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18 December 2013

Deductions ניכויים for income tax purposes

As we described in an earlier post (see here), certain deductions can be claimed, even if they are not direct business expenses. This post will look at some of these in greater detail.

The tax saving for the deduction allowed will depend on your marginal rate of tax, including Bituach Leumi (if you're self-employmed).


Disability insurance ביטוח אובדן כושר עבודה

You are able to take out insurance that will pay you a monthly "salary" if you are forced to stop working for a period of time due to certain health issues (check with your insurance agent for precise details). The premiums paid are tax-deductible, both against employment and self-employment income. There are small differences in the calculation of the maximum deduction allowed between employment and self-employment income, and only those self-employed have the deduction for Bituach Leumi purposes.


Pension contributions קצבה

There are various types of pension funds that can be paid into in Israel. Contributions made to funds under section 47 of the tax law (as opposed to section 45) entitle the taxpayer to a deduction, subject to certain income-based limits. It is worthwhile speaking to your agent to find out what type of fund is right for you,taking into account the potential tax savings.

There are small differences in the calculation of the maximum deduction allowed between employment and self-employment income, and only those self-employed have the deduction for Bituach  Leumi purposes.

 
Keren Hishtalmut קרן השתלמות

The Keren Hishtalmut is a special type of tax-efficient medium-term savings scheme. There are separate types of plans available to those who re employed and those who are self-employed. The deductions are available only to those who are self-employed, and apply to the Bituach Leumi liability as well.

The maximum deduction available is on a contribution of 7% of your annual self-employment profit (subject to limits). The first 2.5% is not granted as a deduction, leaving the remaining 4.5% available.


Bituach Leumi ביטוח לאומי

Strangely enough, 52% of your payments to Bituach Leumi - excluding the health tax element - are available as a deduction. This is available to the self-employed, and for anyone received a pension pre-pension age.

The deduction works in different ways for Income Tax and Bituach Leumi purposes:

(1) Income Tax - purely on a cash basis, so any prior-year amendments will be included as well. As such, you could end up having received a net refund - so the 52% is then added to your income (as you previously took a deduction).
(2) Bituach Leumi - this is done on an accruals basis i.e. what you were supposed to have paid taxes on. As such, amendments for prior years get taken into account in those previous periods.


With the 2013 tax year drawing to a close, you should consider whether you can benefit from topping up payments to any of the

11 December 2013

The Capital Statement - הצהרת הון

Tax authorities around the world like to use a "standard-of-living" test to assess whether taxpayers are declaring all of their income. Essentially, someone with a low earning should not be living in a mansion - unless there's some sort of decent explanation e.g. inheritance.

In Israel, the system is more formalised with the tax office asking taxpayers to produce a statement of their assets and liabilities worldwide on a periodic basis. The idea is to compare the overall movement between the two statements with reported income and known or expected expenses (e.g. taxes, regular living expenses, one-off large expenses such as weddings/bar mitzvahs, etc.), and to see if the overall picture is logical. This is a widely-used tool in any audit carried out by the tax authority, and so its importance cannot be understated.

One important point to note - anyone entitled to the 10-year exemption on tax on their foreign income (i.e. new olim or veteran returning residents who came/moved back to Israel in 2007 or later) is not required to report overseas assets or liabilities during the 10-year period. The one exception would be an asset for which the income is being voluntarily declared in Israel.

The form itself it a complicated looking thing (see here for an example), and I would strongly recommend that you ask a professional to review your work before filing. This is especially so if you are filling in a subsequent (i.e. not first) form, so that any pitfalls can be forseen and forestalled.

On the form, you list all of your personal assets (i.e. what you own and what is owed to you) and liabilities (i.e. what you owe), with amounts, as at the requested date. This is always 31st December, so just double-check the year being requested. It is important to note that you put down only capital amounts (e.g. deposits do not include accrued interest, and only the capital owing on a mortgage/loan is put down) that you paid (e.g. pension funds ignore employer contributions, and property is listed at cost price, not current value).

There is a section for loans/mortgages/other amounts owed - so the figures that go there should all be positive - the tax computer knows to deduct these figures from your assets.

The deadline for filing the Hatzharat Hon is four months from the end of the month in which the form was requested. However, since the tax offices generally send out requests at the start of the month, you typically have five months to complete. For example, any requests sent out during December will have a filing deadline of 30 April. If you file within a month late, late-filing fines are not usually levied; otherwise they will be, based on the number of months late. If you think you are going to miss the deadline, you can always send in a letter requesting an extension. Usually the tax office will agree to such an extension by two-three months.

