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Accessing home equity in retirement (October 2025)

It’s an acknowledged fact that the cost of living has been on a steady upward trend for the past several years. Making that trend even more problematic is the reality that such cost increases have been greatest in areas where eliminating or cutting back on expenditures is hardest. Food prices, especially, have increased significantly. According to Statistics Canada’s research, “as of July 2025, Canadians were paying 27.1% more for food purchased from stores than they were in July 2020”.

When prices for non-discretionary spending items increase in that way it’s noticed by everyone, but has a disproportionate impact on those who are living on a fixed income and who must, therefore, spend an ever-increasing percentage of that income on such non-discretionary spending. While such individuals and families can be found in all age groups, retirees make up the largest Canadian demographic who live on such fixed incomes.

For many Canadian retirees, benefits received from the Canada Pension Plan (CPP) and Old Age Security (OAS) programs make up a substantial portion of their annual income. And while both CPP and OAS payment amounts are indexed to inflation, that indexation is based on the overall or general rate of inflation. Where the cost of necessities, like groceries, increase much more than the general rate of inflation, the indexing of CPP and OAS benefit amounts just doesn’t keep up with those changes, creating a cash flow shortfall for many retirees.

It must seem to Canadian retirees that there just aren’t many good options when it comes to generating the cash flow needed to cover ever-increasing costs for non-discretionary expenditures. Fortunately, however, the roughly 75% of Canadians over the age of 60 who own their own homes (based on Statistics Canada’s figures for 2021) do have options. Canadians who are now in retirement and own their homes most likely purchased those homes many years or even decades ago and have, consequently, built up significant equity. In the current economic circumstances, that equity has made them house-rich and cash-poor. And that equity can now provide an ongoing source of retirement income – through a reverse mortgage or a home equity line of credit (HELOC). Both such financial products have the same basic structure, which is to allow homeowners to borrow against the value of the equity which they have in their home. In both cases there will be costs associated with taking out a HELOC or reverse mortgage which must be borne by the homeowner, including appraisal costs and other administrative fees. There are, however, definite differences between a HELOC and a reverse mortgage, in terms of costs and benefits, and an individual homeowner’s circumstances will determine which such product (if either) makes the most sense for them.

The home equity line of credit, as the name implies, is a line of credit which permits the homeowner to borrow up to a pre-set limit, based on the current market value of their home. Such borrowings can be in any amount (to a maximum of 65% of the value of the home) and can be made at any time and for any purpose. Typically, the interest rate charged on a HELOC is a variable rate – usually one half or one percent more than the prime rate used by the lender. There is, however, a significant feature of the HELOC of which potential borrowers must be aware. While there is generally no obligation to repay amounts borrowed from a HELOC until either the death of the homeowner or until the house is sold, borrowers are required to pay interest each month on the total amount borrowed.

Take, for example, a couple who own a house currently valued at $750,000. Assume that the couple obtains a HELOC based on that home value and borrows $1,000 each month ($12,000 annually) from the HELOC to help meet current cash flow shortfalls. At an interest rate of 5.70%, they will be obliged to make an interest payment of approximately $57 per month on that $12,000 borrowing. As the amount of HELOC indebtedness increases over time, or the interest rate charged goes up, the amount of those required monthly interest payment obligations will, of course, also increase.

The other major option open to homeowners is the reverse mortgage. Most Canadian homeowners will be familiar with at least the concept of a reverse mortgage, as those products have been heavily advertised in Canadian media. Like a HELOC, a reverse mortgage allows homeowners to borrow based on the market value of their property – up to 55% of the home’s market value. A reverse mortgage is also similar to a HELOC in that borrowers can borrow a lump-sum amount, or can opt to structure the reverse mortgage as a series of payments which will provide a regular income stream, or some combination of the two. And, as with a HELOC, no repayment of the funds advanced under a reverse mortgage is required until the death of the homeowner, or until they leave or sell the home.

