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Loan or Gift?

Loan or Gift?

In family environments it is often very difficult or near impossible for third parties such as a court to easily determine if that parental advancement of funds used to buy their child’s new family home was a loan or a gift.

From the parent’s viewpoint, it is usually a “gift for so long as the marriage holds together”- but if it fails, we want our money back.

These transactions are invariably not legally or at least properly  documented and are involving greater sums of monies than before and are being made more frequently, especially with the current  high priced homes.

A word of caution to the financing relatives/parents- legally document the advancement of funds as a loan or risk losing it upon a separation/divorce. I recommend that if assisting buying a home, then document the transaction with a mortgage containing a current interest rate.

Accrued interest can always be forgiven .

The Law: Loan or Gift?

In Byrne v. Byrne, 2015 BCSC 318 (B.C. S.C.), the issue was whether bi-weekly payments of $1,000 made by the claimant’s father to a joint account held by the claimant and the respondent and used to pay for household expenses constituted a gift or loan.

THE  COURT:  On the balance of probabilities and in the absence of evidence described in Kuo concerning parental loans, I am satisfied that the claimant’s parents advanced this money without expectation of repayment of principal or interest and that their current desire for repayment was more likely triggered by the separation of the parties.


49      As a result, I conclude that the money paid by the Byrnes to their son is not a family debt as described in s. 86 of the FLA

Mr. Justice Armstrong began his analysis at paras. 41 and 42:

[41] Payments from a parent to an adult child are generally not presumed to be gifts; they are presumed to form a resulting trust in which the parent keeps an interest in the property. However it is open to a party claiming the transfer is a gift to rebut the presumption of a resulting trust by providing evidence to that effect:Pecore v. Pecore
[42] In Pecore, the Supreme Court of Canada addressed how the presumptions operate in the context of transfers from a parent to an adult child:
(a) the focus in any dispute over a gratuitous transfer is the actual intention of the transferor at the time of the transfer …

(b) When the transferor’s intent is unavailable or unpersuasive, the presumptions of advancement (a gift) and resulting trust are useful guides and will apply …

(c) gifts from parents to independent adult children are not presumed to be gifts; rather the presumption of a resulting trust applies …

(d) there may be circumstances where a transfer between a parent and an adult child was intended to be a gift and it is open to the party claiming that the transfer is a gift to rebut the presumption of resulting trust by bringing evidence to support that claim …

(e) the burden on the party claiming a gift was made is proof on a balance of probabilities …
40      At para. 43, the court noted that in Kuo v. Chu, 2009 BCCA 405 (B.C. C.A.) at para. 9, the Court of Appeal adopted the following factors from Locke v. Locke, 2000 BCSC 1300 (B.C. S.C.), as applicable to the question of whether a loan or a gift was intended:
(a) Whether there were any contemporaneous documents evidencing a loan;

(b) Whether the manner for repayment is specified;

(c) Whether there is security held for the loan;

(d) Whether there are advances to one child and not others, or advances of unequal amounts to various children;

(e) Whether there has been any demand for payment before the separation of the parties;

(f) Whether there has been any partial repayment; and,

(g) Whether there was any expectation, or likelihood, of repayment.
41      The Locke factors are items of circumstantial evidence relevant to the transferor’s actual intention. They are not exhaustive and are to be weighed by the trial judge, along with all of the other evidence, in order to determine the transferor’s actual intention as a matter of fact: Beaverstock at para. 11.
42      Whether the opposing spouse was aware of the transaction is not determinative of the question of whether a loan was made: Byrne at para. 47.
43      In Beaverstock, the Court held that the trial judge had erred in law by failing to begin his analysis with the presumption of resulting trust and in failing to make a finding concerning the appellant’s actual intention when she advanced the funds to her son.
44      In Puri v. Puri, 2011 BCSC 1734 (B.C. S.C.), the wife received funds from her mother for the purchase of the family home. The issue was whether the funds were a loan or a gift. The court applied Beaverstock and held that the onus was on the husband to demonstrate the mother intended a gift: Puri at paras. 95 and 96. In the result, the court accepted the mother’s evidence that when she provided the funds to her daughter, she intended a loan. The mother had borrowed the funds from a line of credit she held with her husband and the daughter had signed a promissory note.
45      More recently in Savost’Yanova v. Chui, 2015 BCSC 516 (B.C. S.C.), where the husband’s father had advanced $60,000 to assist with the purchase of the matrimonial home, Mr. Justice Weatherill held that in determining the intent of the person of who advances money in a family context, the court must weigh all of the evidence to determine whether the presumption of resulting trust has been rebutted: Chui at para. 77.
46      At para. 75, the court adopted the following summary of the applicable legal principles:
[75] The law regarding whether a transfer made by a parent to an adult child is a loan or a gift was summed up by Madam Justice Brown in Hawley v. Paradis, 2008 BCSC 1255 at para. 30, after a review of the applicable authorities:
[30] Based on the case law presented to me, I conclude:
1. that the presumption of advancement no longer applies between adult children and their parents;

