Some good news for cash-strapped seniors: across Canada, property tax deferral programs geared toward this group are gaining traction. These programs allow retirees a chance to draw equity out of their homes by putting off property taxes.
“Essentially, it’s driving down the equity of the home,” says Susan Eng, vice president of Advocacy for CARP, an organization focused on Canada’s aging population. “It’s like taking out a second mortgage to pay your taxes and the province is your lender.”
The Double Edged Equity Sword
For some, much in on the line; deferring property taxes can mean the difference between keeping their home or not – especially after the kids have grown up and left home.
“Sometimes the area around them has increased in property value tremendously which can be a good thing because they have something to retire on,” says Eng. “But it’s also a bad thing because the property taxes are swelling over them and they have the potential to be forced out of their home by rising market values.”
Keeping up with property taxes is definitely a chief financial concern for seniors, she adds.
“Once they’re retired, they don’t have, by definition, any source of external income other than investments, so what are they going to pay these taxes with?” she says. “There are specific financial strains that need to be addressed and property taxes is one of them.”
West Coast Leaders In Affordability
British Columbia was an early adopter of the concept, allowing for a tax deferment as long as the senior – defined as someone 55 and older has 25 per cent down on their home and has fire insurance. The interest rate is one per cent – two per cent below prime – and does not compound.
Alberta, likely inspired by the move, set up its own tax deferral for people over 65.
In an interview with the Financial Post, Irene Martin executive director of Alberta Senior Citizens Housing Association pointed out the difference the program makes, especially given that about 78 percent of the provinces seniors live in their own homes.
“Even in smaller communities taxes are $3,000 a year, a payment of $200 to $300 a month,” says Martin. “Those few hundred dollars a month can mean the difference between you living in your own home or not.”
Atlantic seniors are also seeing the benefits of a similar program. In Halifax, the Regional Municipality supports retirees by allowing them to pay their property taxes through a payment plan, a property tax rebate, or a deferral of property taxes provided their household combined annual income is $30,000 or less.
Ontario has taken a different approach allowing seniors 65 and older to put off increases in property taxes.
“The negative side of things is that they have to make sure that interest rates are fair,” adds Eng. “And, you can’t start giving deferrals on luxury homes – you need to make the deferral available who those who truly need it and have no options.”