The basic advantage of a reverse mortgage over a HELOC is that the homeowner is not required to make any payments of interest amounts charged. However, homeowners need to consider the impact that advantage can have over time. Once the reverse mortgage is taken out, interest (usually at a rate higher than would be charged for a HELOC) will, of course, be levied on all amounts borrowed, and will accumulate from the time the funds are first advanced. Total interest costs can add up very quickly and reach significant amounts by the time the debt is eventually to be repaid, usually out of the proceeds from the sale of the house. And, of course, every dollar of funds advanced and interest levied reduces the amount of equity which the homeowner has built up, on a dollar-for-dollar basis. By contrast, with a HELOC, where accrued interest charges must be paid monthly, the amount of debt (and consequent reduction in equity) will never be greater than the principal amount borrowed. Finally, under the terms of many reverse mortgages, a prepayment penalty is levied where the homeowner moves or sells the house within a few years of obtaining the reverse mortgage – the exact time frame will depend on terms provided by the particular lender. With a HELOC, however, repayment of the outstanding balance can be made in part or in full at any time, without penalty.

As is almost always the case with financial issues, there is no one right answer or even a one-size-fits-all answer, as the “correct” answer is always based on the particular financial and life circumstances of the individuals involved. Help in making that decision can be found in a very comprehensive summary of the features of HELOCs and reverse mortgages – including a listing of the benefits and downsides of each option – which is available on the website of the Financial Consumer Agency of Canada at https://www.canada.ca/en/financial-consumer-agency/services/mortgages/borrow-home-equity.html.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Maximizing the medical expense tax credit for 2025 (October 2025)

Notwithstanding the fact that Canada has a publicly funded health care system, the reality is that each year millions of individual Canadians incur medical and para-medical expenses (like prescription drug costs) which can be significant and which are not covered by that public health care system. Absent a private health insurance plan which provides reimbursement for such expenses, they must be paid for on an out-of-pocket basis.

The financial cost of those expenses can, however, be at least partially offset by claiming a medical expense tax credit (METC) on the annual tax return, as both the federal and the provincial/territorial governments offer a such a credit. For 2025, the federal credit is equal to 14.5% of eligible medical expenses incurred, while the amount of the provincial or territorial credit will vary, depending on the province or territory in which the taxpayer resides.

Given the huge number of Canadian taxpayers who have medical expenses which are eligible for the credit, it’s unfortunate that, while the METC is simple in concept, it can be difficult to determine:

just what kinds of expenses are claimable for purposes of that credit (not all are, and others are claimable only if certain criteria are met),
the extent to which expenses can be claimed (only expenses which exceed a certain amount can be claimed, and that amount changes with the income of the taxpayer), and
who should claim the expenses (usually, but not always, it makes more sense for the lower-income spouse to claim medical expenses incurred by the entire family).

Given all these variables, it’s not hard to see why taxpayers can become confused and frustrated when trying to file a claim for medical expenses on the annual return. However, as is the case with almost all tax and financial planning, starting early and not waiting until the last minute will allow taxpayers to take steps to maximize any available credit for 2025.

Which of my expenses are claimable, and are there additional criteria imposed?

The very first step to take is determining whether medical and para-medical expenses which have been incurred actually qualify for the METC. And while that might seem to be easy to determine or even intuitive, it isn’t. The good news for taxpayers is that there are a great number of different kinds of medical expenses which do qualify for the medical expense tax credit, and the Canada Revenue Agency provides a detailed alphabetical (and searchable) listing of those expenses on its website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html)

However, while each of the medical expenses listed on the CRA website is eligible to be claimed for purposes of the medical expense tax credit, for each such expense it’s necessary to determine whether there are additional criteria which must be met in order to make that particular expense eligible for the credit.

Probably the most important criterion for most taxpayers is that, in some cases, a particular expense is only claimable if a prescription has been obtained from a medical professional certifying a need on the part of the taxpayer to incur the expense. However, making a determination of when it’s necessary to obtain a prescription from a medical professional in order to ensure that the planned expenditure will qualify for the credit is also far from intuitive. For instance, in order to claim the medical expense tax credit for the cost of a cane or a walker, it is necessary to obtain a prescription for that cane or walker. However, where costs are incurred to purchase a wheelchair, those costs are eligible for the medical expense credit, with no requirement that a prescription of any kind be obtained. The listing of eligible medical expenses found on the CRA website does, however, indicate the kinds of expenses for which a prescription is required; where the amount of a planned expenditure for a medical expense is significant, it’s well worth consulting the CRA website to ensure that the purchase is done in a way that will make it possible to claim the medical expense tax credit for the cost incurred.

Finally, other types of medical expense costs can be claimed for purposes of the credit only where the person incurring the expenditure qualifies for the federal disability tax credit. Once again, the listing found on the CRA website indicates the types of expenditures to which this requirement applies.

Of my total medical expenses, how much can I claim?

