How to benefit the rich: property tax edition

There is a lot of focus right now on tax treatments that benefit the rich. Most of the discussion is about income tax loopholes and I have certainly contributed to this discussion with a contribution to the Globe’s Wealth Paradox series. But BC has an interesting policy with its property taxes that also benefits the wealthy.

Like most provinces, B.C. offers property tax relief, but unlike all other provinces B.C.’s program is not tied to income. B.C.’s Property Tax Deferment Program allows anyone aged 55 and over to postpone payment of property taxes until they sell their home or pass away (assuming that have a minimum equity of 25% and have current fire insurance). Interest on the amount deferred is charged, but at a rate not greater than 2% below the prime rate at which the province borrows money. In addition to this plum rate, any interest charge is always based on the amount loaned and does not compound.

Eligibility for the program is not means-tested, meaning it is open to both those that need and those that desire to postpone payment. When property taxes are deferred, they are secured with a government lien placed against the home. The province then transfers the total amount deferred (in that year) to local governments. So municipal government are not out any money but the B.C. government is.

The intent of the program, which dates back to the post war period, is to  provide relief for those who cannot afford to pay property taxes. There are two key problems with this objective. First, households with an ability to pay, it seems, were not expected to choose to defer property taxes, yet without a means test for eligibility, there is no way to prevent them from doing so. Second, the income and wealth profile of those aged 55 and over is no longer dominated by those with a low fixed income. Baby boomers are certainly one of the wealthiest senior populations we have ever seen and this notion of being old and being poor no longer holds water.

Those low-income seniors targeted by the program are not necessarily benefiting from it, which is truly a shame. Programs such as this can help low-income seniors stay in their home a little longer, reducing the burden on long-term care residences. That said, we should be careful about promoting home ownership amongst those who can’t afford it. Owning a home is expensive and sometime it is best to sell the asset and find more afforded housing.

B.C. needs to end this subsidy for high income households. The program needs to modified for the new realities of the income profile of seniors and access based on passing a means test.

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