As explained, perhaps the most important part of the work is not what is actually filed, but rather the explanations of income and expenses over the period between two reports. It is therefore very important to keep paperwork regarding exempt income (such as presents from family or inheritances) and large expenses (e.g. renovations, family trips abroad, weddings etc).

1 December 2013

Are you entitled to a tax refund?

In a previous post, we considered who was required to file a tax return.

However, it could be that even if you are not required to do so, it will be on your interests - if you are due a refund. Any refund due to you is given back with the addition of interest (4% per annum) and linkage - all tax free. You can't get anywhere near that in the banks these days, and even the most successful investments would be hard-pressed to give you such a favourable post-tax return!

You are able to apply for refunds - which necessitates filing a tax return - up to six years in arrears. As such, any claim for a refund in respect of 2007 must be filed by 31 December 2013.

So, in what situations might you be due a refund? Here are some common examples (by no means an exhaustive list, but it covers most situations).

  • A change of jobs midway through the year, especially if there was a significant change (up or down) in salary.
  • You had a period of unemployment during the year. If you received unemployment benefit from Bituach Leumi, that income needs to be taken into consideration (Bituach Leumi deduct tax at source).
  • Similarly, a woman who took maternity leave during the year - the maternity pay is also taxable, and tax should have been deducted at source by Bituach Leumi. This is especially true if the maternity leave was extended beyond the period for which Bituach Leumi pay (14 weeks for a regular birth). A word of caution: the maternity pay is paid in one lump-sum for the entire period. So if the maternity period spans two years (e.g. birth between October and December), it could be that you were under-taxed.
  • You made donations to Israeli institutions, which you have not claimed tax relief for. A more detailed look can be found here.
  • You made private contributions (i.e. not via your salary) towards pension, life insurance and/or disability insurance. The classical example is life insurance premiums paid for your mortgage.
  • You did a Teum Mas. Typically, the tax office issues these on the basis that you will have paid at least the correct amount of tax - i.e. you have probably overpaid. Alternatively, you asked your second (+) employers to deduct the maximum rate of tax. See here for more details.
  • You did not claim your full tax credits. This might include for army serivce, higher education, new child (especially if born towards the end of the year), deferred credits for new olim etc. A more detailed post regarding credits can be seen here.
  • You have investments in the bank. There are many situations whereby the bank will have over-taxed you (through no fault of their own). You need to get the bank to provide you with forms 867, 867א+ב and 867ג.
In order to claim your refund, you need to present the tax office with supporting documentation - forms 106 from each employment, forms 867 for each bank account and other documentation to prove your claims (e.g. Teudat Oleh, certificate of completion of studies, certificate of completion of army service etc.). You also need to fill out either form 135 (2012 version) - the refund request for salaried people, or form 1301 (2012 version) - the full tax return, and hand everything into your local tax office. I would also recommend that you attach a copy of a check from the account that you want the refund paid into - the authorities no longer issue checks.

It is important to note that there are situations whereby you may actually owe tax. So I would strongly suggest that you get an accountant to look at the paperwork prior to submitting - once you have filed, you will have to pay the taxes that you owe - in addition to interest and linakge charges!

17 November 2013

Taxation of property income

A very common investment for people is property, i.e. receiving rental income.

For these purposes, property income refers to income from any type of property (rents), including land (i.e. ground rent). This post will not deal with gains made on the sale of any property.

For tax purposes, the nature and place of the property affects the way tax is levied in Israel.


Israeli properties

Residential properties

As part of government housing policy, there are a number of tax-breaks and schemes available to those who have rental income from residential property in Israel - i.e. the property is being used to live in (rather than for business purposes).

If your total monthly income from such properties - before expenses - is NIS 4,980 or less (correct for 2013), the income is totally tax free.

If your total exceeds this limit, the tax-free limit is reduced by a shekel for every shekel that you go over. So, if your income is NIS 5,080 per month, you exceed the limit by NIS 100. As such, the limit is reduced by NIS 100 to NIS 4,880, and so you are taxed on NIS 200 (5,080 less 4,880), i.e. 3.93% (200/5,080) of your income is taxed.

Against this income, you can claim expenses, but only according to the percentage of income that is taxed. Using the above example, you can claim only 3.93% of your total related expenses.

