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

Chapter Two: Deductions and Set-Offs

Division A: Deduction of Expenses

Permitted Deductions

17.

For the purpose of determining the taxable income of a person, expenditures and expenses wholly incurred in the production of his income in the tax year and for that purpose alone shall be deducted, including —

(1)Amounts paid as interest on money borrowed, if the Assessing Officer is satisfied that the interest is paid on capital used in the production of the income;

Interest

(2)Rent paid by a lessee of land or a building occupied by him for the purpose of producing the income;

Rent

(3)Amounts expended on repairs to premises, fixtures or machinery used in the production of the income, and also on the renewal, repair or alteration of tools, implements or articles used as aforesaid;

Repairs

(4)Bad debts incurred in a business or profession, proved to the satisfaction of the Assessing Officer to have become bad in the tax year, and also doubtful debts to the extent stated, to the satisfaction of the Assessing Officer, to have become bad in the tax year, even if the time for payment of the bad or doubtful debts fell before the commencement of the tax year; provided that amounts collected in the tax year on account of sums previously written off or deducted in respect of bad or doubtful debts shall be treated for the purposes of this Ordinance as receipts of the business or profession for that year;

Bad Debts

(5)Any amount paid by an employer as a regular annual contribution to a provident fund as defined in Section 47, approved by the Commissioner for the purposes of this paragraph, and also any amount or part thereof paid by an employer — with the approval of the Commissioner — to such a provident fund otherwise than as a regular annual contribution;

Employer's Payments to a Provident Fund

(6)Expenses incurred in taking measures to prevent soil erosion, flooding and other natural disasters to be prescribed;

Natural Disasters

(7)Expenses incurred in taking precautions against air attacks;

[Air Attacks]

6 SB 164, 5714, p. 192.

125 Book of Laws 6 9 Iyar 5721, 25.04.1961

Depreciation (8) Deduction for depreciation as referred to in Chapter B;

Benefits in a Cooperative Society (9) Amounts returned by a cooperative society to its members as an annual benefit, in proportion to its volume of business with each member, provided —

(a)That no deduction shall be permitted for an amount exceeding that part of its taxable income before the return of the benefit, the ratio of which to its total taxable income is as the ratio of the volume of its business with its members to its total volume of business;

(b)That the benefit was given to the members within nine months of the end of the accounting year to which it relates, or at a later date determined by the Commissioner;

(c)That the benefits shall be deemed to have been received by the members on the last day of the accounting year to which they relate;

Other Deductions (10) Other deductions to be prescribed in Regulations made pursuant to this Ordinance.

Air Attacks — Limitations on Certain Deductions

18.

(a)A retirement grant, vacation pay, recreation pay, holiday pay, sick pay and other similar expenses — their deduction pursuant to Section 17 shall be permitted only in the tax year in which they were paid to the person entitled to them or to a provident fund as defined in Section 47.

(b)Salary, wages or interest paid by a Company controlled by no more than five persons, as defined in Section 76(b), to one of its members — who is one of the controlling shareholders and holds at least 10% of its shares — their deduction pursuant to Section 17 in a particular tax year shall be permitted only if they were paid to him in that tax year or within three months after the end thereof.

(c)Where a person's income includes income in respect of which a special rate of tax has been fixed or which is exempt from tax (hereinafter — preferred income), the expenses incurred by that person in producing the preferred income shall be permitted as a deduction pursuant to Section 17 only against that income; where it is not possible to determine the expenses as aforesaid, a proportional part of the expenses incurred in producing his total income shall be deducted against the preferred income, in the ratio of the preferred income to his total income; however, the Minister of Finance may direct a different method of apportionment of expenses if he considers it appropriate to do so in the circumstances.

[Certain Expenses]

Limitations on Deductions — Deduction in Respect of Residential Property or Land

19.

From the income of a residential property or land assessed as referred to in paragraph (3) of Section 2, notwithstanding the provisions of Section 17, only an amount equal to the aggregate of the interest paid on account of a mortgage thereon and the urban property tax and annual lease fees paid thereon shall be deducted, but not more than the amount of their annual net value.

