Kevin Greenard: Deferring your property taxes is a no-brainer

Kevin Greenard

Municipalities mail out their property tax notices by the end of May. Below are the common ways to address your property tax liability. The first way is by paying your property taxes directly to your municipality. Depending on your circumstances this may require setting aside money each month to pay them when they come due. While most of our clients no longer have a mortgage, those individuals that do have a mortgage can choose to pay their property taxes with their mortgage payment. With this option, your monthly payment to your lender is made up of a mortgage payment and an amount for your property taxes. Your lender will then pay your property taxes to your municipality for you.

Let’s look at another option, which is to not pay your property taxes and instead defer payment until the future sale of your home. This can be done through the Property Tax Deferment Program. In retirement, it’s not always how much money you make but how much money you spend, and the annual property tax bill is a big one. In our opinion, deferring your property taxes makes total sense in most cases, and the majority of our retired clients have taken advantage of Property Tax Deferment Program.

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The Property Tax Deferment Program

The Property Tax Deferment Program is a low-interest loan program that assists qualifying homeowners in British Columbia with paying the annual property taxes on their homes. It was established in 1974 by the Province of British Columbia. The initial intent of this program was to assist seniors and the disabled who may not have readily accessible funds to pay their property taxes. The program ensures that the property tax burden each year would not result in an individual having to sell their home to cover this obligation.

Qualifications for the Property Tax Deferment Program

The general Property Tax Deferment qualifications require that you:

• Be the registered owner(s) of the home and that it is your principal residence where you live and conduct your daily activities

• Be 55 years of age or older OR a surviving spouse OR a person with disabilities as defined in the Land Tax Deferment Regulations under the Land Tax Deferment Act

• Be a Canadian citizen or permanent resident under the Immigration and Refugee Protection Act (Canada)

• Have lived in British Columbia for at least one year immediately prior to applying

• Have paid all previous years’ property taxes, utility user fees, penalties and interest

• Have a minimum equity of 25 per cent in your home based on its assessed value as determined by B.C. Assessment

• Pay property taxes to a municipality or the Surveyor of Taxes

• Have a current fire insurance policy on your home. For the purposes of calculating equity, your property value is based on the assessed value of both land and improvements. However, if you don’t have fire insurance on your property, your property value is based on the land value only. Manufactured homeowners who do not own land and do not hold a current fire insurance policy will not qualify for the tax deferment program.

Only one spouse must be 55 or older where the home is registered in both names. At the time of application, the owner must turn 55 during that calendar year to qualify. You can defer your taxes if you own and live in your home and continue to qualify for the program. The deferred taxes must be fully repaid, with interest, before your home can be legally transferred to a new owner, other than directly to your surviving spouse or upon the death of the agreement holder(s). A one-time administration fee of $60 is applied to new approved deferment agreements. You can renew your agreement each year with a $10 fee. The set-up fee and the renewal fees are added to the deferral amount.

It is also important to note, the Property Tax Deferment Program also has a program for families with children, that has different qualifications and the interest rate is different.

How to apply

Previously, applications for the Property Tax Deferment program would be submitted to your municipality. Now, they are submitted through British Columbia’s Ministry of Finance website using eTaxBC, which is a free and secure online service. This is the second year eTaxBC has been used to submit applications for the Property Tax Deferment Program.

An added bonus of using this online system is homeowners may now select auto-renewal to have their account automatically renew annually, so long as they still meet all eligibility requirements. With this online service, the need for paper forms is eliminated.

For more information on both programs, and how to apply, visit the Ministry of Finance’s website.

You can also get information by email at TaxDeferment@gov.bc.ca or call toll free 1-888-355-2700.

Interest Charges

If you choose to defer your property taxes, a key benefit to note is that the deferred amount is charged simple interest, which is better than compound interest that charges interest on interest. Another benefit is that the interest rate charged is not greater than two per cent below the rate at which the province borrows money. The interest rate is set every six months by the Minister of Finance, on April 1 and Oct. 1. The current interest rate for the regular program is 0.45 per cent and is set for the period April 1, 2021, to Sept. 30, 2021. The rate may change every six months and will be reset again on Oct. 1, 2021.

