Property Tax Deferment

Jon

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Jon Knutson

Financial Advisor and Associate Portfolio Manager

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While Canadian real estate prices have soared, so has the cost of maintaining a home. Fortunately, there is a government program to help defer one of the costs associated with home ownership.

Property tax deferment assists qualifying homeowners with paying annual property taxes. This article focuses on BC’s deferment programs, and why you might want to consider using them.

General Property Tax Deferment

The qualifications are:

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

• Be 55 years of age or older (only one owner must be 55 or older) OR a surviving spouse OR a person with disabilities as defined in the Employment and Assistance for Persons with Disabilities Act

• Be a Canadian citizen or permanent resident of Canada

• Have lived in British Columbia for at least one year

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

• Have and maintain a minimum equity of 25% of the property’s assessed value. All charges re- gistered against your property plus the amount of taxes you want to defer can’t be more than 75% of the BC Assessment value of your property in the year you apply

• Pay property tax to a municipality or the province

• Have current fire insurance on your home

How long can I use the program?

You can continue to defer your taxes as long as 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).

Are there any costs to apply?

There is a one-time administration fee of $60, and you can renew your agreement yearly for a $10 fee. The administration and renewal fees are added to the deferral amount.

What about interest charges?

If you choose to defer your property taxes, a key benefit is that the deferred amount is charged simple interest and not com­pound interest. The current interest rate for the regular program is 0.45% and is set for the period April 1, 2021 to Sept. 30, 2021. The rate may change every six months and it will be reviewed on October 1, 2021. Another benefit is that the interest rate that is charged cannot be greater than 2% below the rate at which the province borrows money.

Can anyone apply?

This program does not include a means or income test. Individuals of all income levels may apply, provided they meet the general qualifications. With the interest rate as low as it is, individuals may choose to defer their prop­erty taxes for a variety of reasons.

Families with Children Program

Who can apply?

You may qualify for the Families with Children program if you are a parent, step-parent, or are finan­cially supporting a child. You must also meet the qualifications listed above, in the General Property Tax Deferment, to be eligible for the Families with Children program.

How is this program different from the General Property Tax Deferment program?

Under this program, you must have and maintain a minimum equity of only 15% of the prop­erty’s assessed value (the General Tax Deferral program requires 25%). This means that all charges registered against your property plus the amount of taxes you want to defer can’t be more than 85% of the BC Assessment value of your property in the year you apply. 

What about interest charges?

The interest rate for this program is currently 2.45% and is also subject to change every six months.

Where do I go to learn more or apply for either of the tax deferment programs?

For more information visit the Ministry of Finance’s website at: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/an­nual-property-tax/defer-taxes

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

Planning Strategies to Consider

Prior to applying for either of the deferment programs, we recom­mend reviewing your current mortgage and line of credit. It is very important to have a home equity line of credit set up on your home for emergencies before you defer taxes. Contact your fi­nancial advisor to confirm if you have an appropriate line of credit in place.

Also, if your mortgage is coming up for renewal or you are consid­ering a change of financial institu­tions, you may need to pay back any deferred property tax and restart a new application.

Once you have confirmed you are eligible, here are some planning strategies to consider:

• Strategy 1: Use the funds you’d normally use to pay prop­erty taxes for day-to-day expenses instead. This is the main reason the program was put into place. This strategy could help reduce the amount of taxable income you need to withdraw each year, and could save tax and the recovery of Old Age Security (if it is being clawed back).

• Strategy 2: Invest the proceeds where you’d aim to earn a higher after-tax return. For example, contribute to a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) if you haven’t already maximized your contribution. Growth in your TFSA is tax free, and growth earned in your RRSP is tax shel­tered until you withdraw funds from your plan. If you have already maximized your TFSA and RRSP contributions, you could, alternatively, invest in a non-registered investment account.

• Strategy 3: If you have other debt, the funds saved from defer­ring your property tax could be used to pay down any of this debt that has a higher interest rate.

While your reasons to apply for these deferment programs may be varied, if you think you could benefit from using one of them, please touch base with your financial advisor today to see if they’re right for you. ■


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