Translation Notice — This is an English translation of a Hebrew law and may contain inaccuracies. In any dispute or legal matter, the original Hebrew text as published in Reshumot (ספר החוקים) is the sole authoritative and legally binding version.

Ordinance

Income Tax Ordinance

פקודת מס הכנסה

Part V: Capital Gains

Definitions

88.

In this Part —

"asset" means any property, whether Real Property or movable property within their meaning in the Interpretation Ordinance,14 and includes any right or benefit, but excludes —

(1)movable property of an individual held by him for his personal use or for the personal use of his family members or of persons dependent on him, but does not exclude motor vehicles;

(2)trading stock within the meaning of Section 85;

(3)Real Property within the meaning of the Land Appreciation Tax Law, 5709–1949;15

"sale" includes exchange and waiver;

"base price", in relation to an asset —

(1)if the asset came to the taxpayer by way of purchase — the amount at which the taxpayer acquired it;

(2)if the asset came to the taxpayer by way of exchange — the value of the asset at the time it was acquired by the taxpayer;

(3)if the asset came to the taxpayer by way of gift —

(a)before the 4th day of Kislev 5712 (3 December 1951) — the value of the asset at the time it was acquired by the taxpayer;

(b)on the 4th day of Kislev 5712 (3 December 1951) or thereafter — the consideration at which that asset was most recently acquired other than by way of gift;

(4)if the asset came to the taxpayer by way of Inheritance — the value of the asset on the date of death of the testator;

(5)if the asset came to the taxpayer by way of creation or in any other manner — the amount of the expenses incurred by the taxpayer in creating or acquiring that asset;

"original price", in relation to an asset — the base price of the asset after deducting therefrom the amounts deductible to the taxpayer in respect of that asset under Sections 21–23 — from the date on which the taxpayer acquired that asset until the date of sale — and after adding thereto the following amounts:

(1)all expenses incurred by the taxpayer in improving or maintaining the asset from the date of its acquisition until the date of sale;

(2)any amount paid by the taxpayer in respect of that asset on account of taxes or other compulsory payments of a similar nature,

provided that no amount shall be added that was previously allowed as a deduction in computing the chargeable income of that taxpayer, or compulsory payments or other expenses paid in connection with the use of that asset;

"capital gain" — the amount by which the consideration given for the sale of the asset, or the value of the consideration (hereinafter in this Part — the consideration), exceeds the original price of the asset;

"capital loss" — a loss from the sale of an asset;

"early capital gain" or "early capital loss" — a capital gain or capital loss from an asset sold within one year from the date of its acquisition;

"late capital gain" or "late capital loss" — a capital gain or capital loss from an asset sold after one year from the date of its acquisition.

15 Statutes 21, 5709, p. 174.

Section 89. A capital gain shall have the same status as income from the sources specified in Section 2, unless otherwise provided in this Ordinance or unless a different interpretation is implied by the context.

Capital Gain Treated as Income

90.

A taxpayer who brought an asset to Israel and sold it within two years from the date of his immigration to Israel shall not have the capital gain on that sale regarded as chargeable income.

Capital Gain of an Immigrant

91.

In determining the chargeable income of an individual derived from a capital gain, a deduction of 500 pounds shall be allowed; however, where the income has been spread over several years as referred to in Section 8(b), deductions shall be allowed in those years, at the taxpayer's election, up to a total of 500 pounds for all those years combined.

Deductions from Capital Gain of an Individual

92.

(a)Where in a tax year there is a capital loss, it shall be permitted to set it off against income from capital gain only in that year, prior to the deduction under Section 91; however —

(1)a late capital loss shall be permitted to be set off only against a late capital gain, and an early capital loss shall be permitted to be set off only against an early capital gain;

(2)if the amount of the loss cannot be set off, in whole or in part, under paragraph (1) — the amount that cannot be set off shall be permitted to be set off against any other capital gain, at the taxpayer's election, notwithstanding the provisions of subsection (a); however, when setting off a late capital loss against an early capital gain, every pound of loss shall be set off against 50 agorot of gain.

