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Inside Didsbury Entry - Posted: Saturday, April 17, 2021, 07:51 am
tfsaimag.pngThis blog entry is specifically directed to that segment of Didsbury taxpaying population enrolled in the Town's Tax Installment Payment Plan (TIPP) program but it likely will be of interest to all Didsbury residents. It is intended to provide you with an alternate way of meeting the obligation of your property tax while maximizing the benefit to yourself. It may be a viable option for the 50+% of taxpayers who are enrolled in the Town's TIPP program while others won't be in a position to take advantage of the opportunity.

The concept is fairly simple and fairly straightforward and is used by financial advisors the world over; make your money work for you. Essentially, you make use of and take advantage of a provincially and federally approved Tax Free Savings Account (TFSA) to pay your annual property tax. My investment broker informed me that this is nothing new, lots of his clients are doing this.

Here's how it works. Instead of authorizing the Town to withdraw your monthly property tax equivalent from your banking institution, you have that monthly property tax equivalent deposited in your Tax Free Savings Account (TFSA). Since this monthly deposit is exactly the same amount regardless of whether it is being deposited in the Town's coffers or your own TFSA, you essentially see no difference in your monthly financial statement. Except, because the deposit is being placed in your TFSA you are accruing interest on that money every month, interest you won't receive by paying that monthly amount to the Town (my TFSA is currently earning about 5%).

For those unsure about a TFSA, if you don't already have such an account any financial advisor or investment broker would be able to assist you in setting one up. And any financial advisor would be able to assist you with establishing automatic transfers from your banking institution to your TFSA just like the Town's TIPP program.

So now you have this money in your TFSA, accruing interest, and building monthly as a result of the automatic monthly transfers you are making to it. Just before the end of the tax year, the date on which your property tax is due to be paid to the Town, you get your financial advisor to transfer the amount of your property tax from your TFSA to your financial institution and you pay your taxes prior to being assessed an overdue penalty. The interest your money earned over the course of the year in your TFSA is yours to do with whatever you want; leave it in the TFSA or take it out and go out for dinner, whatever you want.

But wait, there is another aspect of this you can use to your advantage. If you look at Didsbury's Tax Rate Bylaw you'll see that although property tax is due on June 30, there is no penalty assessed on unpaid property tax bills until September 1. Essentially then, even though the tax due date is June 30, you can leave your tax payment in your TFSA, accumulating interest, and pay your tax bill at the end of August with no penalty.

And there's more; and this is an opportunity not only for the taxpayers enrolled in the Town's TIPP program (50+% of all taxpayers) but also the taxpayers who pay their property tax bill in one payment (30+% of all taxpayers). At the April 13, 2021 Regular Council Meeting, for the 2021 tax year Council approved the waiving of the administration fee that would typically be charged to taxpayers paying their property tax with a credit card. The purpose of this administration fee is to offset the transaction fee the credit card companies charge the Town for accepting payment by credit card. As a result of Council waiving this administration fee you can charge your property tax bill at the end of August to your credit card, chocking up air miles or cash back or whatever your credit card bonus is, without being charged the 2.75% administration fee. The caveat on this is that in order for this to actually be a financial benefit, you have to have the funds available to pay your credit card account in full and avoid interest charges on your credit card. For those who have committed the monthly deposits to their TFSA, the funds have been saved. This would only be a concern to those who pay their property tax bill in one payment.

There is one more caveat for those enrolled in the Town's TIPP program. If you choose to make a change and take advantage of this opportunity, you must have the funds available at the end of August to pay the balance of your property tax obligation still owing for the 2021 tax year. The TIPP program fiscal period is based on the calendar year, from January to December. Monthly TIPP payments are a monthly equivalent of one twelfth (1/12) of your annual property tax. Depending on when you withdraw from the TIPP program, the balance of your annual property tax will be due on June 30 and payable by the end of August without penalty. This is only a concern in the calendar year you withdraw from the TIPP Program as through all subsequent years you will have a full complement of your property tax in your TFSA. Maybe an example would help here.

For this example let's use a 2021 Property Tax bill of $2400 and withdrawal from TIPP on April 25:

  • TIPP payment January thru March: $200/month x 3 months = $600
  • TFSA deposits April and June: $200/month x 3 months = $600
  • Total funds for tax (TIPP payments plus TFSA deposits): $600 + $600 = $1200
  • 2021 property tax owing as of the end of August: $2400 - $1200 = $1200

In this example, the taxpayer would have to have $1200 available at the end of June to pay the property tax balance owing. Keep in mind, without penalty the taxpayer doesn't need to pay his/her property tax bill until the end of August but to safeguard against changes in legislation, it would be most prudent to always be prepared to pay the property tax bill at the end of June.

It's all a matter of making your money work for you and although it may be a small amount of money, it's money better sitting in your pocket than in someone else's.

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