Means Test

One of the most interesting components to this program is that there is no mention of a means test. Individuals of all income levels may apply, provided they meet the general qualifications. Although the program may have been designed for those struggling to pay expenses, others may also take advantage of the terms of deferment. With the interest charges as low as they are, individuals may choose to defer their property taxes for a variety of reasons. From an investment standpoint, this makes sense if an investor feels they could generate an after-tax return greater than the interest charges.

2020 Numbers for Vancouver Island

In our past articles on the Property Tax Deferment Program, we included the annual figures (i.e. the amount of property taxes deferred in one year). For the purposes of this article we have included the cumulative figures to show the current number of people that are using this program as of 2020, and the total amount they have deferred. This shows the number of households that were taking advantage of this program when interest rates were even higher than their current 0.45 per cent.

For example, as of 2020 Saanich has a total of 3,924 households deferring $83,776,841 of property taxes. This is a cumulative number for the 3,924 households since they began deferring their property taxes. The number of households and amount deferred does not include households that deferred their property taxes but have since paid the balance off either voluntarily or through the disposition of their home.

Jurisdiction

Number of Households

Amount Deferred ($)

Saanich

3,924

83,776,841

Victoria

2,506

42,764,944

Oak Bay

1,362

39,250,046

Nanaimo

2,253

31,375,159

Gulf Islands Rural

1,166

19,883,135

North Saanich

700

18,235,177

North Cowichan

1,201

17,076,855

Central Saanich

816

16,785,932

Alberni Rural

1,158

16,042,112

Courtenay Rural

947

14,237,802

Duncan Rural

1,110

13,811,326

Esquimalt

621

12,162,924

Qualicum Beach

756

11,143,418

Campbell River

949

10,909,065

Courtenay

931

10,316,185

Sidney

686

9,690,404

Parksville

611

6,726,611

Comox

534

5,545,888

Colwood

419

5,307,866

Nanaimo Rural

412

4,968,245

Ladysmith

332

3,666,446

Langford

473

3,606,991

Sooke

321

3,412,275

View Royal

263

3,218,657

Port Alberni

391

3,013,207

Campbell River Rural

226

2,783,030

Lantzville

132

2,385,382

Metchosin

141

2,300,135

Victoria Rural

151

2,070,412

Highlands

76

1,199,399

Tofino

39

839,874

Lake Cowichan

93

817,605

Duncan

102

632,723

Ucluelet

23

276,837

Tahsis

9

43,524

Source: Property Taxation Branch, Ministry of Finance

Greenard Group strategies to consider

If you qualify for the Property Tax Deferment Program, and don’t have to pay your property taxes today, here are the Greenard Group’s top five favourite strategies to consider with the funds you would otherwise be using for your property taxes.

Strategy 1: The most basic strategy is to use the funds that you would normally use to pay property taxes to fund day-to-day expenses. This strategy is essentially the main reason the program was put into place.

Strategy 2: Another strategy for the use of the funds is to put these funds into a Tax Free Savings Account (TFSA) if you have not already maximized the account. Ensuring your TFSA is always topped up may give you another nest egg to prevent you from running into financial problems in the future.

Strategy 3: For individuals who are 55 plus and still earning significant income, redirecting the cash to top up your Registered Retirement Savings Plan (RRSP) contribution may be a prudent move.

Strategy 4: Another option instead of the TFSA and RRSP strategies is to either add to your non-registered investment account (or open a non-registered investment account if you do not yet have one) and begin building up a portfolio that will generate income for you (i.e. basket of dividend paying equities) greater than the simple interest of 0.45 per cent.

Strategy 5: If your ultimate objective is to enhance your overall estate value then proceeds could be used to fund a life insurance policy.

Prior to implementing any of the above strategies, you should contact your accountant and Portfolio Manager to see what course of action is appropriate for you.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email greenard.group@scotiawealth.com or visit greenardgroup.com

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