(b)A capital loss in a tax year that has not been set off, in whole or in part, against income from capital gain in that year — the amount not set off shall be permitted to be set off against income from capital gain only in the seven consecutive tax years following that year, or in the two tax years preceding it and the five consecutive tax years following it, all at the taxpayer's election; to every set-off under this section, the provisions of paragraphs (a)(1) and (a)(2) shall apply.

Set-Off of Capital Loss against Capital Gain

93.

Where a corporation has been wound up and its assets distributed among its members, the following provisions shall apply:

(1)A capital gain from the sale of an asset of the company by the liquidator, after the commencement of its liquidation, shall not be regarded as chargeable income;

(2)Assets or moneys received by a member shall be regarded as consideration received by him for the sale of his shares or for his interest in that corporation.

Capital Gain in a Corporation that Has Been Wound Up

94.

Where a capital gain from an asset sold to a corporation accrues to a person or to a number of persons in consideration solely of shares in that corporation or solely of another interest in that corporation — the gain shall not be regarded as chargeable income, if immediately after the sale the person, or the number of persons together, held 90 percent or more of the voting power of that corporation; however, for the purpose of computing the capital gain on the shares or on the other interest when sold, the original price of such shares or interest shall be deemed to be the original price of the asset in consideration of which the seller received the shares or the interest.

Capital Gain from Sale in Consideration of Shares or Interest in a Corporation

95.

Where a capital gain from the sale of an asset for which no rate of depreciation has been prescribed in Regulations made under Sections 21–23 and which served the taxpayer for the purposes of a business, occupation, or residence (hereinafter — the first asset) accrues to a taxpayer, and within a period of twelve months after the date of sale, or four months before it, the taxpayer acquired another asset of the same kind and for the same purpose (hereinafter — the new asset) at a price exceeding the original price of the first asset, only the amount by which the consideration received for the first asset exceeds the price of the new asset shall be regarded as a capital gain; however, for the purpose of computing the capital gain on the new asset when sold, the original price of the new asset shall be reduced by the entire amount of the capital gain from the sale of the first asset that was not subject to tax.

Capital Gain from an Asset for Which No Depreciation Has Been Prescribed and Its Investment in an Asset of the Same Kind

96.

Where the first asset served the taxpayer solely for residential purposes, and the taxpayer acquired for the same purpose, within the periods referred to in Section 95, Real Property within the meaning of the Land Appreciation Tax Law, 5709–1949, the taxpayer may claim, so long as he has not sold the Real Property or otherwise transferred it, that it shall be treated as a new asset; and having done so, for the purpose of computing land appreciation tax — any consideration given upon the first sale of that Real Property shall be increased by the amount of the capital gain that was not subject to tax by reason of the taxpayer's claim.

Limitation on Sections 95 and 96

97.

The provisions of Sections 95 and 96 shall not apply to an asset used by the taxpayer for residential purposes, if that asset was not his only asset used for that purpose, or if its area exceeded a prescribed area.

Capital Gain Invested in an Approved Investment

98.

(a)Where a capital gain from the sale of an asset accrues to a taxpayer and within twelve months after the date of sale, or within four months before it, the taxpayer acquired another asset that is an approved investment at a price equal to or exceeding the price at which the taxpayer sold the previous asset — the taxpayer may claim, so long as he has not sold the approved investment or otherwise transferred it, that the said capital gain shall not be regarded as his chargeable income; and having done so, for the purpose of computing the capital gain on the acquired asset when sold, and the depreciation allowable thereon under Sections 21–23, the original price of the asset shall be reduced by the capital gain not subject to tax as aforesaid, while for the purpose of computing land appreciation tax, if the acquired asset is Real Property within the meaning of the Land Appreciation Tax Law, 5709–1949 — any consideration given upon the first sale of that Real Property shall be increased by the capital gain not subject to tax by reason of the taxpayer's claim.

(b)"Approved investment", for the purposes of subsection (a), means an asset serving industry, construction, transportation, or another enterprise, provided that the investment in that type of asset has been approved by an Order of the Minister of Finance, and also an asset serving agriculture.

