Is Reverse Mortgage Income Taxable in Canada? Complete Tax Guide

One of the most common questions we receive is whether reverse mortgage funds count as taxable income. The straightforward answer is: no, reverse mortgage proceeds are not considered taxable income by the CRA. Here is the complete picture.

Why Reverse Mortgage Funds Are Not Taxable

Reverse mortgage funds are classified as loan proceeds, not income. You are borrowing against equity you have already built up in your home — you are not earning new money. Since it is a loan, the CRA does not classify it as income for tax purposes.

This means that receiving $300,000 from a reverse mortgage will not push you into a higher tax bracket, affect your marginal tax rate, or require you to report it on your T1 tax return.

Impact on OAS and CPP

Because reverse mortgage funds are not income, they do not affect your Old Age Security (OAS) or Canada Pension Plan (CPP) payments. There is no OAS clawback triggered by reverse mortgage proceeds.

The GIS Nuance — Important!

The Guaranteed Income Supplement (GIS) is means-tested based on income. Reverse mortgage funds themselves are not income. However, what you do with the funds can create income. For example:

• If you invest the funds in a GIC, the interest earned is taxable income that may affect GIS
• If you use the funds for expenses (home repairs, travel, gifts), there is no income generated
• If you use the funds to purchase an annuity, the annuity payments are taxable income

For GIS recipients, we always recommend a careful review of how you plan to use the funds before proceeding with a reverse mortgage.

Interest Deductibility

The interest that accrues on your reverse mortgage is generally not tax-deductible. However, if you use a portion of the funds for investment purposes, a proportional amount of the interest may be deductible — this is a complex area requiring guidance from a tax professional.