Typical expenses for properties are: repairs and maintenance (but not renovations), management and/or agent fees, insurances and mortgage interest (but not the capital repayments). You can also claim depreciation - a portion of the cost of the property. Typically, only 2/3rds of the cost is "depreciable" (the rest considered land), and that portion is normally depreciated at 4% per annum (i.e. over 25 year). So, on a property costing NIS 1.2 million, the annual depreciation allowance comes to NIS 32,000.

The net profit is subject to tax according to the "regular" rates, starting at 31%. This profit is also subject to Bituach Leumi, levied at 12%.

An alternative is to pay a flat 10% tax on the rents received. If you choose this option, you cannot claim any expenses whatsoever, nor can you claim any unused tax credits against this income. But there is also no Bituach Leumi charged. Furthermore, if you're not filing tax returns, the income can be reported and the tax paid using the "short" tax form for such rents - either at the post office, or online. Technically, the law requires that the tax should be paid by 30th January following the year-end for the whole of the previous year; practically, it is not a problem if you pay a little later.

It should be noted that you are not able to choose both the "exemption" and "10%" routes - it is one or the other. In order words, if you have two properties, each producing rents of NIS 3,000 per month, you cannot claim the exemption on one of the properties and pay NIS 300 per month on the other.

It is however permitted to change how the income is taxed from one year to the next.


Commerical properties

Rental income for such properties is taxed according to the regular rules for profits, with taxes starting at 31% on the profit (i.e. after deducting all allowable expenses). Bituach Leumi is also chargeable.

Such income is also subject to VAT, and the landlord should be adding VAT to the rental invoice. Since those renting are likely to be businesses, this should not be an issue; they will be able to claim back the VAT on their own returns.

Furthermore, the landlord should provide the tenant with an אישור ניכוי מס במקור - certificate from the tax office regarding how much tax to deduct at source (typically, zero). Without such a certificate, the tenant is required to deduct 35% of the payment at source, and pay it to the tax man. Of course, any tax deducted is considered as tax paid in the hands of the landlord, and can be offset against the tax bill on the tax return.


Overseas properties

Typically, income from property is taxed in the country in which the property exists, regardless of the residency status of the owner. In some Double Tax Treaties (e.g. France) that Israel has signed, Israel is not allowed to tax the income that an Israeli resident may have from that country. But in most Treaties, Israel is allowed to tax the income.

This section is also irrelevant for anyone who made Aliyah from 1st January 2007, and therefore has an exemption from Israeli tax on foreign income. This of course does not prevent the country of origin from taxing the income.

For all other situations:

There is no distinction between residential and commercial properties in terms of Israeli taxation when dealing with an overseas property. But there are two options for taxation on such income:

1. The net profit, after expenses, is subject to regular tax rates, starting at 31%. Against this, any foreign tax can be offset - up to the level of tax that would have been levied in Israel. However, Bituach Leumi is also charged on this income, and there is no allowance for foreign tax - since Bituach Leumi is not the same as Income Tax.

2. The rents are taxed at a flat 15%, with no allowance for expenses - except depreciation - and unused credits cannot be used against this tax. Under this option, no Bituach Leumi is levied on the income. Furthermore, if you're not filing tax returns, the income can be reported and the tax paid using the "short" tax form for such rents - either at the post office, or online. If you are not filing tax returns, the deadline for filing such a report is 30th April following the end of the tax year. Again though, on a practical level, it is not a problem if you report and pay a little later than that.

As with Israeli residential property income, it is possible to switch options every year, depending on what works best for you.

6 November 2013

Taxation of employment income - part 6 - Bituach Leumi

In addition to Income Tax, Israel levies Bituach Leumi (National Insurance or Social Security) on earned income (and certain passive incomes).

To all intents and purposes, this is another tax, although there are certain social benefits that accrue from making regular payments (e.g. maternity pay, disability pay, pension etc).

Bituach Leumi is calculated on a monthly basis, not on a yearly basis. There are also virtually no exemptions for salaries.

There are two rates for Bituach Leumi. The lower rate (3.5%) is for salaries of up to NIS 5,297 per month. Salaries above this amount, and up to NIS 42,435 are taxed at the regular rate (12%). Any salary in excess of this amount is not subject to Bituach Leumi. The rates and bands are correct for 2013.

