Excluding Gifts in the Division of Property pursuant to Lau v. Tao, 2025 ONSC 157
- Jared Davies, Lawyer
- Nov 30, 2025
- 4 min read
When separating spouses divide their property in Ontario, each calculates their net family property (NFP), and the spouse with the higher NFP pays the other an equalization payment. But not all property is counted. Under the Family Law Act, a spouse can exclude gifts or inheritances received after marriage, as long as the spouse can prove both that the property was a gift and that it can be traced into something they still owned on the date of separation.
In a recent 2025 Ontario Superior Court decision, Justice Tobin examined this issue in depth. The mother argued that a large portion of her assets on the date of separation came from gifts from her parents, and should therefore be excluded from her NFP. The father argued she failed to prove both the gifting and the tracing. The court rejected the father’s position, providing a helpful roadmap for exclusion claims.
Below is a breakdown of how the mother successfully proved her exclusions.
1. Proving the Existence of a Gift
Under Ontario law, a valid gift requires:
Intention to make a gift
Acceptance by the recipient
Delivery or transfer of the property
The court found all three were clearly established.
Evidence the gifts were real
The maternal grandparents had a long-standing family tradition of gifting each child money to buy a home once they married.
They gifted the mother:
HK $2 million toward buying a Hong Kong property (“Highland Park”)
Another HK $2 million after selling a separate family property
An additional HK $415,510 through smaller deposits over several years (with total cash gifts traced at HK $2,415,510)
The maternal grandmother testified clearly and credibly, and her evidence was fully supported by bank records, deposit slips, and property-purchase documents.
She also confirmed she never expected repayment.
The judge found the mother and maternal grandparents honest, consistent, and supported by documentation—meeting the legal requirements of intentional gifting, acceptance, and delivery.
2. Tracing: Linking the Gifts to Assets Held on Separation Date
Even when a spouse proves money was gifted, they must also show that the gifted funds can be traced into assets they still owned on the valuation date. This can be notoriously complex, especially when funds have moved through multiple accounts or changed forms (e.g., cash → home → sale proceeds → investments).
The court emphasized a practical approach:
The “common sense / sufficient link” tracing test
Instead of demanding perfect dollar-by-dollar forensic tracking, courts may use common sense where strict tracing is unreasonable or disproportionate.
This principle—adopted from Bennett v. Bennett—allows tracing where the evidence shows a reasonable and logical connection between:
the original gift, and
the asset now owned.
Justice Tobin applied this flexible approach because the alternative would require an expensive forensic accounting exercise. The court noted:
“Applying the common sense/sufficient link approach will best result in an equitable sharing as contemplated by the Family Law Act.”
3. How the Mother Successfully Traced Her Gifts
Step A: Tracing the gifted money into the Hong Kong property (Highland Park)
Highland Park was purchased for HK $5.85M.
HK $2M of the down payment was a gift.
Another HK $1.97M came from the paternal grandmother—so only 50% of the equity belonged to the mother and could potentially be excluded.
Step B: Tracing the gift into the sale proceeds
When Highland Park was sold in 2018, the net proceeds were HK $6,791,097.57.
The mother’s traceable portion: HK $3,395,548.785.
Step C: Adding the separate cash gifts
Cash gifts from her parents totaled HK $2,415,510.
Total traceable gifted property: HK $5,811,058.785, equal to $982,068 CAD when converted.
Step D: Tracing into Canadian assets
The court accepted that these gifted funds were used to acquire:
Half of the matrimonial home (not excludable itself but relevant for source-of-funds analysis)
A Subaru vehicle purchased shortly after arriving in Canada
A Skyline Avenue condominium
Investment accounts in Canada
Because the mother had brought the funds to Canada and used them directly for these purchases, the common-sense connection was strong.
4. Limits on Tracing: Income on gifts cannot be excluded
While capital can be excluded, income generated from a gift is only excluded if the donor expressly said so—something that did not happen here.
Thus, the court:
Allowed tracing of the capital value of the gifts
Prohibited exclusion of:
investment income,
growth in securities, and
increases in value not directly traceable to the original gift
To avoid over-excluding, the judge calculated that 62.7% of the investment accounts represented traceable gifted capital and allowed exclusion only of that proportion.
Final excluded amount: $426,887 of the mother’s investments Plus exclusions for the Subaru ($23,000) and Skyline Avenue equity ($202,054).
The court concluded the mother met her onus and proved all claimed exclusions (except increases attributable to income).
5. Key Takeaways for Family Law Litigants
A. Documentation matters Bank statements, deposit histories, and property records carried tremendous weight.
B. Witness credibility is crucial Both the mother and maternal grandmother were candid, consistent, and corroborated. The father could not undermine their narrative.
C. Courts adopt a practical tracing approach Rigid forensic tracing isn’t required where:
the funds clearly originated from the gift, and
the path of the money is logical and supported by documentation.
D. Income on gifts is generally not excluded Unless a donor explicitly states otherwise, increases in value due to income must be included in the NFP.
Conclusion
This decision provides a clear and helpful illustration of how spouses can successfully prove gifted property exclusions, even when the funds moved internationally, were converted between currencies, or changed forms over several years.
The court’s emphasis on:
credible evidence,
supporting documentation, and
a common-sense tracing approach
makes this case an important reference point for anyone handling exclusion claims in Ontario family law.
