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Speculation Confusion

If you’ve been deemed a speculator, you’re being charged high interest – and the deadline doesn’t match the government’s own legislation

You open your mailbox, you get a natural gas bill, a credit card bill, and perhaps a few more letters in non-descript recycled paper envelopes. The first one is due May 15, the other one the 26th, you can pay in full or in monthly payments, and there is even a “thank you for your business, we appreciate it.”

It’s the kind of bills and statements you’ve been getting all your life, and they’re all for goods or services you actually used.

“The entire balance of your account is due and payable immediately,” the next letter reads. No 30-day grace period, no due date, and no clear avenue to appeal. Just immediately, in full. And your entire balance is not small – it can easily exceed the average monthly (or even quarterly) wage in this province.

You can almost imagine that a couple of very big guys delivered this particular letter.

But the letter is not from a ruthless banker, collection agent, or loan shark – it’s from a government that is “working for you.” And no, you’re not six months overdue on your tax payment. You’re not actually overdue on anything. You’re just one of the many British Columbians who has been declared a harmful speculator just because they did not sleep enough nights in their home last year.

You read on. If you don’t pay your balance immediately, in full, you face an interest rate of 6.95 percent. Just so you know, BC Government short-term bonds currently trade at below 2 percent yield. So the government supposedly making your life more affordable is charging you over three times their funding costs. Even presumably greedy bankers charge you less, a lot less, for a mortgage or a line of credit.

The amazing thing is that the demand for immediate payment is incorrect. The legislation itself, as well as the notice of tax assessment you have presumably received, state very clearly: payment is due on July 2, 2019.

Still short notice for such a large amount, but at least it’s not today. A bit of a grace period does not let you take a second (or third) job to earn the money, but at least gives you a chance to beg for a loan.

It gets worse – not only does the legislation give you some time to pay, you may actually not owe the whole amount anyway. The tax on the first $400,000 of property value is offset by the BC income tax you pay.

Why the offset is capped at this amount, or any amount, is beyond me. But this aside, the government expects you to pay the full tax today, regardless of how much income tax you’re paying in BC. You may get a non-refundable tax credit on your income tax return, but in the meantime it’s 6.95 percent interest on the whole amount.

You might think, it’s one letter; what’s all the fuss about? Fair enough, except it’s not one letter, it is ONE MORE letter. This threatening language comes on the heels of an intrusive roll-out that required every owner of every property in BC to explain their whereabouts last year. And the roll-out comes on the heels of a confusing and over-reaching legislation related to the tax.

Given all this, it’s no wonder potential home buyers, especially first-time home buyers, are staying away from this market.

Making homeownership riskier does not make it more affordable.

Andrey Pavlov is a professor of finance at Simon Fraser University’s Beedie School of Business