The employer is also required to pay a percentage of your salary towards Bituach Leumi, and is responsible for ensuring prompt payment of both employee and employer contributions to the Bituach Leumi authority.

If you have two or more employers, the main employer will calculate the Bituach Leumi as above. All other employers are required to deduct at the full rate.

That is fine provided that your main job pays more than the NIS 5,297 per month. If they pay less, you can ask Bituach Leumi to issue a Teum Bituach Leumi in order for the other employers to give you the rest of the lower rate. This is effective only going forward, and can be done online here.

If this has affected you in the past, you can also claim back overpayments using the same site, back to 2006 if need be. In both situations, you will need the Bituach Leumi file number of the employer - in general this is the 9 digit "mispar tik nicuyim" of the employer followed by "00".

The more extreme situation will be when the combined salaries exceed the NIS 42,435 limit. In this case, the Teum going forward cannot be filed online, but only by going direct to your Bituach Lejmi office. Refunds though can be claimed in the same manner.

For those who are both employed and self-employed, the general rule is that Bituach Leumi is calculated on the salary first, and only afterward on the self-employment income.

24 October 2013

Taxation of employment income - part 5 - pension contributions and severance pay

In the previous post, we mentioned that a portion of employer contributions towards an employee's pension scheme is not treated as a taxable benefit. In this post I will set out, in short, some of the laws regarding pension and severance pay.

It is important to start this post by discussing the concept of "base salary - שכר יסוד." As implied, this is the gross salary that you earn each month before any additions. In some professions, this can represent a relatively small part of the salary; the main salary is then bolstered by commissions, overtime pay etc.

Since 2008, the law has required both employers and employees to make contributions towards a pension fund for the employee, based in a percentage of the monthly base salary. There are some further rules regarding the initial eligibility criteria, but most employees will meet these within a few months of starting their employment.

Within the pension fund is an element for pitzuyim - פיצויים, i.e. severance pay. Upon the termination of an employment by the employer (and in some cases, by the employee as well), the employer must compensate the employee with severance pay. This is calculated as one month's salary for each year of employment, calculated on a linear basis. The salary for this calculation is the final base salary that the employee was receiving. In general terms, pitzuyim are only required to be paid once the employment has lasted a year.

On top of the pension payment each month, the employer is required to put aside monies into the pension fund on account of the pitzuyim. As and when required, the amounts accrued in the fund can be offset against the employer's eventual liability. That being said, there is a provision in the law whereby - with the agreement of both parties - the employer contributes the full amount to pitzuyim every month (i.e. 8.33%) and the employee only gets what it is the fund when the employment is terminated. This is known as "Section 14" and will be written into the employment contract. In many cases, the amounts accrued in the fund are yours, even if you resign.

The minimum contributions, as a percentage of basic salary, are as follows:

 
Pension
Pitzuyim
Year
Employee
Employer
Employer
2013
5%
5%
5%
2014 and beyond
5.5%
6%
6%


The employer contribution towards pitzuyim is not considered a taxable benefit, as there are significant tax breaks when receiving pitzuyim. But that's for another post.

16 October 2013

Taxation of employment income - part 4 - employee benefits

In the previous post, we discussed that employee benefits are subject to taxation. This post will look at some of the more common payments and benefits from employees, and how they are dealt with for tax purposes.


Travel allowances

The law requires that employers pay their employees reasonable travel costs from their home to and from work. Typically, this is the cost of the monthly bus-pass (חופשי חודשי). However, there is a cap which the employer is required to pay, currently NIS 25.20 per (work) day. These are of course minimums, and the employer can pay more. This is an actual payment, and is subject to tax and Bituach Leumi as with any other part of the salary.

In the event of reimbursement of car expenses, based on kilometres driven, the reimbursement is based on the actual cost of gas, insurances, wear & tear etc. as determined by the Statistical Society. This is reimbursed net to the employee, so there should be a grossing up on this line of the tlush.


Convalescence (דמי הבראה)

This is an historical relic of the period when the Histadrut (general trade union) was very active and strong in Israel. Nowadays, havra'a is simply an extra line in the tlush. Typically, it is paid once per year, normally in the June or July tlush, although some employers split the payment over longer periods, even if split into 12 equal payments over the year.

The amount you are eligible to depends of (a) the number of years that you have worked for the employer and (b) the sector in which the employer operates - private, public or unionised.

The payment is taxed as per any other element of the salary.


