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  • Charles Baker

When is an Advance of Money a Loan or Gift?

Frequently, usually after a falling out among friends or in the context of a divorce involving generous in-laws, a person who gave money to another wants it paid back, and in support of the demand he or she says that it was given as a loan. One or more of the parties who received the money invariably argues that it was a gift. Of course, the best way to avoid the problem is with properly prepared and followed legal documents; but when everybody is getting along who wants to poison the atmosphere with legalities.


Where one person transfers money to another in circumstances where the donor (the one who is advancing the money) is not indebted to the donee (the one who is receiving the money), once the transfer is proved, the burden then falls on the donee to show that it was not repayable. A gift consists of a voluntary transfer of money, or any property for that matter, from its owner to another with the full intention on the part of both the donor and the donee that it is not to be returned to the doner but shall be retained by the donee as his or her own. Three requirements are necessary to establish a valid gift: (i) an intention to donate; (ii) a sufficient act of delivery; and (iii) acceptance of the gift. In most cases it is the intention to donate that is the only real issue in dispute.


Halsbury’s Laws of Canada explains well the principles of law applicable to the issue of donative intent:

Donative Intent

To establish the requisite intention to donate, or animus donandi, it must be shown that the donor intended to part with the property and did not intend to reserve to himself or herself the ultimate right of disposal. The evidence should be inconsistent with any other intention or purpose than that the donor intended to divest himself or herself of the possession of the property. The intention of a donor may be inferred from an examination of that person’s acts along with various extrinsic factors, including the nature of the relationship between the parties to the transaction, the size of the gift as measured against the total of the donor’s property, and the importance of the gifted item in relation to the donor’s overall property. There must be some evidence that a gift was intended other than a self-serving affidavit by the alleged donee.


Gift or loan

In considering whether a gift or a loan was intended, the court may look at the surrounding circumstances, as well as the evidence of the alleged donor. If it is proven that the payment of money was made, the burden is on the recipient of the money to show that both parties knew and intended that the money not be repaid. It is not sufficient that the recipient of the property assumed that a gift was being made: a donative intent must be clearly fastened upon the donor.


The onus of proof to establish a valid gift rests on the donee, and the legal standard is on a balance of probailites.

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