Once the taxpayer has determined which of the medical expenses incurred do qualify for the METC, the next step is to figure out how much of those medical expenses can actually be claimed for purposes of the credit, and this is where some of the complexity of the METC becomes apparent.

The basic rule is that, for 2025, a taxpayer can claim eligible medical expenses which exceed 3% of the taxpayer’s net income, or $2,834, whichever is less. (Net income is the amount found on line 23600 of the income tax return.)

Put in more practical terms, the rule for 2025 is that any taxpayer whose net income for the year is less than $94,467 will be entitled to claim medical expenses that are greater than 3% of their net income for the year. Those having net income of $94,467 or greater will be limited to claiming qualifying expenses which exceed the $2,834 threshold.

Take, for example, a taxpayer who has $70,000 in net income for 2025 and incurs $3,600 in eligible medical expenses during the year. The computation of the available METC claim for 2025 is as follows. Based on the 3% of net income rule, the taxpayer will be entitled to claim medical expenses incurred over $2,100 (3% of $70,000). That taxpayer will therefore be able to claim $1,500 ($3,600 minus $2,100) in medical expenses for purposes of the METC.

Most tax deduction and tax credit claims require that the taxpayer have incurred the related expense during the tax year for which the claim is being made. That’s not the case for the METC, where the rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the tax year for which the claim is being made. In other words, each taxpayer must determine which 12-month claim period ending in 2025 will produce the largest tax credit amount. Since that determination will depend on the amount of eligible medical expenses, when such eligible medical expenses were incurred, and the taxpayer’s income for the year in which the claim will be made, there is no quick formula or universal rule of thumb which will enable the taxpayer to easily determine the optimal time period. Tax software can be useful in this regard, as it enables to taxpayer to run “what-if” scenarios to determine which scenario produces the optimal tax result.

Who should make the claim for the METC?

Once the taxpayer has calculated the amount of medical expenses which are eligible for the credit and determined which 12-month period will be used for purposes of calculating the METC, the last step, for taxpayers who have a spouse, is to figure out which spouse should make the claim.

Medical expenses incurred by family members – the taxpayer, their spouse, and children who are under the age of 18 at the end of 2025, as well as certain other dependent relatives – can be added together and claimed by either spouse. In order to maximize the amount of expenses which can be claimed, it’s usually best to make the claim for the METC on the tax return of the lower-income spouse, for whom the 3% of net income threshold will be less.

That said, it’s also necessary to ensure that the spouse making the claim actually has tax payable for the year. The reason for this is that the METC is a non-refundable credit, meaning that it can be used to reduce tax otherwise payable, but cannot create or increase a refund. So, in order to maximize the use of the METC in a year, it should be claimed by the spouse whose tax payable for the year is at least as much as the amount of the METC claim – otherwise some or all of the METC will be “wasted”.

As the end of the calendar year approaches, it’s a good idea to add up the medical expenses which have been incurred during 2025, as well as those paid during 2024 and not claimed on the 2024 return. Once those totals are known, it will be easier to determine whether to make a claim for 2025 or to wait and claim 2025 expenses on the return for 2026. And if the decision is to make a claim for 2025, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for making that claim.

Finally, it makes sense to look into the timing of medical expenses which are likely to be incurred early in 2026. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or some expensive dental work that must be done) it may make sense, where possible, to incur and pay for such expenses before the end of the calendar year, so that they can be included in 2025 totals and claimed on the return for 2025.

More information on the METC can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

When are home office expenses deductible in 2025? (October 2025)

For individual Canadians, one of the few positive aspects of the recent pandemic was the opportunity it provided to work from home – first as a mandated public health necessity and later as a choice provided by employers. For most employees, working from home was a welcome option which provided better work-life balance and a break from the cost and aggravation of the daily commute. In addition, having a work-from-home arrangement allowed employees to claim a tax deduction for costs (like home heating and other utilities costs, internet access, etc.) which they would have had to incur in any event. For most employees, working from home was a win-win situation.

Unfortunately for such employees, more and more employers, including major corporations and federal and provincial governments, are starting to mandate a return to the office. The extent of the return to the office varies by employer: sometimes that means a requirement to work from the employer’s workplace two, three, or four days a week, while other employers have mandated an end to all work-from-home arrangements and are requiring employees to be in the office five days a week.