Car benefit

If the employer gives the employee the use of a car (expenses borne by the employer), the employee is getting the benefit of not having to purchase/lease a car of their own, and saves on the monthly ongoing costs.

The benefit ascribed in the tax law is intended to reflect these savings. The actual calculation is extermely complicated and is based on either the cost of the vehicle or the "group" of the vehicle, depending on when the vehicle hit the road. The benefit is lower for "greener" vehicles. This value is added to the taxable income for income tax and Bituach Leumi purposes.


Cellphone

Similarly, if the employer gives the employee a cellphone to use for work purposes, it is assumed that a portion of the calls will be for private use. As such, a fixed monthly benefit of NIS 105 (for 2013) is taxed.


Holiday gifts

Typically, most employers give their employee gifts before Rosh Hashana and Pesach. These gifts are subject to tax - based on the value of the gift. Some employers will gross-up the value of the gift, so that the employee doesn't lose out by way of extra taxes.


Pension contributions

Since 2008, employers have had to make contributions to a pension scheme on behalf of their employees. [There is also the obligation on the employee to contribute to the scheme, by way of deduction from the salary]. Strictly speaking, the contributions made by the employer should be subject to tax. However, the government wishes to encourage people to save, and so contributions made by the employer are not taxed as a benefit up to a limit. The limit is in the region of NIS 1,600 per month.


Keren Hishtalmut contributions

The Keren Hishtalmut, or study fund, is the government-backed tax-beneficial savings scheme. Employers are not required to offer this to employees, but many do as a perk of the job. For an employee, the tax breaks are two-fold. Firstly, the contributions made by the employer - up to a limit of approximately NIS 1,200 per month - are not considered a taxable benefit. Secondly, the entire fund can be withdrawn tax free (including employer contributions and profits made by the insurance company) once the minimum waiting period was ended (usually six years).


There are of course plently of other examples, and the basic rule is that the value of the benefit provided is added to the taxable salary. For specific advise, please feel free to contact me.

11 October 2013

Taxation of employment income - part 3 - the tlush and 106

Most people look forward to receiving their monthly payslip, known as a תלוש משכורת or just tlush.

The Israeli tlush is a highly complicated piece of paper containing a huge amount of information. Below I will set out some of the information that you should expect to see, and what it means to you.

A good translation of a typical tlush can be found here.

The main section of the tlush sets out the various components of your gross salary. This will include - amongst other things - basic salary, bonuses, travel and/or car allowance, convalescence (דמי הבראה), overtime pay etc. All of these will be actual payments.
 
There could also appear taxable benefits that the employer has provided to the employee. No extra money is actually paid, but it adds to the taxable salary. Common examples include a company cellphone or car. The consequence of course is that more taxes are paid, and less comes home.
 
Some people may have agreed to some elements being paid net, i.e. They get a certain amount of take-home pay after deductions and taxes. The extra amount added to the salary in order to get to the correct "net" will be shown as a גילום or "gross-up."
 
The next section will deal with deductions from the salary. These fall into three broad categories:

1. Taxes - income tax and Bituach Leumi (including health tax element).
2. Funds - generally pension and Keren Hishtalmut (study) funds, where appropriate. Some tlushim will also show you how much the employer is putting aside.
3. Sundry - this could be anything agreed with the employee e.g. professional insurance, union fees, loan repayments etc.
 
There should be a summary showing the gross payments, various deductions and net salary to be paid for the month. Additionally, the number of credit points being awarded to you should be shown, as well as your marginal rate of tax (as per the tax tables or a Teum Mas) - i.e. the top rate at which income tax is being calculated.
 
The tlush should also tell you the cumulative gross earnings, taxes and fund deductions since the start of the tax year.
 
Finally, the tlush should show you details regarding your entitlement to vacation and sick pay. Typically, this will show how much your remaining entitlement was at the start of the month, the amount accruing to you for the month, how much you used during the month, and the final balance at the end of the month.

The employer is also required to give each employee an annual form (known as Form 106) summarising their salary throughout the previous tax year. This should of course agree to the December tlush (or final tlush received from an employment) cumulative. By law, the employer should provide the form 106 by 31 March following the year. Practically, you'll need to ask for it.
 
The 106 sets out the various amounts required for the tax return, and provides the tax-return codes that each number relates to. It is important to file the 106 with your tax return, and not the December tlush.

