A property tax deferral program is the latest way Vancouver homeowners are taking advantage of their high-value homes to make a small fortune.
The B.C. program allows residents aged 55 and older, widows, and people with disabilities to defer paying their property taxes until the sale of their home, while only paying a 0.85% interest rate. When implemented in the 1970s, it suited both the common retiring age and the stagnant real estate market at the time, but is now being taken advantage of by wealthy homeowners.
The purpose of the program is a sound one, says NDP MLA David Eby, a critic of the B.C. Liberal’s affordable housing legislation. It is supposed to ensure that seniors and others on fixed incomes aren’t forced out of their homes due to property tax increases when their home value grows. But, the program was designed in the 1970s for the realities of the 1970s real estate market, which is very different than it is now in 2016, adds Eby.
There are over $130 million in deferred property taxes each year, income for the various districts and municipalities that could be used to build roads, fund school boards, maintain parks, and pay local police and fire authorities. While many use the program responsibly – half of B.C. seniors live on $24,000 per year or less and more than 50,000 seniors are living on $20,000 or less, according to Seniors Advocate B.C. – changes in the common age of retirement means many over 55 are still making generous incomes.
According to the Canadian Mortgage and Housing Commission, adults aged 55 to 64 made the highest average personal income of all age categories in 2011. More than half of this group own their homes mortgage-free, and there’s no shortage of them in Canada: what are called “pre-seniors” make up 13.1% of the country’s total population.
With the aging population – the number of people over age 55 by 2038 are projected to equal the populations of Ontario, Alberta, and Saskatchewan combined – the amount of money lost each year due to the property tax deferral program will only continue to grow.
While Eby says there are flaws with the program itself, most notably that it is not at all based on proven financial need, he blames the province’s inaction toward affordable housing as the reason why the program is being taken advantage of.
“Like the shortage of rental housing, like the unaffordability of housing, and the increase of homelessness, the province needs to start fixing the programs from the 1970s to fit with 2016,” he told Vancity Buzz.
“When you look at the action the government has taken to address out of control housing prices, two days ago they gave a break on property taxes to people who were buying $1.2 million homes. And this program, they provide less than 1% interest-rate loans to people who could potentially be earning millions of dollars a year so they don’t have to pay their property taxes. If student loans were at this property tax deferral rate, they’d be in a much better position financially. But students aren’t the priority.”
A spokesperson for the Ministry of Finance says there are currently 38,000 homeowners using the property tax deferral program and the average amount of deferred taxes per household is $3,000 a year.
In one scenario, a 60-year-old homeowner in North Vancouver might pay $8,000 a year in property tax on a standard $1.6 million house. If that house continues to rise in price by $200,000 a year for the next 15 years, by the time the homeowner wants to move at age 75, their house would be worth $4.6 million. Assuming their tax rate hasn’t changed, they would have deferred $248,000 in property tax over the years – money which they may have chosen to invest for profit. They would have only paid just over $1,900 in interest.
David Eby says the program is clearly subsidizing people who don’t deserve it or need it. “It just shows where [the Provincial Government’s] concerns are with housing affordability,” he adds.