| Minister(2)/DM's Office | |
| Central Records | |
| Author/Section Chief | |
| Return to Rulings Directorate, Room 300, Met. | |
| September 13, 1990 | |
| 19(1) | EACC9655 |
The Honourable Otto Jelinek, Minister of National Revenue, has asked me to reply to your letter of July 5, 1990, addressed to his predecessor, the Honourable Elmer MacKay, concerning a reverse mortgage plan for homeowners offered by an insurance company. I apologize for the delay of my response.
Due to the confidentiality provisions of the Income Tax Act, I am unable to comment directly on a specific plan sold by a particular corporation. I am, however, pleased to be able to provide the Department's general comments with respect to reverse mortgage plans. You may wish to contact representatives of the corporation whose product interests you to obtain further details of their views of the tax status of their plan.
I would note that under a reverse mortgage plan arrangement, a homeowner can use his mortgage-free or low-mortgage house as security to receive a loan of cash from a lender. In some reverse mortgage plans, the homeowner would use the proceeds of the loan to acquire an annuity contract from an insurance company. Whether or not an annuity contract is acquired, the principal and interest on the cash advanced as a mortgage loan would become due and payable only when the homeowner died or the house was sold. Where the homeowner acquires an annuity contract, the income component of the annuity payments received would be included in the homeowner's income, pursuant to the relevant provisions of the Act, and a deduction would be available for interest on borrowed money used to acquire the annuity contract.
I trust that this information will be of assistance to you.
Yours sincerely,
Pierre Gravelle, Q.C.
PL/dc (dcoutu\work\4-901874)September 7, 1990Peter Lee (957-2745)