The Ontario Court of Appeal recently released its reasons for decision in the matter of Lau v. Tao, 2025 ONCA 819, an appeal addressing a series of property-related disputes arising from the breakdown of the parties’ marriage. The decision addresses intergenerational gifts and trusts in the context of equalization under Ontario’s Family Law Act.

In reaffirming established jurisprudence, the court confirmed a core principle of Ontario family law: a party seeking to exclude a gift from equalization must be able to trace the gifted funds to assets held on the valuation date.

Wing Hong Tao and Mei Yee Lau were married in 2014 in Hong Kong and relocated to Ontario in 2018. During the marriage, both parties benefited from significant financial support provided by their respective parents. This support included funds used to purchase a residential property in Hong Kong. The characterization of this property, and the funds used to acquire it, formed a ground of appeal advanced by Tao.

Before the trial judge, Lau successfully traced the gifts received by her parents during the marriage into the purchase of her one-half interest in the matrimonial home, a Subaru, equity in a condominium and various investments. To support her claims, Lau provided a letter from a solicitor in Hong Kong proving the gift, other documentary evidence and viva voce testimony of her and her mother.

Notably, the trial judge acknowledged that in these circumstances, strict tracing rules should be relaxed, and the court could apply a common sense/sufficient link approach. Lau established that he 50 per cent share of the sale proceeds from their Hong Kong property flowed into assets that she owned as of the valuation date. As a result, the trial judge concluded that those assets were properly excluded from her net family property pursuant to s. 4(2)(1) of the Family Law Act, which permits the exclusion of gifts received from third parties during the marriage.

At trial, Tao argued that Lau lost the right to claim an exclusion of the gifted money used to purchase the Hong Kong property because the property had become a matrimonial home. This argument was rejected by the court. The evidence demonstrated that the property was sold in June 2018, in anticipation of the parties’ move to Canada. On the date of separation, the property was no longer owned by the parties and was not occupied as a family residence. On appeal, the Court of Appeal affirmed the trial judge’s decision, finding no error in the conclusion that the property was not a “matrimonial home” as defined in s. 18(1) of the Family Law Act. In contrast, Tao was not entitled to a similar exclusion, given that he could not provide a comparable tracing analysis.

On appeal, Tao argued that the trial judge erred by allowing Lau to trace 50 per cent of the sale proceeds, as his family had contributed slightly more than 50 per cent of the funds for the purchase. The Court of Appeal rejected this argument, finding that the trial judge made no palpable or overriding error by finding the families’ contributions were roughly equal and that Lau was entitled to trace a 50 per cent share.

The decision also contains a noteworthy finding regarding exclusions to a party’s net family property for Registered Education Savings Plans (RESPs). The Court of Appeal relied on the analysis of Justice Mario Faieta in Labatte v. Labatte, 2022 ONSC 4787, who found RESPs should be regarded as the property of the subscriber for equalization purposes, since they retain significant control over the RESP assets, including the right to withdraw, absent the presence of the three certainties required to establish a trust in favour of the child.

Lau v. Tao underscores that excluded property claims under Ontario’s Family Law Act rely on evidence. Although both parties benefited from substantial support during the marriage, only one was able to meet the evidentiary burden required to exclude gifts from equalization.

Tracing is not a discretionary exercise; it is a prerequisite. However, strict tracing rules may be relaxed where doing so would result in an equitable sharing of the parties’ respective net family properties. In short, the case serves as a practical reminder that in family law disputes, meticulous record-keeping is essential.

Michael Stangarone, partner, and Isabel Brisson, articling student, are with MacDonald & Partners LLP, where they exclusively practise family law.

The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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