Common Question: I am selling my home. I pay my residential property taxes on the 1st of every month. My possession date is on the 5th. Do I have to pay the full month of taxes even though I will only own the property for four days?
Answer: While you will initially have to pay the full month of taxes, you will be reimbursed for the period between the possession date and the end of the month. It is up to your lawyer to ensure you are reimbursed properly.
Whether you are buying or selling your home, there are a lot of moving parts. We are here to help facilitate the transaction and explain the process along the way. This blog post is aimed at explaining residential property tax reimbursements so that you will feel more comfortable during your upcoming home transaction.
What are residential property taxes?
Residential property taxes are the taxes that municipalities collect from property owners to help fund municipal services such as road maintenance, streetlights, parks, police services and fire protection. If you own residential property, you likely pay residential property taxes.
The specifics of residential property taxes vary depending on the municipality. In Regina and Saskatoon, residential property taxes can be paid monthly (on the TIPPS program) or annually. Annual taxes are typically due on June 30th. However, in 2020, the deadline for annual taxes was extended to September 30th due to Covid-19.
In most rural municipalities, residential property taxes are due on December 31st of each year. However, some rural municipalities offer early payment incentives. This becomes confusing because there are sometimes two due dates: the early incentive due date and the actual due date. As a result, it is important to know the due dates in your municipality.
What are reimbursements?
A reimbursement is the act of repaying someone who has spent money on your behalf. In home transactions, reimbursements occur when the buyer or seller repays the opposite party for an underpayment or an overpayment in property taxes.
Reimbursements are almost always required in home transactions because the possession date rarely falls squarely on the date taxes are due. In other words, since the buyer almost always underpays or overpays their residential property taxes, it is only fair that the buyer or seller is reimbursed accordingly.
How am I reimbursed?
Many municipalities, including Regina and Saskatoon, leave it to lawyers to ensure that buyers and sellers are reimbursed properly. Both cities refuse to reimburse sellers for pre-paid taxes or buyers for underpaid taxes.
During your transaction, your lawyer will either advise you that you must reimburse the other party, or you qualify for a reimbursement. As a result, it is important to choose a knowledgeable lawyer who can ensure that you are reimbursed properly.
The rule of thumb
The rule of thumb is that buyers and sellers should only have to pay taxes for the period that they own the property. If you remember this rule of thumb, it will help you understand why you are being reimbursed or why you must reimburse the other party.
At McKercher LLP, we understand that buying or selling a home is a complicated transaction. Taxes are just one small piece of the puzzle. We are here to help facilitate the transaction and explain the process along the way. In our experience, you will feel more comfortable when you understand the process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.