Stop reading now if you want this to be a property tax revolt rant. It is rather, a way for you to take advantage of something offered to home owners by the BC government.
Last June Cheryl and I moved into another home within the South Surrey / White Rock BC area, after being in our previous home in “Ocean Park” for 21 years. We don’t like to move and seeing as we think we have found a place we can live, for several years, we shouldn’t feel the urge to move again, I’m hoping, for 15 years at least. It’s bright and has enough room, but not too much ( although our new garage is much smaller than the 20 x 36′ we had before). It is in a neighborhood that has many families with school aged kids, keeping us on a youthful and vibrant lifestyle path. As well, when we moved, a very important factor was being able to easily walk back and forth to our office. We now have that with only a 400 meter stroll and the luxury of going home for lunch, as well as being able to walk to so many other urban amenities.
Because of our expectation to not be moving for several years, and that I will be 55 in 2018, this is the last year I will be paying property taxes when they are due, which for BC property owners, is on July 2nd. If you are 55 or older now, I’d suggest you would be financially better off, not paying your property taxes either.
The reasoning is very simple for this to work. Do you think you can earn more than 0.7% on your money? 0.7% is the interest cost the BC government is going to charge you for not paying your property taxes so all you need to do is make more than 0.7% / year. Here are what the numbers look like under various investment return scenarios, assuming a $5,000 / year property tax bill that increases 3% per year:
|End of Year…||Total Property Tax Owing @ 0.7% Interest||Investment @ 1.5% / year||Investment @ 3% / year||Investment @ 5% / year||Investment @ 7 / year||Investment @ 9% / year|
As you can see, even using a relatively conservative 3 – 5% / year will put $37,000 to $74,000 in your pocket after paying back the property tax you owe (including the interest).
The first consideration for where to deposit this money should be to your TFSA (assuming you have room left in your $52,000 contribution room limit). Any gains you make in your TFSA are completely tax free. Next is you need to choose an investment that fit with your time horizon (you don’t want your cash simply sitting in a bank deposit or savings account because the long term benefit is relatively small ie $12,000 over 20 years).Some people struggle each year to pay your property taxes? If so, instead of trying of trying to gather the money together to invest, why not simply pay your property taxes when you sell your home? I would only suggest this if you expect to be moving to a cheaper home and will free up some equity at that time.
What if you struggle each year to pay your property taxes? Instead of trying of trying to gather the money together to invest, why not simply pay your property taxes when you sell your home? Think of this like a very small Reverse Mortgage but at a much cheaper cost. I would only suggest this if you expect to be moving to a cheaper home and will free up some at that time.
The only 2 situations I would not recommend this for is:
1) Someone who is still working and finds they aren’t saving much (or anything) for retirement and probably won’t actually end up putting the money aside to invest. It really comes down to your history of being disiplined enough to save.
2) If you have a large mortgage on your home relative to the home’s value and your income. Refinancing or trying to get a better mortgage rate could be a bit more difficult since you would have a property tax lien on your home.
This BC Government property tax deferral or “deferment” program isn’t only for those who are “house rich and cash poor”. The only stipulation is that you need to be 55 years of age or older (although it does apply for a surviving spouse of any age or a person with disabilities). I will be doing this in 2018, joining my clients who have put this in place already. I’d suggest you should consider it to. This is one of those “small advantages” that can snowball into a big one. Determining if it works for you and how to most effectively use it over time however, should only be done with the advice and direction of your trusted Financial Planner.
Comments? Please feel free! I would love to hear your insights…