B.C. families feeling the financial pinch have the option to free up cash by deferring their municipal property taxes for a year or until their dependent kids leave college or university.
They must own 15 per cent equity in their homes, pay their insurance and not mind knowing that their unpaid taxes are collecting interest at a three per cent rate.
Unlike provinces that restrict deferrals to seniors, B.C. has significantly expanded the criteria to allow parents and step-parents to take part. The program also applies to relatives such as grandparents, as well as caregivers and foster parents.
“This assists families, particularly during those years when household costs are typically the highest,” the Ministry of Finance says.
But there aren’t many takers, according to the ministry’s figures. In the four years the plan has allowed people with dependent children to qualify, the number of people participating is fewer than 1,400, although that’s roughly twice the number in 2010.
Even B.C. Council for Families executive director Joel Kaplan was unaware how much leeway cash-strapped families have to defer property taxes, and he underscores that it’s in the interests of parents to get up to speed on this benefit. Whether it’s the right decision is something they might want to check out with their financial advisers, he added.
What does an uptake of fewer than 1,400 families indicate?
“Obviously, it’s not coming up. It’s not being talked about for some reason. I don’t know why,” Kaplan said.
Meanwhile, the number of seniors and disabled homeowners deferring property taxes at one per cent interest has reached more than 35,000 provincewide. There are about 4,500 homeowners deferring property taxes in Greater Victoria, which is a big jump from about 1,000 a decade ago.
Scott Hannah, B.C.-based president of the two-branch Credit Counselling Society, called the deferral provisions for families the most far-reaching he’s aware of in Canada and said deferrals have a lot to offer, if used wisely.
“It was a good initiative,” he said. “People need to be aware of this.”
Hannah said he applauded the province’s move to open up deferrals to families in 2010, although the option has become “out of sight, out of mind.”
Many families have credit-card debt and could use a year or two of deferral to retire that debt, he said. Credit cards often accumulate interest at more than 20 per cent a year.
“Doesn’t it make sense to carry it at three per cent instead?” Hannah asked, noting that many people carry credit-card debt “forever.”
With some quick figuring, he said that contributing $2,000 apiece per year for 10 years to two Registered Education Savings Plans instead of paying $4,000 property tax for the same 10 years could result in savings of $12,000.
That’s including the annual top-ups of $500 per RESP from the federal government and a four per cent growth rate for the investment. Each account worth $29,000 would add up to a combined $58,000. Meanwhile, the cost of property tax and interest would be $46,000, he said.
“Even if property values went up two per cent a year, they’re going to be able to refinance and pay it off when the kids are over 18,” he said.
Still, the money does have to be paid back with interest, so deferment cash must be used wisely, he said. Even when the kids are no longer being supported, deferred taxes are not required to be paid until the property is sold, the ministry says.
Enid Slack, the director of the Institute on Municipal Finance and Governance at the University of Toronto, said that many other property-tax deferral programs are means-tested as a way to direct the deferral to lower-income owners or seniors. That isn’t to say the wide-reaching B.C. program, which does not have a means test, is wrong. It depends on what the province is using low-interest loans to promote, she said. If a province or municipality wished to target assistance to those who need it most, an income cutoff would be in order, Slack said.
When it comes to tax deferrals for large families, Slack asks: “Is the property tax system the best way to supplement the incomes of families with children?”
Assuming families have a lot of child-rearing costs, she asks: Why use the property-tax system to help them?
“Wouldn’t you think some sort of income transfer or something through the income-tax system would make more sense? I’m not saying we shouldn’t. I’m just saying is the property-tax system the best way to do that?”
The province holds a loan balance pushing $700 million since a bare-bones deferment policy was introduced in 1974 by the NDP government.
People who can afford to pay their taxes but choose to take advantage of a program that allows them to defer several thousand dollars in property tax for one per cent interest and then seek more investment income elsewhere are acting rationally, Slack said: “You can’t blame them for doing that.”
And former Victoria mayor Dean Fortin doesn’t.
“We’re not losing out nor are any other residents picking up anything because of this,” he said. In some cases, homeowners decide to make a “very smart investment,” given that seniors pay only one per cent a year in interest and can get three per cent on a guaranteed investment certificate, Fortin added.
Victoria’s new applications for deferment in 2014 totalled about 200, and seem clearly related to the age of eligibility being lowered to 55 from 60, as well as the fact that there is no means test, he added.
Homeowners taking part can pay the back taxes at any time, without penalty, right up until they sell their homes. The province makes up the shortfall to the municipalities and homeowners ante up the interest when they pay off the deferral.
Deferments become liens against the homes. That means the house cannot be sold or even refinanced with certain lending institutions until things are paid up. Titles can be changed only for a spouse.
While home prices are high in B.C., notably in Vancouver and Victoria, residential property taxes in the province are among the lowest in Canada, according to a 2013 report by the Union of B.C. Municipalities.
A major chunk of residential property taxes collected by municipalities in the Capital Regional District are forwarded to other authorities such as school districts, the Capital Regional District, hospitals, the Municipal Finance Authority, B.C. Assessment and B.C. Transit.
Owners of an average Saanich home assessed at $587,250 would pay $3,809 in taxes before homeowner grants in 2014. The municipality would get $2,215; other agencies would net $1,594, said official Troy Ziegler.
Homeowner grants would reduce the $3,809 property tax to $3,239 or $2,964 for owners 65 and older.
The average amount of property tax deferred in Saanich in 2014 was $3,472.
In Victoria, owners of an average home assessed at $503,835 would pay $3,622 in taxes before homeowner grants.
The city would get $2,251, with $1,370 going to other authorities, said spokeswoman Katie Hamilton. Homeowner grants would reduce that to $3,052 or $2,777 for someone 65 or older. The average deferment in Victoria was $4,035 in gross taxes or $3,284 after the grant.