Real Estate Taxation Updates for 2023

Real Estate Taxation Updates for 2023 / Adv. Yossi Reich

As part of the draft Economic Plan for 2023, proposed legislative amendments in the field of real estate taxation were published, as detailed below:

Taxation of residential apartments – A temporary provision granting a capital gains tax benefit on the sale of land designated for residential construction of at least 15 apartments, purchased between 1/4/1961 and 6/11/2021; shortening the period for selling an old apartment after buying a replacement apartment, for the purpose of capital gains tax and purchase tax benefits, to 12 months; denying eligibility for the beneficial linear calculation on the sale of apartments that have not received a building permit by 31/12/2026; taxing the purchase of a shell apartment as a residential apartment;

Taxation of residential rentals – A reporting requirement even under the exempt track;

Cancelling the indexation of the exemption ceiling;

Allowing a landlord who rents an apartment as a tenant to offset the rent they pay against their rental income, subject to certain limits.

Notice 1/2023 – Updated amounts under the Real Estate Taxation Law and the Purchase Tax Regulations

The tax brackets and the various exemption ceilings set in the Real Estate Taxation Law and the Purchase Tax Regulations were adjusted upward at rates ranging from 5.3% (the increase in the Consumer Price Index) to 6.3% (the increase in the owner-occupied housing services index).

For example, the first tax bracket for buyers of a single apartment (0% tax rate) rose from NIS 1,805,545 to NIS 1,919,155.

And the capital gains tax exemption ceiling for a single apartment rose from NIS 4,603,000 to NIS 4,846,000.

Civil Case (Central District) 13926-12-21 Tamir v. Israel Tax Authority – A registered lien in favor of the Tax Authority prevails over an attachment registered before it

A dispute over the order of priority between an attachment imposed by a third party on a real estate property in an enforcement (Execution Office) case and a registered lien imposed on the property by the Tax Authority for tax debts under Section 11A(2) of the Taxes (Collection) Ordinance. The court held that the Tax Authority prevails, since this is a registered lien which, although registered after the attachment, is a substantive right in the property that prevails even over an earlier attachment.

Appeals Committee (Nazareth District) 49053-10-21 Tannous v. State of Israel – Examining the limitation period for an objection to a capital gains tax assessment

The relevant date for examining the claim that an objection has become time-barred is the date on which the decision on the objection was sent to the taxpayer, not the date on which the taxpayer received it. As long as the decision on the objection is made by the Tax Authority and sent to the taxpayer before 8 months have passed since the objection was filed, the objection cannot be said to be time-barred.

VAT updates

Civil Appeal 1533/20 Amiel Levy v. Customs and VAT Department, Petah Tikva – Classifying a transaction for VAT purposes – capital or business income

The appellant owns a private company engaged in importing and marketing meat and fish products and is a personal guarantor of its debts. In addition, the appellant has been active in the real estate market for a long time (25 years), during which he carried out, among other things, 13 purchase transactions and 16 sale transactions. The appellant has a VAT file as a registered dealer, under which he reported income from renting out two stores he owns. With respect to two transactions carried out by the appellant, the VAT Director determined that they were subject to VAT, and the appellant disputed this. In a majority opinion, the Supreme Court held that the disputed transactions were subject to VAT, since the appellant is a real estate dealer. The difference between the minority and majority opinions stemmed from the weight given to the various auxiliary tests established in case law for classifying a transaction as business (income) or capital, and from the weight given to the overarching test.