[In a Residential Property or Land]

Deduction in Respect of Residential Property — Fixed Deduction for Employment Income

20.

An individual who had employment income shall be permitted, at his election, a fixed deduction of 5% of that income, but not more than 400 Lira; and if he elected such a deduction, no other deduction pursuant to Section 17 shall be permitted to him in respect of that income.

Fixed Deduction

Sign B': Depreciation Deductions

21.

A deduction shall be allowed in respect of depreciation of a building, machinery, plant, furniture or other assets owned by the taxpayer and used for the purposes of a business or profession, including live and dead inventory in agriculture and including plantations; the amount of depreciation shall be calculated as percentages — to be determined for each case or each class of cases — of the original cost to the taxpayer, excluding the price of the land on which the building was erected or the plantations were planted, as the case may be, provided that the prescribed particulars have been duly furnished.

Allocation of Depreciation

Year by Year

Depreciation of Assets

22.

If in any tax year it was impossible to deduct the depreciation, in whole or in part, because in that year there was no income from the source in respect of which the depreciation was claimed, or because the income was less than the amount permitted to be deducted as aforesaid, the amount not deducted shall be deemed a loss for the purposes of Section 28; this provision shall not apply if the source in respect of which the depreciation was claimed is not a business or profession, and in that case the amount not deducted shall be deemed a loss that may be set off in successive subsequent years against that source only.

Limitation on Depreciation Deductions

23.

The total of all depreciation deductions allowed under the Ordinance, together with the total of all deductions in the period prior to the commencement of the date on which depreciation was allowed under this Ordinance, as calculated according to the prescribed rates, shall not exceed the original cost to the taxpayer of the assets referred to in Section 21, excluding the price of the land on which the building was erected or the plantations were planted, as the case may be.

Asset Without

Transfer of Control

Depreciation on Transfer

24.

A business or part thereof, or an asset forming part of its assets, transferred from one person to another on or after 1 September 1941, where the Commissioner has found and determined that the right of control over the transferred property, whether direct or indirect, whether by virtue of shares held or in any other manner, remained with the same person in whose hands it was immediately before the transfer, or before the transaction of which this transfer forms part or to which it is connected, or before the first of the transactions of which this transfer forms part or to which they are connected, as the case may be — the amount of depreciation that the transferee is entitled to deduct under Sections 21–23 shall be the amount that the transferor would have been entitled to deduct had he not transferred; and if the transfer occurred before 1 April 1946, and the transferee deducted depreciation under Sections 21–23 in an amount exceeding the amount he was entitled to deduct under the provisions of this Section — the excess shall not be regarded as having been deducted unlawfully, but it shall be taken into account when calculating the total amounts of depreciation allowed under Section 23.

Status of Transfer by an Individual

Status of Transfer by Multiple Persons

25.

The provisions of Section 24 shall apply to the transfer of two businesses, or parts thereof, or an asset forming part of their assets, from two or more persons to one person, in the same manner as they apply to such a transfer from one person to another, if the Commissioner has found and determined that the right of control over the transferred property, immediately after the transfer, remained in its entirety with those persons each of whom individually held a part of the transferred property immediately before the transfer.

Regarding the Right of Control

Status of a Relative

26.

(a)When determining whether the right of control over a business or part thereof or an asset forming part of its assets, for the purposes of Sections 24 and 25, is or was in the hands of a particular person, his relative, within the meaning of Section 76(d), shall be regarded as if he were that person himself.

(b)A decision of the Commissioner made in the exercise of the authority conferred upon him by Sections 24–26 may be contested on Appeal pursuant to Sections 153–158.

Machinery and Equipment

Deduction for Replacement

27.

