What is a vendor take-back mortgage and how is it used in transferring a farm to a child in Ontario?

A vendor take-back, or VTB, mortgage is a financing arrangement where the parents selling the farm act as the lender for part of the purchase price, instead of the child arranging all the financing through a bank. The child, as buyer, signs a mortgage in favour of the parents, secured against the farm, and pays it off over an agreed term and interest rate, much as they would with a conventional lender.

This is a common tool in farm succession because a farm operation is often worth more than a child can finance commercially, especially early in their career, and a bank may be unwilling to lend the full purchase price against agricultural land and equipment. A VTB lets the parents structure the transfer as a genuine sale, which can matter for how the transaction is treated for tax purposes, while giving the child time to build up the operation before paying the parents in full. It also gives the parents an ongoing income stream and some security if the child later can't complete payment. Because a VTB mortgage interacts with the sale price, the tax treatment of the sale, and the parents' broader estate plan, it should be structured with a lawyer and accountant rather than set up informally between family members.