The option of putting off your property taxes

The Property Tax Deferment Program in British Columbia was established in 1974 intending to assist seniors and the disabled.  The program ensured that the property tax burden each year would not result in an individual having to sell their home to cover this obligation.

The general Property Tax Deferment qualifications require that you:

  • Must be 60 years of age or older or a surviving spouse or a person with disabilities;
  • Be a Canadian citizen or permanent resident under the Immigration Act;
  • Have lived in British Columbia for at least one year prior to applying;
  • Apply on the home in which you live; and,
  • Have a minimum equity of 25% in your home based on assessed values as determined by BC Assessment Authority

Source:  Ministry of Small Business and Revenue – Property Taxation Branch

You can visit the Ministry of Provincial Revenue’s website at www.rev.gov.bc.ca/rpt or call their toll-free number (1-800-663-7867) for complete details on the program and to obtain information on how to apply.

After reading through the material you may find the following few components to the deferment program interesting.

Interest Charges

If you choose to defer your property taxes the deferred balance will be charged simple interest at a rate not greater than 2% below the rate at which the province borrows money.  The interest rate is set every six months by the Minister of Provincial Revenue.

A key benefit to note is that the deferred amount is charged simple interest, this is better than compound interest that charges interest on interest.  Another benefit is that the interest rate charged is not greater than 2% below the rate at which the province borrows money.  Currently the interest rate is 2.25% and is set for the period October 1, 2005 through March 31, 2006.  The rate may change every 6 months and will be reset again on April 1, 2006.

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 may make sense if an investor feels they could generate an after tax return greater than the interest charges.

A Look at 2005 Numbers for Vancouver Island

Jurisdiction

# of Households

 $ Amount Deferred

 

 
Saanich

682

           1,912,021.64
OakBay

245

              952,723.68
Victoria

285

              705,659.12
GulfIslands rural

252

              696,265.03
Nanaimo

296

              636,023.79
North Saanich

160

              506,056.70
Alberni rural

217

              497,008.03
QualicumBeach

192

              447,882.80
Central Saanich

109

              341,133.20
Duncan rural

134

              269,470.03
Comox North rural

120

              263,405.12
Sidney

112

              223,643.74
Parksville

93

              194,862.74
North Cowichan

103

              185,388.87
Esquimalt

67

              180,216.27
Nanaimo rural

77

              148,941.04
Courtenay

82

              138,704.13
Comox

63

              107,709.10
Campbell River

69

                95,948.95
Lantzville

27

                72,574.49
Colwood

38

                70,139.30
Ladysmith

35

                69,045.86
Port Alberni

49

                60,550.81
Langford

33

                44,582.71
Tofino

6

                36,868.42
Campbell River rural

15

                27,988.49
View Royal

19

                25,776.34
Sooke

16

                21,789.48
Metchosin

10

                18,518.02
Highlands

7

                17,600.48
Duncan

11

                11,827.35

Source:  Ministry of Small Business and Revenue – Property Taxation Branch

The above highlights Vancouver Island jurisdictions that are utilizing the program.   Saanich leads the way with 668 households currently deferring close to two million dollars worth of property taxes.  In retirement areas, such as QualicumBeach, we were surprised to see only 192 households currently deferring their property taxes.  We did not list those jurisdictions where the total deferred amount was less than $10,000.  The table above highlights that many communities are not taking advantage of this program.

Four Strategies to Consider

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 build up your investment savings.  Topping them up now may prevent you from running into financial problems in the future.

Strategy 3:  For individuals that are in their early 60’s and still earning significant income, redirecting the cash to top up your RRSP contribution may be a prudent move.

Strategy 4:  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 financial advisor to see if any of the strategies may be appropriate for you.