(a)A person engaged in any business or profession who has expended in any tax year a sum on the replacement of machinery and equipment used or that had been used in that business or profession shall be allowed, for the purpose of ascertaining his taxable income, a deduction in an amount equal to the expenditure incurred in acquiring the old machinery and equipment less the total of all depreciation deducted in respect of that machinery and equipment and the amount received on their sale, or equal to the amount expended on the new machinery and equipment, whichever is the lesser amount; where an amount has been deducted under this subsection, any loss that may be set off under Part E in respect of the sale of the old machinery and equipment shall be reduced by that amount.

(b)Subsection (a) shall not apply to a private motor vehicle within the meaning of the Traffic Ordinance.

Need to cite this law in a foreign court?

Eli Shimony Israeli Attorneys-at-Law provides certified Expert Legal Opinions on Israeli law within 24–48 hours, accepted by courts worldwide.

Division C: Set-Off of Losses

Set-Off of Loss

28.

(a)A loss incurred by a person in a business or profession in the tax year which, had it been a profit, would have been assessed under this Ordinance, may be set off against the total income of that person before any deduction or exemption (hereinafter — total gross income).

(b)Where all of the loss of a person in any tax year from a business or profession in which he is engaged, whether alone or in a Partnership, cannot be set off against his total gross income from other sources in that year, the amount of the loss not so set off shall be carried forward to successive subsequent years and set off against his total gross income from a business or profession in those years, provided that if the loss can be set off in one of those years, it shall not be permitted to set it off in the following year.

(c)A loss incurred by a person in a grafted citrus grove in the fifth and sixth years from the commencement of the tax year in which it was planted shall be set off against income from that grove only in the sixth and seventh years.

(d)A loss incurred by a person in an ungrafted citrus grove in the sixth and seventh years from the commencement of the tax year in which it was planted shall be set off against income from that grove only in the seventh and eighth years.

(e)A loss that cannot be set off as provided in subsections (c) and (d) shall be subject to the provisions of subsection (b).

(f)For the purposes of subsections (c) and (d), a citrus grove planted after 30 November of any year shall be regarded as if it were planted in April of the following year.

29.

Nothing stated in this Sign shall be construed as permitting the set-off of a loss incurred by a person outside Israel which, had it been a profit and remained outside Israel, would not have been liable to tax under this Ordinance.

Loss Incurred Outside Israel

Sign D': General Provisions

30.

No deduction shall be allowed in respect of expenditure under Sections 17–27 in an amount exceeding that which is necessary for the purposes of producing the income of the taxpayer; and on any question arising under this Section the Commissioner shall decide; provided that nothing stated in this Section shall be construed as preventing any person who considers himself aggrieved by a decision of the Commissioner from appealing against it in accordance with the provisions of Sections 153–158.

Limitation on Deductions

31.

The Minister of Finance may make Regulations regarding the method of calculation or estimation of the deductions allowed or prescribed in Sections 17–27.

Deductions

Regulations for Calculation

32.

In ascertaining the taxable income of a person, no deductions shall be allowed in respect of —

(1)household or personal expenses;

(2)payments or expenses that are not money wholly expended for the purpose of producing the income and for that purpose only;

(3)capital withdrawn or a sum of money used, or intended to be used, as capital;

(4)the cost of improvements;

(5)any loss or expense recoverable under a Contract of insurance or indemnity;

(6)rent and the cost of repairs, of the premises or any part thereof, paid or incurred otherwise than for the purpose of producing the income;

(7)sums paid, or payable, as income tax;

(8)any sum paid to an employee as a wage-delay penalty pursuant to Section 17 of the Wage Protection Law, 5718–1958;

(9)a payment made by a Company controlled by not more than five persons, within the meaning of Section 76, to one of its members — who is one of the controlling shareholders and who holds at least 10% of its shares — as compensation for his retirement from a position he held therein; however, the Commissioner may direct otherwise if he sees fit to do so in the circumstances.

To Allow Them

Deductions Not Permitted

33.

The deductions and set-offs under this Chapter shall not be made unless correct accounts, to the satisfaction of the Assessing Officer, have been submitted to him together with a computation showing the profits of the business or profession liable to assessment.

Submission of Accounts

Deduction for an Israeli Resident

Need to cite this law in a foreign court?

