Mortgage Blog

Is a Reverse Mortgage Taxable in Canada? What Edmonton Retirees Need to Know

July 19, 2025 | Posted by: Jeff Chin

For many retirees in Edmonton, a reverse mortgage offers a flexible way to tap into the value of your home without selling it. But a common question that arises is: Are reverse mortgage proceeds taxable in Canada? If you're an Edmonton homeowner considering this financial tool, understanding the tax implications is key to making an informed decision.

In this article, we’ll explain how reverse mortgages are taxed (or not taxed), how this impacts your retirement planning, and what Edmonton retirees should consider before applying.

What Is a Reverse Mortgage?

A reverse mortgage allows homeowners aged 55 or older to borrow against the equity in their primary residence. Unlike traditional loans, you do not have to make monthly payments. The loan is repaid when you sell the home, move out, or pass away.

In Canada, the most popular reverse mortgage provider is HomeEquity Bank through the CHIP Reverse Mortgage program.

Is a Reverse Mortgage Taxable Income?

The short answer is no. Reverse mortgage funds are not considered taxable income in Canada.

When you access money from your reverse mortgage, it is considered loan proceeds, not earnings. This means:

• You do not pay income tax on the funds you receive

• It does not affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits

• The money can be used tax-free for any purpose such as home renovations, healthcare expenses, travel, or helping family members

Key point for Edmonton retirees: Reverse mortgage proceeds are one of the few ways to access home equity without affecting your taxable income or government retirement benefits.

Tax Advantages of a Reverse Mortgage for Edmonton Homeowners

For seniors in Edmonton who are “house-rich but cash-poor,” a reverse mortgage offers several tax-friendly benefits.

1. Supplement Your Retirement Income Without Triggering Higher Taxes

If you're already receiving income from pensions or RRIF withdrawals, a reverse mortgage allows you to increase your cash flow without pushing yourself into a higher tax bracket.

2. Preserve OAS and GIS

Because reverse mortgage funds are not counted as income, they will not reduce your OAS or GIS payments. Other investment income or withdrawals could affect those benefits, so this is an important distinction.

3. Tax-Free Use of Funds

There are no restrictions on how you use your reverse mortgage funds. Whether it is home care, debt consolidation, or financial gifts to children, you do not have to worry about tax penalties.

Are There Any Tax Considerations to Be Aware Of?

While the reverse mortgage proceeds are not taxable, there are a few related considerations for Edmonton retirees to keep in mind:

• Interest is not tax-deductible unless the borrowed funds are used for income-generating investments, which is uncommon for most retirees

• Capital gains tax does not apply to your principal residence when the home is sold, so you will not owe tax when repaying the reverse mortgage

• You should consult a local tax professional or financial planner if you plan to use the funds in complex or investment-related ways

When a Reverse Mortgage Makes Sense for Edmonton Retirees

A reverse mortgage may be a smart option if:

• You plan to stay in your Edmonton home for the long term

• You need extra cash flow in retirement without increasing your tax burden

• You prefer not to sell your home or downsize

• You have limited income but significant home equity

It is also important to understand how this decision compares to other financing options. If you're unsure whether to refinance, sell, or use a reverse mortgage, you may also want to review our article on Top Mistakes Edmonton Homeowners Make When Refinancing and How to Avoid Them.

Final Thoughts: Tax-Free Flexibility for Your Retirement

Reverse mortgages can be a powerful way to unlock your home equity without triggering taxes or disrupting your retirement benefits. For Edmonton retirees looking to maintain their lifestyle, cover unexpected expenses, or simply enjoy more peace of mind, this tool offers both flexibility and financial security.

Speak with Steven Boodoo – Your Trusted Edmonton Mortgage Expert

Still unsure if a reverse mortgage is right for you? Let Steven Boodoo guide you through your options.

As a local Edmonton mortgage professional, Steven offers personalized advice to help you access your home equity safely and strategically.

Book a free consultation today and discover whether a reverse mortgage aligns with your retirement goals.

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