Capital Gain from an Asset for Which Depreciation Has Been Prescribed

99.

Where an asset has had a rate of depreciation prescribed for it in Regulations made under Sections 21–23 and it served the taxpayer for the purposes of a business or occupation, the following special provisions shall apply to it:

(1)As consideration received by the taxpayer for the sale of the asset, there shall also be regarded any amount received as compensation for the loss of the asset, in whole or in part, whether by virtue of insurance or in any other manner;

(2)A capital gain or capital loss from the sale of the asset shall always be regarded as a late capital gain or a late capital loss, as the case may be;

(3)Where a capital gain from the sale of the asset accrues to a taxpayer, and within a period of twelve months after the date of sale, or four months before it, the taxpayer acquired another asset for the same purpose for which the sold asset was used, at a price exceeding the original price of the sold asset — the taxpayer may claim that only the amount by which the consideration received for the sold asset exceeds the price of the acquired asset shall be regarded as a capital gain; and having done so — for the purpose of computing the capital gain on the acquired asset when sold, and the amount of depreciation allowable thereon under Sections 21–23, the original price thereof shall be reduced by the entire amount of the capital gain that arose on the previous sale and was not subject to tax by reason of the taxpayer's claim;

(4)No deduction under Section 91 shall be allowed;

(5)Where in a tax year there is a capital loss from the sale of an asset, and within a period of twelve months after the date of sale, or four months before it, the taxpayer acquired another asset in replacement of the sold asset, the taxpayer may elect not to set off the loss under Section 92,

and the depreciation allowable thereon under Sections 21–23, the original price thereof shall be increased by the loss that was not set off.

Deferral of Payment Pending Negotiations

100.

Where a capital gain from the sale of an asset accrues to a taxpayer, and it is proved to the satisfaction of the Assessing Officer that the gain, or part thereof, is to be invested in a transaction which the taxpayer is conducting in good faith in negotiations thereon, and which is of a type that, had the taxpayer completed it before the date fixed for payment of the tax or for an objection under Sections 150–152, would have entitled him to a reduction of chargeable income under Sections 95–98 or 99(3) — the Assessing Officer shall, upon the taxpayer's application, defer the date for payment of the tax payable by the taxpayer on that capital gain, or part thereof, until the expiry of a period of 13 months from the date of sale, and may impose conditions for the provision of security as he deems fit; this provision does not derogate from the other powers of the Assessing Officer.

Amendment of Assessment

101.

Where a person has been assessed in respect of a capital gain from the sale of an asset, and after the date fixed for an objection under Section 150, but within a period of twelve months after the date of sale, an event occurs that entitles him with respect to that capital gain to a reduction of chargeable income under Sections 95–98 or 99(3) — the Assessing Officer shall amend the assessment with respect to that capital gain if the taxpayer so claims within thirty days from the date the event occurred; the decision of the Assessing Officer regarding the amendment of the assessment as aforesaid shall have the same effect as an assessment under Section 145; this provision does not derogate from the other powers of the Assessing Officer.

Tax Rate on Late Capital Gain

102.

A late capital gain shall be regarded, for the purposes of this Part, as the highest slice of the taxpayer's chargeable income, except that the rate of tax on that gain shall not exceed 25%, notwithstanding the provisions of Section 121.

The Right to Separate Assessments on Early Capital Gain

103.

In computing the amount of tax on an early capital gain, the taxpayer may claim that the assessment of his income from that capital gain shall be made separately from the assessment of his income from other sources, as if these were the incomes of two taxpayers, except that the deductions and credits under Sections 34–46 and 48 shall be allowed only in respect of income from other sources.

Entry of an Asset into the Scope of the Law

104.

An asset for which no depreciation has been prescribed in Regulations made under Sections 21–23 or which did not serve the taxpayer for the purposes of a business or occupation — the provisions of this Part shall not apply to it, except from such date as the Minister of Finance, with the approval of the Finance Committee of the Knesset, shall declare in the Official Gazette, whether generally or in respect of a particular class of assets.

Limitation on Applicability — Exemption of Certain Transactions

105.