Eli Shimony Israeli Attorneys-at-Law provides certified Expert Legal Opinions on Israeli law within 24–48 hours, accepted by courts worldwide.

Chapter Three: Personal Deductions and Credits

34.

(a)In calculating the taxable income of an individual who was a resident of Israel in the tax year, a deduction of 1,050 pounds shall be allowed to him.

(b)An individual as aforesaid who attained the age of 30 in the tax year and who is not entitled to a deduction in respect of a wife under Section 37 or in respect of children under Section 40, shall be allowed, in calculating his taxable income, in addition to the deduction under subsection (a), a deduction of 250 pounds. This subsection shall not apply to an individual who would have been entitled to a deduction under Section 37 but for the provisions of Section 66(a)(2).

For Old Age

Special Deduction

35.

In calculating the taxable income of an individual resident of Israel who attained the age of 60 in the tax year — and in the case of a woman, 55 years — there shall be allowed, in addition to the deduction under Section 34, a deduction of 250 pounds, and upon attaining the age of 65 — and in the case of a woman, 60 years — a deduction of 500 pounds.

In War and at Work

Deduction for a Person with a Disability

36.

(a)In calculating the taxable income of an individual resident of Israel who has lost 30% or more, but less than 50%, of his capacity for work as a result of war wounds, a work accident, paralysis or a border injury, there shall be allowed to him, in addition to any other deduction, a deduction of 325 pounds, and for an individual as aforesaid who has lost 50% or more of his capacity for work — a deduction of 500 pounds.

(b)For the purposes of this Section —

"war wounds" — an illness, aggravation of illness or injury sustained by an individual during the period of his service as a result of military service within the meaning of the Disabled Persons (Compensation and Rehabilitation) Law, 5719–1959 [Consolidated Version], or as a result of war service within the meaning of the Nazi Persecution Disabled Persons Law, 5714–1954, or in circumstances entitling him to a benefit under the Nazi Persecution Disabled Persons Law, 5717–1957;

"work accident" — an accident entitling the individual to payment of compensation under the Workmen's Compensation Ordinance, 1947, or to payment of injury benefit under Part B of the National Insurance Law, 5714–1953;

"border injury" — within its meaning in the Border Victims Benefit Law, 5717–1956.

Deduction in Respect of a Wife

37.

In calculating the taxable income of an individual resident of Israel who has proven to the satisfaction of the Assessing Officer that in the tax year he had a wife who lived with him or whose maintenance was his responsibility, a deduction of 500 pounds shall be allowed to him.

Working Wife

Deduction in Respect of a Working Wife

38.

(a)Where the taxable income of an individual resident of Israel includes income of his wife and it has been proven, to the satisfaction of the Assessing Officer, that that income of the wife was derived from her personal exertion in a business or profession, or that it is income from employment, a further deduction of 500 pounds shall be allowed to him in calculating his taxable income.

(b)An individual as aforesaid whose wife attained the age of 55 in the tax year shall be allowed a further deduction of 250 pounds, and upon her attaining the age of 60 — a further deduction of 500 pounds.

(c)An individual as aforesaid whose wife has lost 30% or more, but less than 50%, of her capacity for work as a result of the circumstances enumerated in Section 36, shall be allowed a further deduction of 325 pounds, and if she has lost 50% or more of her capacity for work, the further deduction shall be 500 pounds.

(d)The deduction under this Section shall in no case exceed the amount of the wife's income as referred to in subsection (a).

39.

In calculating the taxable income of an individual resident of Israel whose wife assisted him in earning his income from a business or profession for at least 24 hours per week during 9 months of the tax year, a deduction of 250 pounds shall be allowed to him in addition to the deduction under Section 37, and no deduction under Section 38 shall be allowed to him.

Wife Assisting Her Husband

Deduction in Respect of a Wife

40.

