By Paul Ratchford
The school tax or “homeowner's tax” as I will refer to it from this point forward is poorly intentioned and deficiently constructed.
Three major homeowner rallies have arisen in opposition to the tax. Meanwhile, the attempted justifications of the tax by Attorney General David Eby, Premier John Horgan and Finance Minister Carole James have been invalidated. The tax violates basic principles of taxation laid out by Adam Smith, including being “proportionate to one’s ability to pay”, “certain rather than arbitrary”, and “payable at times and in ways convenient to taxpayers”.
Although much commentary has been written about the homeowner's tax, there remains an interesting aspect of the presentation of the tax that has been overlooked and does not reflect well on our premier, the finance minister, and particularly the attorney general.
Since they first rolled out the homeowner's tax, these three have presented the government’s property tax deferral program as one of the foundational elements designed to make this levy palatable to all homeowners, particularly to seniors and families with children who don’t have the income to support paying the tax but want to remain in their homes. Their words:
“If you are a senior who has owned your home for a number of years and those prices have continued to rise, you have the ability to defer your taxes.”
“Those who take advantage of the deferral programs do not have to pay the tax until they sell their homes.”
Hmmm, really? I don’t think so.
A homeowner can be confident in his ability to defer his taxes until sale only if he fits the program’s criteria, has no existing loan, and does not plan to access his home equity by way of a new mortgage.
For homeowners in the program who seek to access equity through financing or refinancing, any deferred taxes must first be repaid to the government. This is because when homeowners enter the program they grant a “restrictive lien” (i.e. mortgage) to the government against their home to secure the taxes payable.
If they have no mortgage against their home when they enter the program, the government will have a first mortgage. If homeowners already have a first mortgage registered against their home, the government will take a second mortgage, provided the homeowner has sufficient equity in the home.
The government requires 25 percent equity for deferral in the regular deferral program (15 percent for families with children), meaning all charges registered against (including taxes deferred) cannot be more than 75 percent of the assessed value of the home (85 percent in the case of families with children).
One need not think long to come up with scenarios under which a homeowner may need to access home equity and may regret the financial restrictions and impairment resulting from a government lien on their home.
- Unexpected health care costs.
- Family support.
- Temporary loss of employment.
The government website clearly states that it won’t give any new liens or charges on title priority over the tax lien, and since the lender will not accept a second position on title, the homeowner has no choice but to pay off their deferred taxes. Those are the same deferred taxes that Eby, James and Horgan promised would not need to be paid until the home is sold.
In simple terms, you won’t be allowed to access any equity in your home to pay for financial emergencies or for any reason whatsoever until you first pay off the tax deferment lien.
Refinancing is not only necessitated by a financial emergency. A refinancing occurs when the homeowner seeks to transfer their mortgage to a different financial institution for a better rate or if a homeowner is forced to transfer their mortgage to another lender if their existing lender, for any reason whatsoever, does not wish to renew the existing mortgage with the homeowner.
If such a case presents itself, the homeowner will be forced to repay the deferred taxes well before they sell their home—yet again, the reality conflicts with the story presented by Eby, Horgan, and James.
Additionally, there are other triggers to a prepayment of deferred taxes which undermine the validity of the words of Eby, Horgan, and James. These include:
- When a homeowner passes away and their successor-in-title is not 55 years old.
- When a homeowner’s equity drops below the 75 percent threshold set by their lender (or less in the case of some lenders). In the current environment of falling home values and rising property taxes, this could be problematic for many homeowners.
In the months following the rollout of the homeowner’s tax, many individuals, including myself, began asking questions and slowly unveiling the deception supporting this ill-conceived tax.
I inquired with a representative at BlueShore Financial about whether they allow deferrals or not, and their reply was “Yes. Because the province does register a second mortgage charge on the property with property tax deferrals, it might be important to know that any subsequent re-advances or charges on your BlueShore mortgage require the balance to be paid off in full and the second discharged.”
The same is true of most other mortgage lenders. In fact, the government’s website points out that one of the situations where repayment of a deferment loan is required occurs when “refinancing with most lenders”, and it urges you to “check with your lender to confirm”.
It is inconceivable that Eby, Horgan, and James were not aware of these details, particularly Eby. He is a graduate of Dalhousie law school, where, as in all Canadian law schools, the concept of title registration priority is standard fare for law students.
He could not not have known this, yet he chose to purposefully withhold the details. Between the three of them, there exists a clear pattern of what can only be described as a consistent and purposeful omission of pertinent information with regard to the program for the purposes of presenting themselves as caring and compassionate ministers looking out for their electorate—and hoping homeowners will take a “leap of faith” solely on their word and assurance without making any further inquiries.
From the beginning, the NDP has pushed a devious narrative that the program is a financial safety net of sorts provided by a group of ministers sensitive to the impact of the tax on their constituents.
In reality, it is a financial trap that simply gives the government a means by which it can access the equity in your home long before you sell it. The bait for the trap is the trust they ask you to have in them. Sadly, you will come to find out too late that your trust has been betrayed and you have unsuspectingly given the government the keys to the door that unlocks future access to your home equity.