Using a Gifted Down Payment in Canada: The Gift Letter, Proof of Funds, and Tax

Step 1: Yes, immediate family can gift you the down payment

In my years as a broker, one of the most common ways families help first-time buyers get into the market is parents funding the down payment. The good news: this is fully allowed in Canada. According to CMHC and the major banks, a gifted down payment from immediate family is widely accepted — the entire down payment can be a gift, and you are not required to save a portion yourself.

• Who can give: typically immediate family — parents, grandparents, siblings.
• Who usually can’t: friends, distant relatives, and colleagues are generally not accepted (a few insured programs have exceptions).
• How much: there is no cap — the full down payment can come from a gift.

But “the money can be gifted” is not the same as “you can just use it.” The lender needs two things: a compliant gift letter, and proof the funds genuinely landed in your account. Both steps are non-negotiable.

Step 2: What the gift letter must say

The gift letter is the legal heart of the process. Its job is to prove to the lender that the money is a true gift, not a loan. Why does that distinction matter so much? Because a loan counts as debt and affects your mortgage qualification (more on that below). A solid gift letter typically includes:

• The amount: the specific dollar figure being gifted.
• The donor’s details: name, address, and contact information.
• The relationship to the recipient — for example, “father to daughter.”
• A clear statement of no repayment: that this is a gift, with no expectation of repayment now or in the future, no strings attached, and nothing expected in return.
• Signatures and date from both parties.

The template is usually provided by your mortgage broker or bank. My advice: have the donor complete and sign it themselves, with clean wording — any hint of “to be repaid later” can cause the lender to reclassify it as a loan.

Step 3: Proof and seasoning of funds, plus source-of-funds checks

A gift letter alone isn’t enough — the lender needs to see the money actually arrive in your account. This is the proof-of-funds and “seasoning” step.

• Timing: lenders generally want the gifted funds in your account roughly 15–30 days before closing, showing on your bank statement. Earlier is better.
• Documentation: usually a bank statement showing the deposit. In most cases you do not need to show the donor’s account — only that the funds are now in your name.
• Source of funds: under anti-money-laundering rules, the lender may ask where the money came from — especially for large amounts or funds from overseas. Keep a clean paper trail.

A practical warning I give clients: don’t rush a large cash transfer in just days before closing. That is the surest way to trigger extra scrutiny and delay your closing.

Step 4: Tax — no gift tax for the recipient in Canada, with two cautions

The first question most clients ask is, “Do I have to pay tax on a sum this large?” For the recipient, the answer is usually no. Unlike the United States, Canada has no gift tax. If your parents give you $100,000 or $500,000 in cash toward a down payment, you don’t report it as income, and the CRA generally doesn’t require you or the donor to report the gift itself.

But watch two things:

• Attribution rules: the gift itself isn’t taxed, but if the money earns income (interest, dividends, rent), in certain cases — especially gifts to a spouse or a minor child — that income can be “attributed” back to the donor for tax. Buying a home to live in generally doesn’t trigger this, but for investment use, talk to an accountant.
• Overseas funds: money wired from China or elsewhere isn’t taxed in Canada as a gift, but it must comply with foreign-exchange and reporting rules, and you’ll want full source-of-funds documentation.

Whether a gifted down payment gets you into the market with nothing of your own depends on your price point and the minimum down payment. Under Canada’s current rules (CMHC, 2026):

• Under $500,000: minimum down payment is 5% of the price.
• $500,000 to $1,499,999: 5% on the first $500,000, plus 10% on the portion above $500,000.
• $1,500,000 and above: minimum 20% (this tier cannot be insured).

Example: on a $1.2M home, the minimum is 5% of the first $500,000 ($25,000) plus 10% of the remaining $700,000 ($70,000) = $95,000. Also remember: a down payment below 20% requires mortgage default insurance (such as CMHC insurance). As of December 15, 2024, the maximum home price eligible for an insured mortgage rose from $1 million to $1.5 million. These figures can change with policy, so confirm the current rules with a mortgage broker before you act.

This is the most overlooked point, and it can make or break your approval. When a lender qualifies you, it calculates your debt ratios (GDS/TDS). If the money from your parents is treated as a loan, it’s a debt you have to repay, which:

• counts toward your monthly obligations and lowers how much you can borrow; and
• could even cause you to fail the stress test and miss approval entirely.

By contrast, a true gift only increases your down payment — it adds no debt. That’s exactly why lenders insist on a cleanly worded gift letter. Key caution: don’t take the shortcut of having parents “lend it for now and sort it out later.” If the lender finds the substance is a loan, at best you’ll be asked for more documents, at worst it affects your qualification. If it’s a gift, make it a true gift — in writing.

For many newcomers and immigrant families, the down payment comes from parents still living abroad. That works — but a few practical issues are worth preparing for:

• Transfer early: overseas wires take time to arrive and clear; aim to complete the transfer several weeks before closing to leave a buffer for seasoning.
• Keep the records: wire receipts, currency-exchange records, and the donor’s source-of-funds explanation — keep all of it, because the lender may ask for each piece during AML checks.
• The donor can sign from abroad: a parent overseas can still sign the gift letter, with notarization if needed.
• Use bilingual, cross-border-savvy professionals: brokers and accountants differ in how they handle overseas funds; talking early saves detours.

Can the entire down payment be a gift from my parents, or do I have to contribute some myself?

It can be entirely a gift from immediate family — Canada does not require you to save a portion of the down payment yourself. The key is that the donor signs a compliant gift letter stating no repayment is expected, and that you deposit the funds into your account ahead of time with a bank statement to prove it.

Do I have to pay tax on such a large gift from my parents?

For the recipient, Canada has no gift tax, so the gift itself generally isn't reported or taxed. The caution is attribution: if the money later earns income (interest, dividends, rent), in cases like a gift to a spouse or minor child that income can be taxed back to the donor. Buying a home to live in generally doesn't trigger this; for investment use, consult an accountant.

What exactly does the gift letter need to say?

At minimum: the gift amount; the donor's name, address, and contact details; your relationship to the donor; a clear statement that it's a gift with no expectation of repayment now or in the future and no conditions; and signatures and a date from both parties. The template is usually supplied by your mortgage broker or bank.

How far in advance does the money need to be in my account?

Lenders generally want the gifted funds in your account around 15–30 days before closing, showing on your statement — this is called seasoning. Rushing a large cash transfer in just before closing is the most common trigger for extra source-of-funds scrutiny and closing delays.

Will there be a problem if the money is wired from China?

The gift itself isn't taxed to you in Canada, but it must comply with foreign-exchange and reporting rules, and you'll need full source-of-funds documentation. Transfer early to allow clearing time, keep wire and currency-exchange records, and check your mortgage broker's specific requirements for overseas funds in advance.