4 October 2013

Taxation of employment income - part 2 - The Teum Mas

At the end of the last post, I made mention of the importance of section ה on form 101.

This section tells the employer whether you have another employment. If so, you need to indicate if this particular employment is your main job.

If it is, the employer will tax the salary as if it is the only employment, i.e. the regular tax rates and credits are all given.

However, for any other employment, the employer is required to deduct the highest rate of tax on the entire salary, currently 48% or 50%. However, as this is likely to be way over the top, the tax authority can instruct the employer to deduct a lower rate of tax. This instruction is known as the Teum Mas. Typically, the Teum Mas will say that (a) the main employer should tax regularly, giving full credits, and (b) other employers should deduct x% at source on income up to a certain level (cumulative for the year), and at a higher percentage on anything above that level.

Please note that a Teum Mas is not required if you have chosen the employment as the main employment, even if you indicated that you have another employment. A lot of employers will still ask for one, but you are not required to do so by law.

In very simple cases, a Teum Mas can be done online - here. You will need to have the nine-digit mispar nicuyim (will start with the digit 9) of each employer - this should appear on your tlush. For further identification, the site requires you to provide either your driving license or passport number. Once completed, the formal Teum is set to your home address.

In order to speed things up, or in not-so-simple cases, you will need to go to your local tax office in order to get the Teum. The form that you will need can be found here, and the second page looks very similar to the second page of the 101. Read the instructions carefully - there may be documents that you will be required to provide. You will also need to take some payslips with you to prove the  level of income.

It is important to understand that the Teum Mas is calculated in order that at least the correct amount of tax is deducted. But it is still possible that you will have too much deducted from your salaries. The only way to get this back is via a tax return, and for that you will need form 106, the subject of the next post.

29 September 2013

Taxation of employment income - part 1 - Tax at source

Over the next few posts, we will cover many aspects pertaining to employment income - relating to the obligations of both employer and employee, with specific focus on employee rights and taxation.

As discussed previously, a person whose only income is their salary is not required to file a tax return. This is because Israel operates a Pay-As-You-Earn system which obligates the employer to deduct at least the correct amount of tax from the salary of an employee.

As a basic rule, each month's tax is based on the the monthly salary and the various credits that the employee is entitled to for that month. Potentially, that means overpaying in a month in which you got significant overtime pay, bonus etc. The law therefore allows the calculation to be made on a cumulative basis throughout the year if you have worked in the same place since January, or this is your first employment of the year.

In order to ensure that you get the correct amount of credit points, form 101 must be filled in (link to the form); immediately for a new employment and on 1st January each year for ongoing employment. On a practical level, it should be filled out in time for your employer to process your first salary of the year.

The form is split into two pages. The second page is for claiming all of the relevant credits. Most do not require any paperwork or confirmation from the tax office, but read the notes carefully!

The first page contains some basic information about both employer and employee. 

Of particular importance is section ה which gives details about the employment. Specifically, if you have more than one place of employment (and for these purposes, a pension is considered another employment), you will, most likely need to get a "Teum Mas" - the subject of the next post.

It should be noted that only credits enumerated on the 101 and those directly related to payroll ( e.g. Pension, life insurance etc. if applicable) can be given by the employer. Anything else will need to be claimed via a tax return (the prime example is donations - see here for more).

Employers are also required to deduct Bituach Leumi at source. The lower rates of Bituach Leumi will be given in the main employment; all other employments will have the full rate deducted unless a "Teum Bituach Leumi" is done - but that's for another time.

11 September 2013

"Negative" Income Tax - מס הכנסה שלילי

A number of years ago, the government introduced a scheme designed to help workers earning very little. This grant, based on average monthly earnings in the previous tax year (hence the term "income tax"), was initially available only to those living in certain parts of the country. Grants for 2012 are the first to be available countrywide.

 
Who is eligible?

You must meet the following criteria:
 
1. Be aged 55+ or aged between 23 and 54 and have at least one child.

2. You, together with your spouse, own no more than a 50% stake in any land or property (worldwide) that is not your residence.

3. Your average monthly earnings in 2012 (salary or freelancer, based on actual months worked) was between approx. NIS 2,000 and NIS 6,000.

It should be stressed that you are not eligible for months on which you received salary from a family member, or a company controlled by a family member.

Furthermore, maternity pay received from Bituach Leumi is treated as earnings for these purposes.

