the debt.
• Another factor to consider is whether the loan will be granted to the child only, or to their spouse as well.
• The creditor parent could take the house as collateral to ensure repayment of the loan. In this case, the mortgage on the property would be registered, and upon full repayment or resale of the property, a discharge would be required. Registering the mortgage and the discharge entails additional costs, but it ensures that the creditor will be reimbursed when the property is sold. The creditor could also bring a hypothecary action in the event of non-repayment of the debt or non-compliance with the terms of the loan, and therefore have greater protection.

If the child also has a mortgage with a financial institution, they may have to ask permission from that institution to register another mortgage on the property.

A. Bellemare The parent could decide that, in the event of the borrower’s death, the debt would be cancelled, but they could also want themself or their estate to receive full repayment of the loan. The loan would then become a debt owed by the child’s heirs (from the child’s estate) to the parent or the parent’s estate. This is a matter for discussion between the parent and child.

A. Bellemare In some cases, the parent may be willing to sell their own home to their child (for example, if they’ve decided to move into a residence or buy a smaller home). The gift could then take the form of a gift of equity, which would be an amount equal to the down payment. The advantage of this solution is that it does not involve any transfer of money, since part of the payment of the selling price is made in the form of a gift. However, they will need to check with the financial institution whether this method is acceptable.

• There is always the option of endorsing the child, which means that the parent would be fully responsible for the debt, without owning the home.
• Another option is to be a co-borrower and therefore co-owner of the home with the child, which would mean being jointly and severally liable for the debt, but also paying the municipal and school taxes on the property, not to mention the potential tax impact for the parent when the property is sold.

A. Bougie Obviously, the notion of equity must prevail in such a situation. The parent must consider what would be fair for everyone. There are many ways to equalize the gift, including giving an equal amount to the other children. It will then be necessary to determine whether the gift should be made during your lifetime or upon death.

• If the gift is upon death, a legacy by particular title of an equal amount could be included in the will for each of the children concerned.
• It would also be possible for the parent to take out life insurance for an equal amount, with the other children as beneficiaries.

A. Bellemare In the interest of fairness, the parent could demand repayment of the loan amount to their estate upon their death, thereby passing the claim on to their heirs. If a parent prefers to cancel the debt upon their death, they will have to choose one of the solutions mentioned above to equalize the gift or loan.