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BC Property Tax Deferment

Spring 2011 BC budget update:

The provincial government slipped in a Property Tax Deferment Program for families with children under age 18. The taxes can be deferred only while any child meets the age test; however, the deferred taxes accumulated through their upbringing do not become payable until you sell the home or die. You will resume owing the annual property taxes when they grow up unless you then qualify under the Age alternative at 55.

• Be a Canadian citizen or permanent resident who has lived in British Columbia for at least one year prior to applying.
• Be at least 55 years old during that calendar year or a surviving spouse, or a disabled person as defined by BC regulation specifically for this purpose. Only one of a couple needs to meet the age criterion.
• Live in the subject property and have a minimum equity of 25%, based upon assessed values as determined by the BC Assessment Authority. Note a tricky little aspect of this test: Your equity is measured against registered debt on the property, which includes the maximum amount authorized to borrow if you use a line of credit not a conventional mortgage. In other words, the actual amount currently outstanding on such a credit line is not the measure. You may not submit other third party indications of the value of the home.

While this program is geared towards enabling low-income seniors to stay in their homes, in fact, it is available to any senior who meets the criteria described above. Note that there is NO income test to qualify.

You may designate any, or all, of the amount of your current property tax obligation. In the first year of application, all previous property taxes and municipal utility charges must be fully paid up. Once you enter the program, you are not obliged to defer your property taxes every year if you do not wish. If you rent out part of your home, or part of your home is used for business purposes, you can defer taxes only on the portion in which you live.

You are able to make partial loan repayments anytime, preferably in denominations of at least $50. The loan must be fully repaid before the house can be transferred to a new owner (except a surviving spouse). If you refinance your home, your financial institution may require full repayment of the deferred taxes upon refinancing.

The province stands as a priority creditor on title registration over financial institutions.

Simple interest is charged on deferment accounts at a rate up to 2% below the bank prime rate. The rate is set every six months by the province. It has been 4% for the past year and ranged from 1.75% to 4% over the past four years. For current rates, visit the BC Government website.

There is an administration fee of $60 for newly approved agreements, and a $10 annual renewal fee for accounts previously approved.

You must pay late payment penalty charges if your application is filed late or is found ineligible for the program, or if you withdraw your application or sell the home before the province pays the taxes on your behalf.

The various application forms and information are available at municipal or Government Agents offices, or from the BC Government website.

If you are considering deferment, there are long term financial planning implications, which depend upon your own situation. If you live in a high-value neighbourhood but your retirement income is low, your property tax bill may be a significant portion of your annual expenditures. Thus, deferment can relieve your cash flow significantly for other purposes.

Should you be concerned about the accumulating debt on the property? That depends! First, are you concerned about the net equity of the house for your heirs upon your death? If you are not concerned, then the improvement in your lifestyle while alive may be more important than what your heirs will receive. If you are concerned, then you need to think about how much equity you wish to leave to your heirs. If your house equity is large at the start (for instance you have no mortgage), then the erosion of your equity due to deferment may not be important. However, if your equity value in the house is close to the afore-mentioned 25% floor, then over time the accumulating debt may erode even this proportion and start to impinge on the value for your heirs. In simple terms, this will occur if the interest rate (presently 4%) is greater than the rate of annual appreciation in property value. However, if the value of your property rises greater than the interest rate over the years, then some or all of the “lost” equity will be made up for your heirs.

For instance, assume you commence deferment immediately at age 55 at, say, $5,000 per year and continue to do so for, say, 30 years. Using the present 4% rate, your accumulated debt would grow to approximately $243,000. Note that the simple, as opposed to compound, aspect of interest accumulation helps a lot, reducing the accumulated debt in this example by approximately $50,000.

Finally, the historical, simple interest rate is lower than many investment returns available in the marketplace. As such, even seniors with ample income may think about opting into the deferment, and instead investing the unpaid property taxes. Over time, the accumulated investment earnings may well exceed the accruing debt.

Article originally published: Oct 2007
Updated: Feb 2012

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