One of the most common questions I get from first time home buyers is how to pay property taxes.
Property taxes are payable the first week of July every year to each municipality. This may vary by city so always check the city website to confirm. For example taxes in Vancouver are payable twice each year. The tax bill will cover the payment of taxes from January 1st of each year through December 31st of the same year. This may not cover the cost of utilities and water services in the municipality. In some cities utilities are charged separately in February of each year. Always consult with your realtor or the municipality for the tax and utility fees for the home your are purchasing.
Upon completion of the purchase for a home the responsibility to pay property taxes shifts from the seller to the buyer. Depending on the time of year the taxes may or may not have been paid by the seller to the city. Therefore the amount payable by the buyer must be determined at the time of completion. Always discuss the status of property taxes with your mortgage broker and realtor at the time of purchase to be clear on the closing cost to complete the purchase. In addition, the lawyer will provide confirmation at completion and outline all closing costs on the statement of adjustments.
How to pay property taxes
For example, if you purchase a home completing on May 30th, the property taxes from January 1st to May 29th will not have been paid to the city. Since taxes are not due and payable for that year until the first week of July the taxes will be reconciled between the seller and the buyer at the time of transfer by sale. The lawyer will collect property taxes from January 1st to May 29th from the seller and credit that amount to the buyer. Upon receipt of the property tax bill in June, the buyer (new owner) would pay for the entire year (including the money collected from January 1st to May 29th from the seller and their share from May 30th to December 31st).
Note: if a home buyer has set up tax payment directly to their mortgage lender, depending on the time of year they may not have sufficient funds in the lender tax account for the current year taxes. Those funds will be allocated to the following years tax bill and the current taxes will be payable by the buyer. Always be sure to discuss this with your mortgage broker and your realtor.
The timing on how to pay property taxes should always be discussed early in the buying process and again at completion. After home buyers move into their home and get busy with other matters this item can be forgotten until tax time. In some cases home owners can be surprised when they receive the tax bill and realize they have not set aside any funds for taxes.
REMEMBER to pay your tax bill on time to avoid penalties.