2. that as between adult children and their parents, the presumption is a resulting trust when the parents make gratuitous transfers to children;

3. that the court must consider all of the evidence in determining whether the parent intended the transfer as a gift or a loan;

4. that the factors considered in Wiens and Locke will assist the court in determining whether the advance was a loan or a gift.
47      The respondent relies upon a line of authorities that holds that where a parent advances funds to a child for the purchase or maintenance of the family home, there is a rebuttable presumption that the funds are a gift to both the child and his or her spouse: Cabezas v. Maxim, 2014 BCSC 767 (B.C. S.C.) (appeal pending); B. (J.) v. C. (S.), 2015 BCSC 2136 (B.C. S.C.); C. (H.) v. C. (H.P.), 2014 BCSC 1775 (B.C. S.C.); and Madruga v. Madruga, 2015 BCSC 1605 (B.C. S.C.).
48      In Cabezas, the issue was whether funds paid by the respondent’s parents toward the mortgage on the family home were a gift or an inheritance to the respondent, so that any property derived from them might be excluded property under s. 85(1) of the FLA. At para.
49, Chief Justice Hinkson cited Wiens v. Wiens [1991 CarswellBC 511 (B.C. S.C.)] for the principle that:
… where the parents of a married child advance money to facilitate the purchase or the improvement of the matrimonial home, and the spouses later do not agree as to the nature of that advancement, the court must presume that the money advanced is a gift to the child which on a presumption of advancement becomes a gift to the wife.
49      After considering the Locke factors, the court concluded that when the funds were advanced, the respondent’s mother intended them as a gift for the benefit of both the respondent and the claimant: Cabezas at para. 67.
50      At para. 68, Chief Justice Hinkson stated:
[68] Had Mrs. Maxim’s intentions been unclear, I would nonetheless have found that, in keeping with the statement of Harvey J. in Wiens, the funds used to pay off the mortgage on the Madeira Park Property were provided by the respondent’s parents as a gift to avoid the foreclosure of the property, resulting in a presumption of advancement to the claimant. This presumption of advancement is limited in scope, and does not apply to all gifts or inheritances received by a spouse from his or her parents. Generally, such gifts are excluded property under s. 85(1)(b) of the Act, as was the Camaro received by the respondent from his father in this case. However, where a parent chooses to provide funds to a child for the purchase or maintenance of the family residence (to use the language of the Act), those funds are presumed to be a gift to both the child and his or her spouse. Absent evidence rebutting that presumption, the funds and any proceeds derived from them are family property under s. 84 of the Act. None of the evidence presented is capable, in my view, of rebutting that presumption.
51      In cases dealing with issues of excluded property under s. 85 of the FLA, judges of this Court have followed and applied Cabezas in B. (J.) v. C. (S.) at para. 99, C. (H.) v. C. (H.P.) at paras. 69 to 71, and Madruga v. Madruga at paras. 16 to 18.
52      It does not appear that Beaverstock was brought to the attention of the court in Cabezas or the other authorities cited by the respondent.
53      On the case law cited on this application, I conclude that the governing authority is the judgment of the Court of Appeal in Beaverstock. I must determine whether the actual intention of the claimant’s parents was to make a gift or a loan. Because the advance was gratuitous, the respondent bears the onus of demonstrating that the transferors intended a gift, “since equity presumes bargains, not gifts”. In determining the transferors’ intention, the court must take into account the Locke factors, along with all of the other evidence


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