Property Tax Deferment Program

Many British Columbian’s are not aware of the Property Tax Deferment Program (PTDP). The PTDP is available for resident’s age 55 years of age or older, (only one spouse has to be 55 in the year that the program is applied for). The program allows for individuals that qualify the privilege of deferring property taxes at a simple interest rate of 2% below bank prime rate. Currently the rate being charged for the program is only 1% and again, on a simple interest basis. From April 2010 to September 2010 the interest rate actually fell to .25%. Please note that the deferment program does not “compound” the deferred interest payment. Meaning that if your property taxes total $2500 per year and you deferred these taxes for 10yrs you would only owe the capital of $25,000 plus interest of $1,375, for a total of $26,375. Please note if you invested your property tax payment of $2,500 at a compounded rate of 3% per year you would have a total of $28,660, or difference of $2,285. Below are some ideas of why people are using the PTDP program.

The following are three planning strategies that may be considered:

A. Cash flow: the most basic strategy is to improve retirement income or basic cash flow. Many people have found themselves to be “Asset Rich” and “Cash Flow Poor”. What has happened is that house prices have increased so much more in value than most people’s retirement income; as a result property taxes have created tremendous pressure on people’s standard of living. Many have found themselves living in houses worth so much more than what they originally paid; in many cases cannot afford to stay in their homes due to the increased property tax costs. The PTDP allows people to stay in their homes at the same time reducing their out-of-pocket expenses. The loan is paid off when they eventually sell their home and have access to the substantial capital that their house creates.

B. Investments/ Healthcare Reserve / Emergency Reserve: as briefly mentioned above the property tax savings can be invested in other investments at much higher interest rates. In some cases people are using the PTDP to “Stockpile” cash for future healthcare concerns or other emergency purposes. As the interest charges are so low it may be prudent to consider starting the program and building an emergency cash reserve for the future. Please note that even if the healthcare reserve or emergency reserve is not used a return of only 1% is required to breakeven. Through proper planning the use of the PTDP can provide substantially cheaper access to funds than a reverse mortgage, line of credit or the sale of a person’s home. Please note the implementation of this strategy should be considered well in advance of when the funds are required thus allowing time to build up the reserve.

C. Property Tax Estate Multiplier Program: the most efficient use of the PTDP is for people to consider an estate enhancement program. As the title suggests peoples estate can be substantially enhanced using the freed up cash flow that the PTDP creates. The Estate Multiplier program creates a substantial amount of capital that not only pays off the PTDP balance but leaves excess funds in the estate. Our clients are using these excess funds to pay taxes, help children and/or charities. The following is an example using different ages of how much extra value can be created using The Property Tax Estate Multiplier Program.

*Please note the example below assumes that the death of the husband and wife occurs at age 85. It also assumes that the property tax saving is $2500/yr. and the interest rate is 3%; which is currently 2% higher than what is being charged today.

The Property Tax Estate Multiplier Program uses a special second to die life insurance plan that is extremely cost-efficient, even if people are older. In the above examples part of the multiplier program can be donated to a favorite charity on an immediate basis or through the estate. If donated immediately individuals can use the tax saving from the gift to enhance their personal income situation. If donated through their estate then the numbers showing up under the Estate Gain column are the amounts that would go to the charity and thus creating the same equivalent tax deduction.

**Please note the Property Tax Deferment Program needs careful consideration before implementation, but properly used it can provide substantial benefits either for income enhancement or more importantly estate planning purposes. The above numbers are only examples, and would need to be verified by each municipality in which a person resides.

Contact the Legacy Group at (250) 480-1095 to book an appointment to complete a detailed analysis of your personal situation.

Below is the web page link to a government website explaining the deferral program.