Aside from the logistical arrangements which must be made where a work-from-home arrangement is ended, employees will be wondering what that return to the office will mean for any tax deduction claims which can be made for home office expenses on the return for the 2025 tax year and in subsequent tax years

Employees who work from home have always been able to claim a tax deduction for costs related to a home office and those rules, outlined below, remain in place for 2025.

In order to claim a deduction for costs related to a work-from-home space the employee must first have been required by their employer to work from home. Such requirement does not have to be part of the employee’s employment contract, but can be a written or verbal agreement. An employee who voluntarily enters into a formal telework agreement with their employer is considered to have been required to work from home.

As well, the employee must have been required to pay (without reimbursement) the costs related to that work-from-home arrangement.

In addition, at least one of the following criteria must also be satisfied in order for an employee to claim work-from-home costs.

The work-at-home space is where the employee mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during the year; or
The employee uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for in-person meetings with clients, customers, or other people in the course of their employment duties.

In most cases, it would be unlikely that an employee would hold in-person client or customer meetings in their own home rather than at the employer’s place of business, meaning that the vast majority of employees who can claim work from home expenses qualify to do so by meeting the “50% of time working from home for four consecutive weeks” criteria.

Once these threshold criteria are met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their work from home space, such as rent; utilities costs like electricity, heating, and water (or the portion of a condo fee attributable to such utilities costs); home maintenance and minor repair costs; and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses; the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Detailed information on how to make those calculations, whether for a dedicated or shared home office work space (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/calculate-expenses.html. In all cases, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain a T2200 Declaration of Conditions of Employment - Canada.ca. On that form, the employer must certify the work-from-home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

For employees who are now returning to the office for some, but not all, days of the week, the continuing availability of home office expense claims will likely depend on how that return to the office is structured. Specifically, for most employees, the continuing availability of a deduction for home expenses will be determined by whether they can continue to meet the threshold requirement of working from home “50% of the time for four consecutive weeks”.

The range of work-from-home arrangements is almost limitless, but the rules which will apply with respect to the most common kinds of arrangements which might be agreed to by employer and employee during the 2025 and subsequent tax years are listed below.

A full-time employee who has worked from home three days a week during 2025 and is continuing to do so will be eligible to claim home office expenses. The same employee who works from home two days a week during 2025 will not be eligible to claim any deduction, as the requirement of working from home more than 50% of the time has not been met.
A full-time employee who worked from home three, four, or five days a week during all of 2025 but is required to return to the office full-time beginning in November 2025 will be entitled to claim home office expenses for the January to October 2025 period only.
A full-time employee who alternates between working from home full-time for a week, with the following week spent in the office full-time will not be eligible to claim home office expenses, as the requirement of working from home more than 50% of the time has not been met.
A full-time employee who works from home three days a week during only the months of July and August may claim home office expenses, but only for such expenses incurred during those two months.

It’s readily apparent that, even where the number of work-from-home days are the same, the way in which a part-time work-from-home arrangement is structured can determine whether or not the employee can claim a deduction for home office expenses. Employees who are subject to a return-to-office requirement but who are able to negotiate some work-at-home time with their employer will need to carefully consider how to structure that work-from-home arrangement, in order to meet the CRA’s requirements and thereby preserve the ability to claim a tax deduction for work-from-home costs.

Detailed information on the deduction of employee work-from-home costs, including a number of examples of work arrangements which do or do not qualify for a tax deduction claim, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.

CRA makes changes to the Voluntary Disclosures Program (October 2025)

Canada’s tax system is what is known as a “self-assessing” one, in which taxpayers are expected (in fact, in most cases, required) to take the initiative to prepare and file an annual tax return by a specified deadline, to report all taxable income on that return, claim allowable deductions and credits, and pay any balance of income tax owed for the year.

It’s a system which depends heavily on the co-operation of taxpayers and, in most cases, taxpayers do meet their statutory obligations with respect to filing and payment. That said, given that nearly 33 million individual income tax returns were filed this year, it’s inevitable that there will be instances in which taxpayers do not file a return when required, or the income amounts reported or deductions or credit amounts claimed are incorrect. In most instances such errors are unintentional, the result of a taxpayer’s misunderstanding of our (very complex) tax rules, or a simple misreading of the tax form or tax information slips. In a minority of instances, however, non-compliance or inaccurate returns represent a deliberate attempt to “game the system” in order to pay less tax or avoid paying tax altogether.

