Source of funds requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

What source of funds means

It means the origin of the specific money being used in the transaction. Not your net worth, not your income, not a general statement that your family is comfortable. The actual origin of the actual dollars.

Three parties ask for it, at three different moments, and they do not share answers with each other. Your lender asks during the mortgage approval. Your real estate lawyer asks before releasing funds on closing. Your brokerage has its own client identification obligations. Expect to answer the same question more than once.

This is not suspicion of you. It is a legal obligation on them under Canada’s anti-money-laundering regime, and there is no professional discretion to skip it. The people asking cannot waive it for a good client any more than they can waive it for a bad one.

The seasoning window, and why timing beats paperwork

Lenders ask for a recent run of bank statements on the account holding the down payment. The length of that window is lender policy, not a figure set in law, and it differs between lenders. Ask yours how far back they look before you move any money.

The logic is simple. Money that has been sitting in your Canadian account for the whole window needs no further explanation. A large deposit that lands inside the window is a question, and you have to answer it with documents.

The practical consequence is that moving money early is worth more than assembling a thick file later. If the transfer from India lands before the window opens, the conversation is over before it starts. If it lands two weeks before closing, you are documenting under time pressure with a firm deal already signed.

Do not break a transfer into many smaller ones to avoid attention. It has the opposite effect: it creates more deposits to explain, and structuring a transfer to avoid a reporting threshold is itself a serious problem.

The India side: the Liberalised Remittance Scheme

Sending money out of India is legal and routine, and it is governed by the Reserve Bank of India’s Liberalised Remittance Scheme. Under it, a resident individual may remit up to an annual ceiling per financial year for permitted purposes. Both the ceiling and the definition of the financial year are set by the RBI, and the ceiling is per individual, not per family.

That last point is the one that matters most in practice. Where a single person’s limit is not enough, families often remit from more than one person’s limit. Each remitter must be sending their own money, from their own account, and must be able to show where it came from. Money routed through a relative’s account so that it appears to come from them is precisely the pattern the Canadian side is designed to catch, and it is a problem at both ends.

The money must move through banking channels. Your Indian bank will collect the documentation the RBI requires for an outward remittance, which typically includes a declaration form and, for some transactions, a chartered accountant’s certificate. Keep every one of those documents and every wire advice. They are the strongest evidence a Canadian lender can be given.

• The annual ceiling is per resident individual, per financial year, set by the RBI.
• Each remitter must send their own money from their own account.
• The transfer must go through banking channels, with the Indian bank’s own paperwork.
• Keep every declaration form, accountant certificate and wire advice.

Tax collected at source, and why it is not a lost cost

Indian banks collect tax at source on outward remittances above a threshold. The threshold, the rates, and the way the rate varies by the purpose of the remittance are all set in Indian tax law and have been changed by more than one recent Union Budget. Anyone who quotes you a rate from memory is quoting something that may already be out of date.

It is collected in advance and credited against the remitter’s Indian income tax liability when they file. If they owe less than was collected, it comes back as a refund. It is a cash flow problem, not a cost, provided the remitter actually files.

It is also collected from the person in India, not from you in Canada. It does not change the amount you have to have on closing, but it does change the amount that has to leave the account in India, so build it into the timing.

Nothing on this page is Indian tax advice. Confirm the current threshold and rates with a chartered accountant in India before the transfer, not after.

Gift letters, and the mistake that kills approvals

A non-repayable gift from a relative is an accepted source of down payment funds. It has to be papered properly, and the paper has to say one specific thing.

A gift letter must state that the money is a true gift, with no expectation of repayment and no interest in the property. That is the whole point of it. A lender approving your mortgage is calculating whether you can carry the debt you have. A hidden obligation to repay a family member is debt they have not counted.

This is where deals die. Not because the money is dirty, but because the family arrangement is honestly described as a loan in one document and a gift in another. Decide which it actually is, before anyone signs anything. If it is genuinely a loan, tell your mortgage broker at the start so it can be underwritten as one, or so a different structure can be found.

If the donor wants an ownership interest rather than to make a gift, that is a different transaction again, and it belongs on title with a lawyer involved.

• Full names of donor and recipient, and the relationship between them.
• The amount, and the date the funds were or will be transferred.
• An explicit statement that it is a gift, is not repayable, and carries no interest in the property.
• Signatures from the donor. Lenders commonly also ask for the donor’s bank statement showing the money leaving, and for donor identification.

What a clean paper trail looks like

The test a lender applies is whether an unfamiliar reader can follow the money from where it was earned to your Canadian account without a gap. Every gap is a question, and questions take days you may not have.

• Statements for the source account in India, showing the balance before the transfer.
• Evidence of how that balance was accumulated where the funds are recent, such as a property sale deed, a share sale contract note, or maturity of a deposit.
• The Indian bank’s outward remittance paperwork and the wire advice.
• Statements for the receiving Canadian account showing the funds arriving.
• A signed gift letter where the money is a gift, plus the donor’s own statement.
• Money moved in your own name, or in the donor’s name directly to you. Never through a friend’s account, an employer, an agent, or an informal transfer service.
• Avoid cash entirely. Cash resets the paper trail to zero and cannot be traced backwards.

Why an unexplained transfer stalls a closing

Your lawyer cannot release funds until their identification and source of funds obligations are satisfied. Your lender can withdraw a mortgage commitment when a condition is not met, and the source of the down payment is a standard condition.

Both of those can happen very late. It is normal for the final source of funds request to arrive in the last stretch before closing, which is exactly when a document that has to be obtained from a bank in India is hardest to get quickly.

A missed closing is not a scheduling inconvenience. It can trigger per-diem interest, costs from the other side, and in a bad case a claim against your deposit. This is a documentation problem that becomes a financial one purely because of when it is discovered.

Two other Canadian rules people miss

Bringing money physically. Currency and monetary instruments above a set amount must be reported to the Canada Border Services Agency when you enter Canada. The threshold is fixed in law and the obligation is on you. Not reporting it can mean seizure. Wiring the money is simpler and produces better evidence anyway.

The tax side. A genuine gift received from a family member who is not resident in Canada is generally not income to you, but Canada has separate reporting obligations that can be triggered by foreign property and by amounts received from non-residents, and they depend on your own residency and the structure. Ask a Canadian accountant about your situation. Do not assume the absence of a tax bill means the absence of a filing obligation.

A note on advice

This is a general explanation of how the requirement works. It is not legal, tax or mortgage advice, and it is not advice on Indian exchange control or Indian taxation.

Use a chartered accountant in India for the remittance side, a Canadian accountant for the Canadian tax side, a licensed mortgage professional for the lender’s requirements, and a real estate lawyer for the closing.