HomeMy WebLinkAboutTR-65A-As Amended Report to the Chairman & Members of the General Purpose and Adr.7i,nistration Committee
meeting of December 7, 1981.
Report No. TR-65a-81 (as amended)
Subject: Bill 121, an Act to provide alternative methods of fixing
Penalty Charges, Interest Rates and Discount Rates on Payment
to Municipalities.
Recommendation:
It is respectfully recommended:
1 . That this report be received, and
2. That the charging of interest on overdue payments be
at a rate equal to the highest prime rate which exists
at the time the by-law is passed plus 12% per annum, and
3. That the attached by-laws be presented to Council for their
approval to institute a new rate of interest charged on
overdue payments effective January 1, 1982.
Background and Comment:
On July 3rd, 1981, Bill 121, an Act to provide alternative
methods of fixing penalty charges, Interest Rates and Discount Rates on payments
to Municipalities received Royal Assent. The Act authorizes the Municipality to
pass a by-law to set the interest rate penalty on overdue payments due to the
Town from others at 12 percentage points above the highest prime rate of a
Canadian Chartered Bank, in effect when the by-law is passed. For example,
if the highest prime rate of a Chartered Bank is 20% the maximum penalty which
could be charged would be 212%.
The penalty rate set now will be effective until March 31st,
1982. Starting in 1982 Council has the option of revising the penalty rate of
interest immediately, or waiting until the March 31st expiry date. At that time
Council , may revise the rate charged. However, at any time during the term of
the by-law, amendments may be made to reduce the rate. The policy would be applicable
to all payments from others that are overdue.
It is beneficial to the Town to adopt this policy under the
new legislation as it authorizes higher penalties. For some years Municipalities
have been requesting the Provincial Government to raise the interest penal.ty which !
may be charged on overdue taxes and levies.
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TR-65a-81 \
Last year the maximum rate was increased to 15%, however with the continued rise in
the interest rate structure a rate above 15% is required to limit the use of
municipalities as sources of funds for others.
Taxes which are one year in arrears make up 2.78 of the
current leyy versus 2.67 in 1980. Taxes which are two years in arrears make up
1 .12 of the current levy versus •86 in 1980. And finally, taxes which are three
years in arrears make up .19 of the current levy versus . 16 in 1980.
As Committee members can see we have had a slight growth
in the amount outstanding from 1980 to 1981, but the Tax Collector remains committed
to a 82% to 9% level as the amount of taxes outstanding for all years as of December
31, 1981. The amount outstanding should be at a 5% level .
Because of the changes in the due dates for the various
installments we have not experienced a cash flow problem as might have been evident,
if those dates had not changed. Luckily, this year we have not been borrowing from
the bank, but have been borrowing internally through our Reserve Funds. Should we have
to go the bank we would be facing the prime rate and therefore, it seems unreasonable
that we should finance those ratepayers who choose not to pay their taxes at the
expense of those ratepayers who have made their tax payments. When we borrow from
Reserve Funds we must pay the rate of interest which the funds would have earned if
invested which is slightly lower than prime.
Although the number of ratepayers who might be taking
advantage of the spread in the interest rates is not readily available, I believe
that we might see the numbers increase if the spread between 15% penalty rate,
which was previously allowed under the Act, and the prime rate remains high.
Inorder to increase the penalty rates on outstanding taxes ,
two by-laws are required. These by-laws will allow the Town to charge an established
rate of interest on all outstanding accounts until expiration on March 31, 1982.
Respectfully submitted by,
Kathryn A. Campbell , C.A. , B.Com. ,
Treasurer
09 21 81 R81-TC-5(f)