Local Government Interest Calculations

Municipalities and regional districts may establish, by bylaw, the method of interest calculation for interest which is payable on amounts owed to or by the local government, unless the method has already been set by the B.C. government.

Interest Calculation Authority

The Community Charter and Local Government Act contain provisions for interest calculation authority for municipalities and regional districts.

Method of Calculation

This bylaw authority does not apply to circumstances in which interest may be charged, or to the interest rates themselves, but rather to the method of calculation. The term "method of calculation" is not defined in legislation. It refers to the compounding period and the calculation period.

Bylaw Requirements

If a local government intends to calculate interest in any manner other than simple interest, it must do so by bylaw. This applies to both the calculation of interest where money is owed to the local government and where it owes to another party.

The bylaw needs to specify the authority for the interest as well as the calculation period and the compounding period. For example, interest authorized under section 234 of the Community Charter is calculated on a daily basis and compounded semi-annually.

When developing the calculation bylaw, a local government must decide whether to do one omnibus bylaw to establish the method of calculation for all interest, or include a calculation provision in each bylaw that imposes a tax, fee or charge, or that sets out the interest payable by the local government on its debts.

The key elements of the interest calculation bylaw would likely include the:

  • Interest under consideration, likely in two forms:
    • Each circumstance in which interest is payable is set out separately. For example, for the purposes of interest payable in accordance with section 235 of the Community Charter for the purpose of interest payable on water utility fees.
    • For all circumstances in which interest is payable and authority to compound is provided. For example, unless the manner in which interest is calculated is prescribed by provincial legislation or regulation, for the purpose of all interest payable to, or by, the local government.
  • Calculation period. For example, calculated daily.
  • Compounding period. For example, compounded monthly.