The RM of Portage la Prairie has been offering tax discounts on a prepaid basis with rates better than what you can get at a bank for a few years now. This was arranged in order for the RM to assist cash flow throughout the year. This year it was realized that the additional cash flow gained from prepaid taxes is not required by the RM to sustain adequate cash flow. However, council decided to continue to offer a tax discount to residents for those used to having it provided to them. CAO Nettie Neudorf explains.

Nettie Neudorf "Coming into this position (of CAO) one of my goals was to just look and see what some of the financial policies the RM had in place. The discount percentage in January is quite a high discount rate when you look at it in terms of an effective annual interest rate, while looking at the cash flow in the past three years to see what the levels of cash are for the RM when even tax prepayments are not considered in where we are at. So, if cash flow is not at a critical level, then offering it at a rate where it's a win-win interest rate for what the RM can get, as well as what the person coming forward and wanting to have a bit of a discount for them, where they can get a rate that's better than they can get out of their bank, then we're still in a forward moving place. This means we'll have an interest rate that we can also get a return on without a sacrifice of paying out at a higher rate than what we're getting interest on. So, if it's not a critical cash flow, then we're looking at what are people used to. Going from a situation where people were used to getting discounts to going to zero is quite an aggressive measure. So, by offering it at a discount rate at 1% in January, for instance, we're still able to provide a rate of return that's better than what they can get at a bank, and is still what we can also get as an interest rate in our bank, too."

The percentage figures will decrease over the five months.

Here are the figures showing current discounts and proposed options.

The current tax discount rate is as follows, with the effective annual interest rate calculated for each discount rate:

  • Current Discount Rate:
  • January 2.00%
  • February 1.00%
  • March 0.50%
  • Effective Annual Rate:
  • January 2.67%
  • February 1.52%
  • March 0.86%

The following interest rates are important to consider in the establishment of the discount rates:

Option 1:

  • Proposed Discount Rate
  • January 1.00%
  • February 0.75%
  • March 0.50%
  • Effective Annual Rate:
  • January 1.33%
  • February 1.14%
  • March 0.86%

Option 2 :

  • Proposed Discount Rate
  • January 1.00%
  • February 0.75%
  • March 0.65%
  • April 0.55%
  • May 0.45%
  • Effective Annual Rate
  • January 1.33%
  • February 1.14%
  • March 1.11%
  • April 1.10%
  • Mary 1.08%

Neudorf says everyone's still ahead with the proposed rates.

"Each month still provides a rate of return that is ideal. They're still over 1% in terms of effective annual rate."

She notes corporate parties have taken advantage of this in the past.

"There are large corporate payments that come in early in the year. They still may do that and still get a favourable rate return. They'll have to assess that individually."

However, the RM is sitting at a good place with or without the payments.

"When tax payments aren't a concern, part of our cash flow is part of the balance in looking where we are at, it's not critical for us. So, if they choose not to pay or to pay, it's not going to really affect us in meeting our payment obligations throughout the year."

Neudorf explains any RM resident can take advantage of the discount.

"Everybody is able to come in and pay taxes early. What we allow for maximum payment is up to 90% of the previous year's taxes, because we never want to get into a credit situation where all of a sudden if taxes go down, for instance, that we'd have to issue refunds or take that into account. So, we offer up to 90% of previous year's taxes as what they can put toward prepayment, and we'll apply the appropriate discount rate at that time.

She adds, "This being my first year going forward I will certainly be looking at ensuring the word is out for that. It can go in installments, so you can put whatever amount you are able to give in January, you go and do that, February, March and all the five months that will go through. So, the process for approval now was that council gave us the go-ahead. There's a bylaw that needs to go through. We'll need to put a bylaw through for first reading at the next meeting, and then for the meeting in November it will get final reading. And that's when the bylaw is adopted. The number may even change depending on what they feel at the time of putting through the bylaw. At this time it looks like the rates we'll be providing are 1% starting in January."

She notes the RM could save a substantial amount of money without the discount, so it's quite a decision to deal for council.

"For the discount amount that the RM gives throughout the years worked out to close to $80,000 dollars in this last year. That's equivalent to 1% tax increase. If we didn't offer any discount rate, that would be $80,000 the RM would save. Now, there is an offset in the fact that we do get some interest revenue off that money. So, it wouldn't be the full $80,000 as a net cost. So, we have to factor that in. But right now the way that current interest rate is, between the current discount that we give and the interest revenue that we received, we're still at a net cost."

See full proposal information at this link