Oct
26
By Gary Vander Hoeven, CFP
Financial Consultant
The property tax deferral program is a loan program that allows you to defer your annual property taxes on your home if you meet certain eligibility criteria.
After deducting your home owner grant, you can defer all or part of the unpaid balance of your residential property taxes for the current year. All penalties, interest, previous years' property taxes, and utility user fees must be paid to your municipal Tax Collector or the Surveyor of Taxes (rural properties), as these cannot be deferred. The following guidelines must be met:
- Be the registered owner and be your principal residence
- Canadian citizen and permanent residents who have lived in BC for a least one year.
- Have fire insurance in place
- Have a minimum equity of 25% in your home based on assessed values as determined by BC Assessment
- One owner must be 55 or over OR as surviving spouse OR be a person with a qualified disability
You can 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 and or upon the death of the agreement holder(s)
There is a $60 set up fee and a $10 annual renewal fee. Currently the interest being charged on the deferral is 0.25% (subject to change) and is calculated simply not compounded.
So Why Would I Defer My Property Taxes? - Because You Can.
Life is about flexibility and choices. The property tax deferral program allows you the option of directing the funds to other more beneficial areas. Whether it is an annual trip to warm climates, making a donation to a charity, paying down higher interest debts or creating a legacy for your family it is something that should be reviewed by all property owners that meet the requirements.
What are my options:
- Keep paying your property taxes
- Spend it - Hawaii is nice in the winter.
- Invest into the tax free savings account (TSFA). Your investment will make higher potential returns than the interest charged and grow tax free.
- Pay off higher interest credit card debts - most cards today are charging anywhere from 6.99% to as high as 29.9%.
- Donate the money to charity - watch the donation work while you are alive and get a tax refund of 43.7% after the first $200 contribution.
- Increase the size of your estate (and this is the eye opener) -
Let's assume a couple aged 65 and 62, non smokers in good general health. Their annual tax bill is $4,000 per year after the home owners grant. A Universal Life insurance policy for $300,000 would have an annual premium of $3,949**. Let's assume the house is worth $600,000. Here are some 20 year projections:
The house at an average of 2% annual growth would be worth $891,566
Life insurance premiums would have been $80,000
Life insurance policy value is $300,000
Taxes owing from deferral would be approximately $81,900 (based on the current rate of 0.25%))
Approximate estate value of $1,029,666 as opposed to $891,566. A gain of $138,100 or a 15.5% increase with the insurance concept in place.
Misconceptions about the program -
- My municipality will fall apart without my money - not true, the government makes the payment for you.
- Debt is bad - not with the low rates charged, it's what you do with the money
- I don't want to burden my children - it's a simple program for your eventual estate to deal with. Ask your children, they will probably agree that it's your money and you should enjoy life, (if Hawaii is your eventual choice.) They would love the life insurance option even more!
Sitting down and analyzing and preparing a comprehensive financial plan is the only way to determine if one of these options is right for you. Holistic planning involving your current income, assets, goals and philosophy is the place to start. Don't dismiss this fantastic opportunity given to us by the Provincial Government without giving it a good look.
Talk to your financial advisor for all of the details.