REQUEST FOR DECISION
DATE: April 21, 2020 Report No. FIN-20-006
TO: Laurie Hurst, Chief Administrative Officer
FROM: Ian Irvine, Director of Financial Services
SUBJECT:
Title
Alternative Tax Collection Scheme
End
RECOMMENDATION:
Recommendation
That Council gives first, second and third readings, and final adoption of Alternative Municipal Tax Collection Scheme Bylaw, 2020, No. 2998 as authorized under section 9 of Ministerial Order No. M083 - Order of the Minister of Public Safety and Solicitor General/ Emergency Program Act.
Body
RELEVANT POLICY:
Community Charter s.235
STRATEGIC RELEVANCE:
Engage, respect and respond to the needs of the community
BACKGROUND:
Many in the community are facing financial challenges due to the COVID-19 pandemic and staff have reviewed options available to the Township that could provide some financial relief while at the same time balancing the financial requirements to continue providing many services upon which the community relies. Until recently, the Township and other local municipalities were awaiting overall direction from the Provincial Government.
In an 'initial circular' dated April 2, 2020, the Province encouraged "good financial management, including: maintaining a strong level of cash assets, prioritizing core municipal operations, and possibly deferring non-essential capital expenditures until this event passes." While there was no indication whether further Provincial programs would be announced to assist, the letter did refer to additional circulars.
Subsequently, on April 16, 2020, the Provincial Government announced support for business and local governments. Included in the release were a reduction to the school tax rates and the postponement to October 1 of late payment penalties for commercial properties only. There was no mention of relief measures or tools for taxpayers of residential properties. At the time of this report, it appears that any further decisions around the treatment of property taxes will need to be made by the municipalities.
Section 235 of the Community Charter empowers the Township to establish an alternative tax collection scheme within a bylaw. Such a bylaw may establish tax due dates, penalties and set terms and conditions in relation to payments. While Council has some authority to undertake Township initiated financial hardship mitigation measures and deadline adjustments, it does not have the authority to only change taxation due dates or waive penalties for a certain group of individuals or organizations. That is, the Township cannot delay due dates or penalties only for those who are experiencing financial hardship. In addition, the Township does not have the ability to confirm, or audit, that someone is actually experiencing financial hardship.
Currently, the Township levies approximately $29 million in property taxes to deliver its services. In addition to that, the Township also collects approximately $11 million in taxes on behalf of other agencies such as the Capital Regional District (CRD), Capital Regional Hospital District (CRHD), BC Transit, BC Assessment (BCA), Municipal Finance Authority (MFA) and School District #61. The due dates for payment from the Township to those agencies are set in legislation. The earliest payment date is August 1 for payments to BCA, MFA, CRHD, and CRD, whether or not taxes have been collected. In its recent announcement, the Provincial Government has allowed for the Township’s payment of school taxes to be deferred until December 31.
Under normal circumstances, using the current established due dates and penalties, the Township has the financial capacity to maintain operations and advance capital projects and does not need to borrow short-term to assist with cash flow until property taxes are collected. The Township's other revenue sources and reserves typically enable the temporary ability to cash flow operations. While the Township’s current cash flow situation remains positive, as a precautionary measure, potential options have been explored should a cash insertion be necessary later this year. As well, Public Works and Government Services Canada have been contacted about the annual PILT payment to the Township and they fully anticipate their payment remittance to be made in a timely manner consistent with previous years.
ISSUES:
1. Rationale for Selected Option
In light of the Province’s response and in terms of relief for those experiencing financial hardship due to the pandemic, staff recommend maintaining the existing property tax due dates while extending the late payment penalty dates for all taxpayers. These options are fiscally prudent and would not have a significant impact on cash flow and service provision while still providing some relief to those suffering financial hardship in the community.
Payment Due Date
Under the existing bylaw, property taxes are due on the first business day in July, after which a 10% penalty applies on any remaining balance unpaid at that time. With the positive cash flow position of the Township, an extension of the due date is possible but not necessary. As the legislative deadlines to pay the taxes collected on behalf of other agencies remains largely unchanged, the Township will be required to make those payments regardless of whether the Township has actually collected the taxes or not. As such, taxpayers should be encouraged to pay their property taxes on, or before, the due date to minimize the potential cash flow impacts to the Township.
The retention of a July 2 due date could potentially encourage payments from those who can afford to pay. At the same time, it would provide a deadline for financial institutions to submit property taxes collected on behalf of their mortgage customers. As well, the Township’s annual PILT application would include the July due date which provides the Federal Government with the deadline for receipt of our annual payment.
Late Payment Penalty Dates
Under existing regulations, the Township must levy penalties of 10% on property taxes outstanding after the due date. However, an alternative tax collection scheme can be adopted that allows for these penalty dates and percentages to be amended.
Within it’s April correspondence, the Province postponed the late payment penalty date applicable for commercial properties (classes 4,5,6,7,and 8) only. Under their direction, this shift to October 1 did not apply to residential or utility property tax folios. To be consistent with all tax folios and for ease of application within the Township’s property tax management system, a shift to the same October 1 date is recommended for all classes.
One additional benefit with shifting the residential penalty date from July to October could be the increased potential of access to the Municipal Hall for the purposes of making a property tax payment. While the current environment continues to be uncertain, this extension could allow tax payers another option to physically submit their payment before October 1 without incurring a 10% penalty should the Hall reopen.
2. Organizational Implications
Upon approval, an alternative tax collection scheme would be applied during the 2020 taxation year. This bylaw will be reviewed prior to the 2021 taxation year to determine whether the alternative scheme needs to be modified or removed entirely.
3. Financial Implications
Based on analysis of outstanding tax folios between the July due date and October 1 for the 2018 and 2019 taxation years, it is estimated that an extension of the late payment penalty date as recommended could result in a potential revenue reduction of approximately $50,000 in the 2020 financial plan.
To illustrate, in 2019 there were 392 outstanding folios as of July 3 which generated $95,000 of late payment penalties. During the same year, as of October 1 there were only 166 folios with outstanding amounts which had $41,000 of penalties attached. The same analysis of 2018 revealed a reduction of 181 folios and a related penalty difference of $45,000 between the two dates.
The actual amount of tax penalty revenue the Township will forego this year will be dependent on the actual amount of outstanding property taxes after September 30.
While an extension to the penalty date would impact revenue, this decision would not have any impact on the amount of Township’s interest income from outstanding taxes. Consistent with prior years, interest would be applied starting on January 1, 2021 for any amounts outstanding as of December 31, 2020.
4. Sustainability & Environmental Implications
There are no sustainability or environmental implications of this decision.
5. Communication & Engagement
Based on the approval by Council, the 2020 tax notices will be updated with the relevant due date and late payment penalty date. Additionally, as these dates will be specific to the Township, staff will initiate a social media campaign and include documentation with the notice to clearly communicate the changes as well as provide information about potential tax relief options such as the home owner grant and tax deferral programs.
ALTERNATIVES:
1. That Council gives first, second and third readings, and final adoption of Alternative Municipal Tax Collection Scheme Bylaw, 2020, No. 2998 as authorized under section 9 of Ministerial Order No. M083 - Order of the Minister of Public Safety and Solicitor General/ Emergency Program Act.
2. That Council amend Alternative Municipal Tax Collection Scheme Bylaw, 2020, No. 2998 and give first, second and third readings, and final adoption as authorized under section 9 of Ministerial Order No. M083 - Order of the Minister of Public Safety and Solicitor General/ Emergency Program Act.