Reverse Mortgages and Your Taxes
December 2, 2008 · Print This Article
Being a senior in retirement, one of your major concerns is probably how much you will be paying in taxes each year, since it can really affect your cash flow. You likely think about it when determining how much of your RRSPs to withdraw, since upon withdrawal the funds are no longer tax sheltered.
The beautiful thing about the Canadian Home Income Plan (CHIP) reverse mortgage is that the proceeds you receive from the loan (also known as your home equity) are not considered income – even if it’s invested in an account or annuity with monthly withdrawals. This is because the home equity you are accessing has already been taxed, since you purchased your home with after-tax dollars.
So you already know that you don’t pay taxes on your Canadian reverse mortgage money, but you also remain at the same tax rate since the reverse mortgage loan proceeds don’t push you into the next tax bracket. Additionally, your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) incomes aren’t affected since, once again, the CHIP loan funds are not income.
What CHIP does do for you, however, is increase your cash flow or allow you to withdraw your equity to use for home renovations, travel, debt repayment or just something fun. Basically, you always end up in a better situation with better cash flow than you would have had if you had not gotten a CHIP reverse mortgage.