Tax Implications of Reverse Mortgages for Alberta Homeowners

Tina Kha
Sep 28
3 min read

Updated: Oct 1

Reverse mortgages have become a popular financial option for homeowners in Alberta who want to access equity without selling their homes. While these products can provide cash flow in retirement, it is important to understand how they affect your taxes and long-term financial planning.

Aerial view of Calgary’s Peace Bridge and Bow River at sunset, representing Alberta homeowners considering reverse mortgage tax planning. — Calgary’s Peace Bridge at sunset, a reminder of reverse mortgage planning for Alberta homeowners.

This article explains the tax implications of reverse mortgages in Alberta and what homeowners in Calgary, Edmonton, Red Deer, Lethbridge, Medicine Hat, and Fort McMurray should consider.

Are Reverse Mortgage Funds Taxable?

One of the most common questions Alberta homeowners ask is whether reverse mortgage proceeds are taxable.

Not Considered Income: The funds you receive from a reverse mortgage are considered loan proceeds, not income. This means they are not subject to income tax in Alberta or across Canada.
No Impact on OAS or CPP: Since the funds are not taxable income, they will not reduce your Old Age Security (OAS) or Canada Pension Plan (CPP) benefits.
Interest Deductibility: Interest on a reverse mortgage is generally not tax-deductible unless the borrowed funds are used to earn investment income. Consult with a tax professional before making investment decisions with reverse mortgage funds.

For homeowners who want alternatives with different financial implications, see our guide on reverse mortgage alternatives in Alberta.

Impact on Estate Planning

A reverse mortgage can significantly affect how your estate is distributed after you pass away.

Home office desk with laptop symbolizing financial and tax planning for Alberta homeowners. — Home office setup for reverse mortgage planning in Alberta.

Homeowners in Calgary, Edmonton, and smaller cities such as Red Deer, Lethbridge, and Medicine Hat should carefully consider the following:

Reduced Home Equity for Heirs

The loan balance, including interest, must be repaid when the home is sold or the homeowner passes away.
This reduces the amount of equity left for heirs compared to selling the home outright.

Inheritance Considerations

Heirs may need to sell the property to settle the reverse mortgage if they cannot repay the balance with other funds.
If leaving the family home is a priority, discuss repayment strategies in advance with beneficiaries.

Coordination With Wills and Trusts

Reverse mortgages should be included in estate planning documents to avoid confusion.
Consulting with an estate lawyer ensures your will reflects how the loan will be handled.

For more information on common homeowner mistakes that can affect long-term finances, see our article on avoiding first-time home buyer mistakes in Alberta.

Reporting Requirements

While reverse mortgage funds are not taxable, there are still reporting considerations for Alberta homeowners.

Annual Statements

Lenders provide annual statements showing the loan balance and accrued interest.
Keep these records for financial planning and estate purposes.

Capital Gains on Sale

When the property is eventually sold, capital gains tax may apply if the home is not your principal residence.
For most Alberta homeowners using a reverse mortgage on their primary residence, this will not be an issue.

CRA Inquiries

The Canada Revenue Agency (CRA) may ask for clarification if large deposits appear in your bank account.
Maintaining proper documentation of reverse mortgage disbursements helps resolve questions quickly.

Final Thoughts

Reverse mortgages can be a useful financial tool for Alberta homeowners, but understanding the tax and estate implications is essential. Whether you live in Calgary, Edmonton, Red Deer, Lethbridge, or Medicine Hat, planning ahead ensures you maximize benefits while protecting your estate.