With the decline in mortgage rates that began in 2025 after years of increases, many borrowers finally see an opportunity to move forward with their home purchase plans. If your down payment remains an obstacle, a gift of equity is a solution that can make all the difference. In Quebec, as elsewhere in Canada, a family member can transfer part of the value of their property to help you buy a home. Learn what you need to know about this winning solution, especially in today’s context where financing conditions are becoming more favorable..
Gift of Equity: Financial Support for Homeownership
Parents wishing to provide financial support to their children can, under certain conditions, give part or all of the amount needed for the down payment on a family home. Considered a traditional contribution, although less common than personal savings, the non-repayable gift must come from a close family member.
How a Gift of Equity Works When Buying a Family Property
A gift of equity involves transferring ownership of a property between family members at a reduced price. The cost reduction compared to market value represents the gift amount and replaces the buyer’s down payment. In all cases, the property’s market value must be assessed by a professional to validate the gift of equity.
In addition to allowing the purchase of a home without a down payment, buying from relatives also exempts the buyer from paying the welcome tax. It is important to note that a gift of equity only works if the parents have equity in their home. The more mortgage payments have been made (and the less mortgage debt remains compared to market value), the more equity is available.
In Canada, for an equity gift, banks generally require a gift letter. This letter confirms that the money is a gift with no repayment obligation, ensuring transparency and reducing lender risk.
Concrete Example of a Gift of Equity in a Real Estate Transaction
In an equity gift transaction, the property is transferred at a price below market value, while still being based on market value. The difference between the market value and the sale price is considered the amount of equity gifted by the seller to the buyer.
Example:
Mrs. Dupont wants to sell her house in Montreal, appraised at CAD 400,000. Her son, Jacques Dupont, wants to buy it. Instead of selling at market price, Mrs. Dupont decides to sell the house to him for CAD 350,000, which is CAD 50,000 below market value.
This CAD 50,000 difference is considered a gift of equity. Jacques uses this gift as a down payment for his mortgage. To secure the transaction, the bank requires a gift letter confirming that the CAD 50,000 is a gift and that Jacques has no repayment obligation toward Mrs. Dupont.
In this example, Jacques provides a 14.29% down payment, which is below 20%. As a result, he would be required to pay CMHC insurance fees on his mortgage, unless he has other funds to raise his down payment to at least 20% of the purchase price.
For What Types of Properties?
The gift of equity can apply to primary residences, secondary homes, rental properties, and even land.
- It can be combined with other financial assistance programs for buyers, such as the First-Time Home Buyer Incentive or the Home Buyers’ Plan (HBP).
- The market value must also reflect the fair price of the property: it cannot be artificially inflated to increase the gift amount.
- The purchase agreement must clearly state both the appraised market value and the sale price set according to the equity gift.
Advantages of a Gift of Equity for Buyers and Parent Sellers
This type of transaction often represents about 10% of the property’s value, enabling buyers to obtain a mortgage without their own down payment. It offers several benefits:
- For buyers: easier access to homeownership without needing significant personal savings; possibility of combining with other assistance programs; exemption from the welcome tax.
- For parent sellers: financial support for their children; transaction within the family avoids complications of finding external buyers.
Financial and Tax Considerations for an Equity Gift:
- Principal residence exemption: In Canada, the principal residence is generally exempt from capital gains tax when sold.
- Documentation: A gift letter is essential to confirm that the money is a gift and not a loan.
- No gift tax: Neither Quebec nor Canada imposes a gift tax between individuals.
- Capital gains: If the property is not the principal residence, taxes may apply on the difference between the sale price and the purchase cost.
- Transfer duties: In Quebec, the buyer may still need to pay transfer duties based on the market value of the property, even if sold at a reduced price.
- Taxable benefits: If the gift is seen as a benefit to the buyer, there may be tax implications.
Conclusion: The Gift of Equity, a Solution for Today’s Real Estate Market
In a market where homeownership is becoming increasingly difficult for younger generations, the gift of equity appears to be a practical solution for transferring family property. When properly structured and subject to certain conditions, it offers advantages for both buyers and sellers, strengthening family ties and intergenerational support. Given the challenges of an equity gift, it is essential to seek professional guidance. Xperto will guide you to the ideal specialized mortgage broker to assist you.