BC Property Tax Deferrment
Posted in Finance on June 3rd, 2010 by Sacha PeterThe BC government in the previous budget is now enabling people that own homes and financially supporting somebody that is 18 years old or younger to defer their property taxes, at the rate of interest of the bank prime rate. Previously only seniors (55 and older) were able to exercise this option.
Essentially homeowners are given the option of borrowing money (the amount of their yearly property taxes) at the prime rate, and will only have to repay this amount when your property is transferred (i.e. you sell the place).
Almost everybody that is financially sophisticated that is eligible to do this should be exercising this option. Getting money at the prime rate outside a mortgage is not that easy, and at the prime rate you can very likely make an investment that would give a higher rate of return.
The trick is making the interest amount tax-deductible, and if you use the deferred property tax amount for income-generation purposes then in theory you should be able to deduct the interest.
How will this not end with many parents of then-grown children suddenly owing tens of thousands of dollars that they don’t have? This does not strike me as good policy…
Clarification: It is the government policy I doubt, not your suggestion to abuse it.
Actually, I wonder if the odds of this ending in a disaster where the gov forgives many of the loans are high enough to justify taking part right there…
I think the government is banking on the fact that over the course of 18 years that the property taxes collected plus interest is unlikely to exceed the value of the house. There are some scenarios (mainly involving huge spikes in the interest rates and lowered property values, which is a correlated event) that would result in a net loss to the government, but things would have to be quite bad to get to that point.