(a)(1) In calculating the taxable income of an individual resident of Israel who has proven to the satisfaction of the Assessing Officer that during the tax year he had children alive whose maintenance was his responsibility and who had not yet attained the age of 20, a deduction of 250 pounds shall be allowed to him in respect of the first child, 300 pounds in respect of the second child, 325 pounds in respect of the third child and 375 pounds in respect of each additional child;

(2)An individual entitled to a deduction under paragraph (1) who is not entitled to a deduction under Section 37 shall be allowed a further deduction of 700 pounds; this paragraph shall not apply to an individual who would have been entitled to a deduction under Section 37 but for the provisions of Section 66(a)(2);

(3)Parents living apart whose children's maintenance is divided between them shall divide between them the deductions under paragraphs (1) and (2) in proportion to the maintenance expenditure incurred by each of the parents; if the parents have not agreed on the proportion of the maintenance expenditure, it shall be determined by the Assessing Officer;

(4)No deduction shall be allowed under this subsection in respect of a child who had, in his own right, in the tax year, income exceeding 450 pounds, excluding income from a study grant or other similar educational grant.

(b)In calculating the taxable income of an individual resident of Israel who has proven to the satisfaction of the Assessing Officer that during the tax year he had children who had not yet attained the age of 20 and who were serving in regular service within the meaning of the Defense Service Law, 5719–1959 [Consolidated Version], a deduction of 60 pounds shall be allowed to him in respect of each such child.

Deduction for Incapacitated Relatives

41.

(a)An individual who is a resident of Israel, who has proven to the satisfaction of the assessing officer that during the tax year he incurred expenses for the maintenance of a family member incapable of maintaining himself, shall be allowed a deduction in an amount equal to the expenses he incurred, but not more than 250 liras in respect of one family member; the total of all deductions under this section shall not exceed 500 liras, and if all the family members in respect of whom he claims the deduction are only his parents and his spouse's parents — shall not exceed 1,000 liras.

(b)No deduction shall be allowed under this section in respect of a family member whose income in that tax year — including income exempt from tax — exceeded 750 liras, and in respect of a family member who is a parent living with his or her spouse — exceeded 1,000 liras.

(c)For the purposes of this section, "family member" means the father, mother, grandfather, grandmother, and also the brother or sister of the individual or of his spouse, who have not yet reached the age of 20, and in respect of an individual who is not entitled to deductions under Section 37 or Section 40 — also a brother or sister who has reached the age of 20.

Deduction for Children and Incapacitated Relatives Due to Physical or Mental Disability

42.

(a)The provisions of Sections 40(a) and 41 shall apply also in respect of a child or family member who has reached the age of 20, if due to a physical or mental disability he is incapable of maintaining himself.

(b)In respect of a woman who is completely paralyzed, blind, or mentally unsound, and in respect of a child who is paralyzed, blind, or intellectually disabled, the deduction under Section 37 or Section 40(a) shall be increased to 750 liras; such a child shall be counted first among the children for the purposes of Section 40(a)(1).

(c)In respect of a child or woman as referred to in subsection (b) who are maintained in a special institution, an additional deduction shall be allowed in an amount equal to half the difference between the actual expenses of their maintenance as aforesaid and 750 liras, but not more than 300 liras.

12 S.H. 296, 5719, p. 286.

Special Deduction for Farmers

43.

In computing the taxable income of an individual who is a resident of Israel, at least 75% of whose taxable income is income under Section 2(8), a deduction of 5% of that income shall be allowed, but not more than 400 liras.

Deduction for Low-Income Earners

44.

(a)An individual who is entitled to a deduction under Section 40(a) and whose income, after deduction of the amounts specified in Sections 17–29 but before any other exemption or deduction, did not exceed 4,000 liras, shall be allowed an additional deduction of 50 liras if he is entitled to a deduction in respect of one or two children, or of 75 liras if he is entitled to a deduction in respect of three or more children.

(b)If the income of an individual as aforesaid exceeded 4,000 liras, the additional deduction shall be reduced by one percent for each lira in excess of 4,000 liras.

Credit for Insurance, Medical Treatment, Provident Payments, and Donations

45.