The dilemma for the tax authorities is that, while the potential exists for a significant loss of tax revenue from hundreds of thousands of such instances of non-compliance, each such instance usually involves a relatively small amount of income tax. Not only does the Canada Revenue Agency not have the resources to pursue every such case, in many cases the cost of doing so would exceed the amount of tax revenue recovered.

In light of that reality the CRA has, for many years, provided taxpayers with the opportunity to come forward and disclose instances of past non-compliance with their tax obligations. That opportunity is provided through the Agency’s Voluntary Disclosures Program (VDP); significant changes have recently been made to that program, with those changes taking effect as of October 1, 2025.

Taxpayers are incentivized to participate in the VDP by the CRA’s policy that, while any income tax amounts owed will have to be paid, in most cases interest or penalty amounts which would ordinarily be assessed in addition to tax amounts owed will be reduced, or forgiven altogether. In addition, taxpayers who participate in the VDP will not face any criminal prosecution for past instances of tax evasion.

The changes which take effect for VDP applications made on or after October 1, 2025 are two-fold. First, the circumstances in which a taxpayer is allowed to make a voluntary disclosure have been expanded; as well, there are changes to the rules which determine the extent to which interest and penalty amounts will be reduced or forgiven.

To understand the changes, a bit of background is required. Under the VDP rules in place prior to October 1, 2025, an application made under the VDP and accepted by the CRA was assigned to either the General or the Limited stream. Taxpayers whose disclosure fell under the General stream were required to pay any taxes owed, but no penalties were assessed and partial interest relief was provided. Specifically, while full interest charges were assessed for the three most recent years of returns required to be filed, 50% of interest charges which would have been levied for tax years prior to that three-year period were forgiven. Taxpayers whose application was assigned to the Limited stream (generally, instances in which the circumstances included larger tax amounts or several years of non-compliance, or involved the use of offshore tax entities) were also required to pay any outstanding tax amounts owed, but were subject to penalties (with the exception of gross negligence penalties) and did not receive any interest relief. Under both streams, the taxpayer was not subject to criminal prosecution.

The recent changes replace the Limited and General streams structure with a system offering two new relief tiers: General Relief and Partial Relief. Where the CRA accepts a VDP application under the updated policy, it will determine which type of relief may be provided, as follows:

General relief will normally be provided for unprompted applications. These applications will receive 75% relief of the applicable interest and 100% relief of the applicable penalties.
Partial relief normally applies to prompted applications. These applications will receive 25% relief of the applicable interest and up to 100% relief of the applicable penalties.

The question which immediately arises is what constitutes an “unprompted” or a “prompted” application. Under the rules in place prior to October 1, virtually any form of contact from the CRA to the taxpayer disqualified that taxpayer from making a voluntary disclosure – in other words, once the CRA contacted the taxpayer about non-compliance, any subsequent disclosure made was, by definition, not voluntary and could not qualify for the VDP. The changes provide more latitude to taxpayers in this respect.

The question of what constitutes an “unprompted” or a “prompted” application is addressed in the detail in the updated Information Circular on the VDP. That Circular explains the difference as follows.

“An application is generally considered unprompted in the following situations:

an application is made when there has been no communication (verbal or written) about an identified compliance issue related to the disclosure
an application is made following an education letter or notice that offers general guidance and filing information related to a particular topic.

An application is generally considered prompted in the following situations:

an application is made following verbal or written communication about an identified compliance issue related to the disclosure, which may include letters or notices (excluding education letters) to the taxpayer with one or more of the following:
- an identification of a specific error or omission found on the taxpayer's account
- a deadline to correct an error or omission, where there is an expectation for the taxpayer to file or comply
an application is made after the CRA has already received information from third party sources regarding the potential involvement of a specific taxpayer (or of a related taxpayer) in tax non-compliance.”

In sum, an unprompted application for the VDP can be made by a taxpayer only where they have NOT been contacted by the CRA with respect to an identified compliance issue related to the subject matter of the disclosure. Once a contact of that nature has occurred, any VDP application made will be treated as a prompted application, eligible (if accepted by the CRA) for only Limited Relief.

The CRA notice of the changes to the VDP can be found on the Agency’s website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html. The updated Information Circular, which provides significantly more detailed information about those changes, is available on the same website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic00-1.html.

New Quarterly Newsletters (Q3 2025)

Two quarterly newsletters have been added – one dealing with personal issues, and one dealing with corporate issues.