Suppose that A and B are spouses, that they purchase a cottage together for $400,000 and that A contributes $100,000 toward the satisfaction of that purchase price. The balance is financed, with A and B paying the principal and interest on the loan equally until it is repaid. Legally, they are 50/50 owners of the property. If they sell the cottage later for $700,000, a portion of B’s gain on the sale ($50,000/$200,000) will be attributed to A under subsection 74.2(1) of the Income Tax Act (Canada) even if A and B agree that A’s “loan” (ie A’s contribution to B of one-half of the $100,000 downpayment) should be repaid to A in priority to a distribution of the remaining proceeds.
CRA technical interpretation 2021-0908201C6, summarized in Tax Topics no. 2076 (June 4, 2026)