(a)An individual shall be credited against tax with 25% of the amounts paid during the tax year —

(1)for the insurance of his life or the life of his wife with an insurance company;

(2)as an annual payment to a provident fund within the meaning of Section 47 that has been approved by the Commissioner for the purposes of this paragraph;

(3)for insurance against illness, of himself or of his family members in respect of whom he is entitled to a deduction from tax under Section 37 or Section 40;

(4)for medical treatment of himself or of his family members as aforesaid, or of both of them together;

(5)as a donation to a national fund or to a public institution within the meaning of Section 9(2), provided that they have been approved by the Commissioner for the purposes of this paragraph;

(6)as insurance premiums under the National Insurance Law, 5714–1953.

(b)Notwithstanding the provisions of subsection (a), no credit shall be given in respect of —

(1)that part of the amounts paid as aforesaid which exceeds one-fifth of his taxable income before any deduction under Sections 34 to 43, or 1,200 liras, whichever is the lesser amount;

(2)that part of the amounts specified in paragraphs (3) to (6) which exceeds one-eighth of his taxable income before any deduction under Sections 34 to 43, or 600 liras, whichever is the lesser amount.

(c)An individual who is a resident of Israel who is not entitled to any credit under subsection (a) shall be credited with 48 liras, and if he was entitled under subsection (a) to less than 48 liras — his credit shall be increased to 48 liras.

Credit for Donations to a Special Campaign of Keren Hayesod; Deduction of Provident or Pension Payments

46.

An individual shall be credited against tax with 30% of the amounts paid as a donation to a special campaign of Keren Hayesod Ltd. recognized by the Minister of Finance, to the extent that he has not been credited against tax for that donation under Section 45, provided that no credit shall be given in respect of that part of the amounts paid as aforesaid which exceeds 10% of his taxable income.

47. (a) In computing the taxable income of an individual, an amount paid to a provident fund for provident payments or a pension for his benefit shall be deducted, provided that the deduction shall not exceed 5% of his income after deduction of the amounts specified in Sections 17–29, or 600 liras, whichever is the lesser amount; however, the Minister of Finance may, with the approval of the Finance Committee of the Knesset, prescribe by Regulations higher rates and amounts of deduction for a certain class of persons and subject to such conditions as he shall determine.

(b)Subsection (a) shall not apply to an individual on whose behalf an employer has paid amounts to a provident fund or to any other fund for provident payments or a pension, nor to an individual who, by law or Contract, is likely to receive a pension or similar payments from his employer.

(c)An amount deducted under this section shall not be taken into account for the purposes of Section 45(a)(2).

(d)In this section, "provident fund" means a fund or treasury for provident payments, pension, severance pay, vacation, or any other similar purpose, approved for this purpose by the Commissioner in accordance with rules prescribed by Regulations, and for as long as they are administered in accordance with the Regulations; excluding a fund or treasury administered by an insurance company other than for provident payments, pension, or severance pay.

Deduction of Donations by Companies

48.

(a)A Company that has donated, after the 21st of Adar Bet 5708 (1 April 1948), a donation to a national fund, or to a public institution that is not conducted for the purpose of obtaining profits and whose objects are entirely for the benefit of the public and which has been approved by the Commissioner, may deduct from its taxable income half of such donations, provided that this deduction shall not exceed five percent of its taxable income.

(b)A Company that has paid amounts as a donation to a special campaign of Keren Hayesod Ltd. recognized by the Minister of Finance may deduct those amounts from its taxable income, to the extent that they have not been deducted under subsection (a), provided that the amount of the deduction under this subsection shall not exceed 5% of its taxable income and the amount of the deduction under this subsection together with the amount of the deduction under subsection (a) shall not exceed half of the amounts paid to the special campaign as aforesaid.

Need to cite this law in a foreign court?

Eli Shimony Israeli Attorneys-at-Law provides certified Expert Legal Opinions on Israeli law within 24–48 hours, accepted by courts worldwide.

← Prev 1 2 3…10 Next →

Page 2 of 10