After a further hearing the Supreme Court finally the Shadami rule was ratified (case 6811/04 ,dated 4/8/2009). The case that was discussed in Shadami deals with the day of purchase in combination transaction (i.e. a transaction where the property owner sells a part of his rights in the property to a contractor in exchange for building services the contractor provides him), and it has considerable importance.

As we know, a preliminary condition for tax exemption on the betterment tax when selling a residential apartment is that the seller sold all of his rights in the residential apartment (Article 49a(a)). In the most common combination transaction, only a part of the apartment is sold and nevertheless, the owner wants to get his exemption for the entire apartment. The Ben Ami ruling determined that in this case, a tax exemption would be given to the owner. Even before this ruling, the law was changed amendment no. 8, 1980), and the owner of the combination was given the opportunity to choose between waiving the exemption entirely or receiving the betterment tax exemption (taken from the total return calculated) on the entire apartment value and additional buildings rights as mentioned in article 49(g).

The Closing of such circle is made on the day the owner would sell the apartments he received in the combination transaction for the property part that remained with him. The discussion in Shadami referred to this purchase date:

The director of real estate taxation claimed that, because we are dealing with a partial sells, the part that stayed with the owner was not sold to the contractor. Therefore, when the apartments that were built on that property were sold, the day of purchase and the purchase value is the historical date of when the property was bought and accordingly the purchase date.

On the other hand, Shadmi claimed that, due to the fact that in the betterment calculation of the partial sale transaction, the betterment was calculated with  addition to the worth of the property that was not sold. Thus, the day of purchase as well as the purchase value of the apartments on that property part had to be the day of the combination. Otherwise, a double Taxation will accrue.

Shadmi’s approach was supported by six Supreme Court judges, stating that when a seller sells the apartments he got in exchange, there is no need to tax him again for the betterment referring to the rest of the property: “After applying a fiction regarding the owner, that results in betterment tax payment as if he sold the entire property to the contractor, we must continue to apply this fiction even when the apartments he got in exchange are being sold“.