The Minister of Finance, with the approval of the Finance Committee of the Knesset, may by Order exempt categories of transactions specified in the Order from payment of the tax, in whole or in part, payable on capital gains within the meaning of this Part.

Exemption of Certain Transactions

Part VI: Liability as Representative — Persons Under Legal Disability

106.

A liquidator or receiver appointed by a court or pursuant to any law in force in Israel, and likewise a trustee, guardian of the person or property, or committee, in whose hands lies the direction, control, or management of property or an enterprise on behalf of a person under legal disability, shall be liable to tax in the manner and amount for which that person would have been liable had he not been under legal disability.

Persons Under Legal Disability

Trustees etc. — Joint and Several Liability

107.

Where two or more persons act as trustees of a Trust, the tax for which they are liable by virtue of that office may be assessed upon them jointly or severally, and they shall be jointly and severally liable for its payment.

144 Book of Laws 6 9th Iyar 5721 25.04.1961

Non-Resident Whose Agent Is in the Country

Trustees Jointly — Assessment and Liability of Non-Resident

108.

A non-resident, whether or not an Israeli citizen, shall be assessable and liable in the name of his trustee, guardian, or committee, or in the name of an attorney-in-fact, authorized agent, agent, receiver, branch, or manager, whether or not they are the recipients of the income, and all in the manner and amount for which that person would have been assessed or liable had he been a resident of Israel in respect of that income which came into his hands; provided that in respect of an individual non-resident no deduction or tax credit shall be allowed under Sections 34–46.

Attorney-in-Fact etc.

Income of a Non-Resident — Assessment and Liability

109.

A non-resident shall be assessable and liable in respect of income derived, directly or indirectly, from an attorney-in-fact, from agency, from authorization, from receivership, from a branch, or from administration, or by way of any of these, and shall be assessable and liable in the name of such attorney-in-fact, agent, authorized agent, receiver, branch, or manager, as the case may be.

Ship's Captain — Non-Resident

110.

The captain of a ship whose owner or charterer is a non-resident liable under Sections 71–74 shall be regarded as the authorized agent of that non-resident for the purposes of this Ordinance, without excluding any other authorized agent of that non-resident.

Non-Resident

111. Where a non-resident carries on business with a resident and the Assessing Officer considers that, by reason of the close relationship between the two and the effective control held by the non-resident over the resident, the course of business between them may be so arranged, and is so arranged, that the business conducted by the resident in consequence of his connections with the non-resident yields him no profit, or less than the ordinary profit to be expected from such business — the non-resident shall be assessable and liable in the name of the resident as if the resident were his authorized agent.

Where the Amount of Income of a Non-Resident Cannot Be Ascertained

Practice in Place of — Assessment Where Income of Non-Resident Cannot Be Ascertained

112.

(a)Where the Assessing Officer considers that it is not easy to ascertain the true amount of the earnings or profits of a particular non-resident who is liable in the name of a resident, he may assess and charge the non-resident at a fair and reasonable percentage of the turnover of business conducted by the non-resident with or through the resident as aforesaid; where the Assessing Officer has done so, the provisions of this Ordinance regarding the submission of returns or particulars by persons acting on behalf of others shall apply in such a case, so as to require the resident to furnish returns or particulars of the said business, in the same manner as persons acting on behalf of persons under legal disability or non-residents are required to submit returns or particulars of taxable income.

(b)The rate of the said percentage shall be determined by the Assessing Officer in each case having regard to the nature of the business in question, and once determined shall be subject to Appeal as provided in Sections 153–158.

Non-Residents

Transactions Between Non-Residents — Sales of Foreign Produce

113.

A non-resident who conducts sales or transactions with other non-residents in circumstances that would make him liable under Sections 110 and 111 in the name of a resident — that fact alone does not render him liable in respect of any earnings or profits derived from the said sales or transactions.

Income of a Non-Resident from Sales of Foreign Produce

Assessment of Income — Non-Resident's Income from Sale of Foreign Produce

114.

