Meaning of Tax Certificate
A tax certificate is a legal document that conveys some type of tax information. These are used for a variety of purposes, including tax liens , verification of withholding amounts, proof of eligibility for certain tax credits, and evidence that taxes have been paid.
The purpose of the certificate depends on the localities and the issuing agency.
In some jurisdictions, a tax certificate is issued to a person who purchases foreclosed property at a tax lien auction.
One of the main sources of revenue for local and regional governments is property taxes. Budgets are based on projected income, and if taxes are late or not paid, serious shortfalls can result. One way that many counties and provinces in the US
And Canada face this problem is to sell a tax certificate for the amount of tax due to investors. This tax certificate becomes a lien against the property.
This type of lien can be a profitable investment in the short term. Property owners have the right to redeem the certificate or cancel the lien with interest. Interest rates are set by the local government, and in most cases, that rate far exceeds what is offered on savings accounts or certificates of deposit.
In some areas of the US, an investor can become the legal owner of a property if they pay delinquent taxes for a certain number of consecutive years. This is why mortgage companies in the US
They generally insist on collecting a portion of the taxes each month and remitting the property tax to the owner.
A tax certificate is also issued to a person who purchases property at a tax lien auction. In almost half of the states in the US and every province in Canada, the government can foreclose on a property and sell it to pay back taxes.
The buyer of the property at such auction receives a certificate that will allow him to receive a deed to the property after the redemption period expires.
Redemption periods vary between locations, but are a set time limit during which the registered owner has the opportunity to pay liens and keep the property.
UK banks and building societies issue a consolidated tax certificate. HM Revenue department requires these organizations to withhold interest and dividend tax on investments made by UK residents.
Financial institutions remit taxes to the government and send investors a certificate specifying the amount of profits and withholdings.
Many countries that charge income taxes offer tax credits for a variety of purposes, such as college education. To claim the credit, the student must obtain an official form from the college or university.
This document lists the amount paid by the student for tuition, fees, books, or any other charges that may qualify. In Canada, the form is called a TL11A tax certificate; in the US, the form is a 1098-E.
A tax certificate is also part of most real estate closings. The document is purchased from the local property tax agency and given to the buyer to verify that all property taxes are current.
Once the certificate is issued, the buyer can be assured that no tax lien will be placed on their property for any taxes due before they became the owner.