When the city of St. John's brought down its 2012 budget, it announced it would begin to charge financial institutions a new $15 transaction fee when mortgage companies pay property taxes to the city on behalf of homeowners.
While most people in the capital pay their property taxes directly to St. John's, between 15,000 and 17,000 homeowners have decided to pay their city taxes as part of their mortgage.
Many comments on The Telegram's website complained this was simply a hidden tax which would be passed on to mortgage holders.
But Ward 1 Coun. Danny Breen, finance committee chairman said that may not be the case.
"There's a number of cities across the country, larger cities, that (already) charge this transaction fee," he told The Telegram in a recent interview.
"My understanding ... is that banks and mortgage companies apply one mortgage fee across the country, whether you live in ... Saskatchewan or St. John's ... so (the banks) are already paying the $15 to (some cities)," he continued.
Therefore, Breen said he believes homeowners in St. John's who pay their taxes with their mortgage may be paying this fee to their banks, even though St. John's doesn't get that money.
He said twice a year, mortgage companies -including the major banks - pay the city the taxes collected on behalf of property owners for the previous six-month period.
But Breen said city staff are in daily contact with these companies to provide them with the needed information to collect the money, and that takes up a lot of time.
"This has become quite a resource issue for us," Breen said. "These fees are (for the) convenience of paying taxes with your mortgage, so it's not a tax that applies to everybody."
Instead, the councillor calls the new fee an administration charge not a tax.
Anyone who pays their city taxes directly to St. John's, and not through their mortgage, won't be affected by the service fee.
The city expects to collect between $450,000 and $500,000 a year from the banks who collect taxes on behalf of homeowners.
Breen said he's one of those homeowners who has decided to roll his taxes into his mortgage.
When asked why the city made the decision to change the fee, he said staff recommended it.
"Staff said, yes, we've noticed that this is taking up a considerable amount of time so they went and looked at other cities and what other cities were doing," said Breen. "It's not a huge amount of money ... but we're doing a lot of work (on) the banks' behalf and the taxpayers should be reimbursed for the work that we're doing to the banks' advantage."
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