Where a non-resident has been made liable to tax in the name of an attorney-in-fact, agent, authorized agent, receiver, branch, or manager, in respect of earnings or profits derived from the sale of goods or products manufactured or produced abroad by that non-resident — the person in whose name the non-resident has been made liable may apply to the Assessing Officer to make or amend the assessment in respect of that income on the basis of the profits which a merchant or retailer buying as aforesaid directly from the manufacturer or producer would on a reasonable assumption have made — if the goods or products were sold by them or on their behalf at retail — and once the amount of those profits has been proven to the satisfaction of the Assessing Officer, the assessment shall be made or amended accordingly.

145 Book of Laws 6 9th Iyar 5721 25.04.1961

Assessment in Name of Agent Who Is Not Authorized Agent — Limitation

115.

Nothing in Sections 108–114 shall render a non-resident liable to tax in the name of a broker, general commission agent, or other agent in respect of earnings or profits derived from a sale or transaction carried out by them, if they are not authorized agents acting habitually under the authorization of the non-resident, or if they are not authorized agents within the meaning of Sections 110–112.

Assessment in Name of Agent Who Is Not His Authorized Agent

Non-Resident — Duties of Trustees etc.

116.

A person who is assessable and liable in respect of a person under legal disability, or in whose name a non-resident is liable, shall be responsible for everything required to be done under this Ordinance for the purpose of assessing the income of the person on whose behalf he acts and for the purpose of paying the tax imposed thereon.

Duties of Trustees etc.

Acts That Are Required — Manager of a Corporate Body

117.

The manager or any other principal officer of an incorporated body of persons shall be responsible for the performance of all those acts and things required to be done under this Ordinance for the purpose of assessing that body of persons and for the purpose of paying the tax.

Body of Persons

Manager of a Member or Agent Liable for Preparation

118.

A person who has received, from any power whatsoever, money or money's worth constituting income from one of the sources specified in this Ordinance and belonging to a person who is liable in respect of that income, or who would have been liable in respect thereof had he been a resident of Israel and had he not been legally incompetent, shall prepare and deliver, whenever the Assessing Officer so demands by notice and within the time specified in that notice, a list signed by him containing a true and correct declaration of all such income and the name and address of every person to whom the income belongs; the provisions of this Ordinance relating to the non-delivery of lists and particulars pursuant to a notice from the Assessing Officer shall apply to such a list.

Or Agent Liable for Their Preparation]

Lists That a Representative — Indemnity for Representative

119.

A person who is liable under this Ordinance to pay tax on behalf of another person may retain out of moneys coming into his hands on behalf of that person any amount sufficient to pay the said tax; and he is hereby indemnified against any person in respect of any payment made by him pursuant to and by virtue of this Ordinance.

Indemnity for Representative — Liability of Legal Personal Representative of Deceased

120.

(a)If a person dies during the tax year and had he not died would have been liable for that year, or if a person dies within three years after the end of a tax year and no assessment has been made for him for that year — his legal personal representative shall be liable for the tax for which that person would have been liable had he been alive, and shall be required to pay it, and shall likewise be responsible for the performance of all those acts and things for which that person would have been responsible under this Ordinance had he been alive.

(b)From the date of a person's death, the taxable income of the Estate shall be regarded as the income of the heirs according to their respective shares in the income of the Estate.

(c)Where the heirs or some of them, or their shares in the income of the Estate, are wholly or partly unknown, the legal personal representative of the deceased shall pay out of the Estate tax at the rate of 30% on account of the tax due from the heirs on the income of the Estate.

(d)The provisions of Section 174 shall apply, with the necessary modifications, to the payment on account of tax pursuant to subsection (c).

(e)After the income of the Estate has been distributed and added to the income of each heir, the tax paid as aforesaid by the legal personal representative shall be set off against the tax on the income of the heirs according to each one's share in the income of the Estate.

(f)For the purposes of this Section, "legal personal representative" includes an heir and a guardian within the meaning of the Estate Tax Law, 5709–1949.16

16 Sefer HaHukim 22, 5709, p. 187.

Of Deceased

146 Book of Laws 6 9th Iyar 5721 25.04.1961

Tax Rates for an Individual

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