In the framework of the extensive legislative amendments in Real Estate taxation (which we discussed in depth in the previous bulletin), it was decided that, starting from 1 August 2013, the purchase tax rate applying to a “single residential apartment” would apply only to an individual who is an Israeli resident. Recently, the tax authority published a “Declaration of a Purchaser of a Single Residential Apartment” form (no. 7912), which must be attached by a purchaser who is requesting the application of the lower purchase tax for a “single residential apartment” of an Israeli resident.

While the Real Estate Tax Law draws the definition of an “Israeli resident” from Section 1 of the Income Tax Ordinance, the aforementioned form requires additional conditions, which even many Israeli residents do not

meet. In our opinion, the aforementioned form suits a “green track”, while in parallel there is a need for a procedure appropriate to Israeli residents, who are also entitled to the purchase tax rate applying to a “single residential apartment” and do not meet the strict requirements fixed in the form. For example – an individual, who has returned to Israel near the end of the tax year and thus, has stayed less than 183 days in Israel during the same year, but who was already considered to be an Israeli resident when purchasing the apartment.

In addition, the form states that the declaration and purchase tax assessment do not constitute a determination in the matter of the status of the taxpayer’s residency, and that this subject will be examined and determined by the income-tax assessor (rather than the Real Estate tax assessor).

In our opinion, it is not appropriate that the two intertwined tax laws, which draw the relevant definition from the same source and are administratively and professionally subject to the same authority, would lead to different tax results under the same criteria for the same taxpayer.

The authority should examine the residency of a taxpayer who has submitted this declaration and decide in a manner which would influence all the tax results derived from this determination.

An additional question which arises is the applicability of the provisions of the Double Tax Treaties in this context: will an individual who is considered to be an Israeli resident under the provisions of the Ordinance be considered an Israeli resident in the matter of Real Estate taxation, even if he is considered a foreign resident under the provisions of the Traety?  According to the approach of the tax authority in similar matters, a “returning resident” is entitled to relief from the moment he returns only if the Israeli residency was ceased according to the provisions of the Ordinance, and it is not sufficient that he was considered a foreign resident during those years under the provisions of the Treaty only. In our opinion, we can conclude from this that an Israeli resident under domestic law (i.e., the Ordinance) is entitled to purchase tax relief even if he is a foreign resident under the Treaty.