Driving change: How Canada, US and UK are advancing property tax digitalization

As digital transformation in the CRE sector advances, the digitalization of property tax management offers an opportunity to derive more value from real estate assets and portfolios.

New digital technologies are enabling faster, simpler, and more productive property tax management. Data analytics, process automation, machine learning, artificial intelligence and cloud computing are providing greater visibility into properties and their performance to inform forecasting and budget, preserve capital and reinforce competitive position.

In this article we explore the current state of property tax digitalization in key jurisdictions – Canada, the US and the UK – and the collaborative global efforts that are taking tax digital and towards an end-to-end solution that will enable real estate investors, owners, operators and taxpayers to realize the full benefits in the near future.

Canada – a property tax system of varying assessment authority responsibilities

A property tax system of differing provincial, municipal and assessment authority responsibilities

In Canada, provincial governments legislate the rules for property tax rates. Municipalities levy these taxes to finance municipal services and the costs of primary and secondary education. Assessments are determined by municipalities, or in some provinces, by assessment authorities.

In Canada, the two largest assessment authorities – Municipal Property Assessment Corporation (MPAC) in the province of Ontario and BC Assessment in the province of British Columbia, are leaders in digital transformation.

Digitalization is driven by the largest assessment authorities

BC Assessment offers a suite of data products and services for business customers, including monthly sales reports and customized reports with detailed property assessment roll information.

In Ontario, MPAC is responsible for assessing and classifying more than 5.3 million properties in the province and it also has one of the most detailed databases in the world. It provides custom reporting that includes regional, neighbourhood, historical and property-level data.

United States – thousands of disparate taxing jurisdictions

A highly fragmented property tax system

In the US, the property tax system is complex, with more than 3,000 assessment jurisdictions. While state governments establish property tax laws and policies, for most of them these taxes are not a primary source of revenue. Rather, they are typically the main source of revenue for local governments – counties, municipalities, townships, school districts and special districts.

Among the policies and guidelines that each state establishes based on property tax laws are the following.

• Frequency of property revaluation

• Limits to property value increases

• When and how often tax bills are due

• Application of assessment ratios

• Process for appealing property values

Wide variations on the digital tax spectrum

With the US tax system being so fragmented and localized, the range of capabilities on the digital tax spectrum varies widely among local assessment jurisdictions.

While some smaller jurisdictions still use fax machines as their primary source of communication, generally the amount invested in digitalization depends on the size of the jurisdiction and the extent to which it relies on property tax revenue.

UK – the world’s most digitally advanced tax administration

A straightforward business rate system

In the UK, property tax is known as “business rates” and property taxpayers as “business ratepayers.” Unlike in the US and Canada, the obligation to pay commercial property tax rests not only with the property owner but with the property occupier.

Digitalization is underway and ongoing

The UK is the world’s most digitally advanced tax administration. Making Tax Digital is a UK government initiative introduced in 2017 that sets out a vision for a ‘transformed tax system’ to make tax administration more effective, efficient and easier for taxpayers.

To improve the efficiency of the appeals system for valuing business properties, the government introduced a new framework called Check, Challenge, Appeal (CCA). This three-phase process came into force in April 2017.

The soon-to-be future state of efficient property tax management

The future of property taxes requires a digital platform that standardizes and streamlines property tax management processes from end-to-end and from country to country.

Working with governments, assessment and tax authorities, and commercial real estate funds and companies worldwide, Altus Group envisions a full-service cloud platform that will simplify and seamlessly manage the complete property tax process for those with assets across the country or throughout the world.