4. If you were required to file a tax return for 2012, you did so on time.

5. The claim must be made by 30th September 2013, so you need to move fast!

6. Any employer filed their employer-summary form on time (form 126). If they did not, you will be asked to provide the authorities with form 106 in order for them to fully process your claim.

 
How much is the grant?

The grant, per month of eligibility, is based on your average monthly earnings and can reach as high as NIS 705. The full table is as follows:


 
Monthly grant (NIS)
Average monthly income (NIS)
- woman (1 or 2 children)
- single father responsible for 1 or 2 children
- married father (1 or 2 children)
- aged 55+ without children
- woman (3+ children)
- single father responsible for 3+ children
- married father (3+ children)
0-2,040
0
0
0
0
2,041
120
80
180
120
2,500
231
154
342
228
3,000
351
234
519
346
3,540-4,730
480
320
705
470
5,000
387
258
610
407
5,500
214
143
433
289
6,034
30
20
N/A
N/A
6,035+
0
0
N/A
N/A
6,645
N/A
N/A
30
20
6,645+
N/A
N/A
0
0
The amounts here are based on the 1st June 2012 figures, and should have increased with inflation on 1st June 2013 - I have yet to see the revised figures.
 
In certain circumstances, the amount due to you will be reduced. This is the case if you are in receipt of one (or more) of the following:

1. Pension income, excluding disability or survivor pensions.
2. Bituach Leumi grant for work or other accident.

Similarly, your spouse's income could reduce your grant.

A simulator (Hebrew only) has been provided by the tax authorities here. It's worth having a look at if you think your claim is borderline.

 
How to make the claim

The claim is made at a post office branch (and only there), and must be made in person. Be careful though: not all post offices are officially branches - check the postal service website before setting off.

You need to take with you your ID card (Teudat Zehut) and a cheque (of formal notification of account details from the bank).

The clerk will hand you a form on which you state:
  • Number of employers in 2012 for both you and your spouse.
  • Whether you we're self employed in 2012
  • Postal address
  • Bank details
You will get to keep a portion of the form, which will have details regarding how to monitor your claim. You can monitor your claim online here (Hebrew only).


How you get paid

If you are an employee only, you will receive your grant in two equal payments directly into your bank account, to be paid on 15th January 2014 and 15th April 2014.

If you are (also) self-employed, the grant is offset against your 2012 tax liability. If you have excess grant, it will be offset against the next three year's tax liabilities (i.e. 2013, 2014 & 2015). If, after that, there is still some grant left over, 75% of the remainder will be paid directly into your bank account on 15th July 2017.

4 September 2013

Tax relief on donations

"ותשובה ותפילה וצדקה מעבירים את רוע הגזרה"
(Mussaf, Yamin Noraim)

It is no surprise that, given the time of year, charities in Israel are making a concerted effort to raise funds.

As an added incentive to donate, the tax law gives a credit against the tax bill for donations made during the year.

There are a number of conditions that must be met though:

(1) The charity must be recognised by the tax authorities for donation purposes under section 46 of the tax law. You can check whether any particular organisation is indeed registered here (you will need either the formal name of the charity, or their 9-digit ID number which starts 58xx).
(2) The donation must be proved by way of an original receipt, which needs to state that the monies were indeed a donation (and not, for example, membership or the cost of a dinner). The receipt should also state that the organisation is recognised under section 46.
(3) Over the course of the year, at least NIS 180 is donated (in total).


The credit given is 35% of the amount donated. For example, if NIS 1,000 is donated over the course of the tax year, NIS 350 is knocked off the tax bill.


Whilst it is generally not relevant to most people, there is an upper limit to the amount of donation that you can get credit for. This is the lower of the following:
(1) NIS 9,130,000 worth of donations.
(2) Donations exceeding 30% of the taxpayer's annual taxable income.

Excess donations from one year can be carried forward to be used in the next three tax years.


For most people, the only way to claim these credits will be by filing a tax return and including the donations therein. However, a scheme was introduced last year whereby the largest employers can grant their employees the credit provided that certain conditions are met. Best to ask your HR/salary department if they can do this for you.

19 August 2013

Child support allowance reduced

Bituach Leumi pays a monthly allowance to mothers (as a general rule) of children aged up to age 18. It is paid on the 20th of every month, and deposited directly into the mothers' bank account.

As part of the budget, drastic cuts have been made to the allowance, with the August payments approximately 40% lower of those made in July.

The new rates are as follows, with comparison of the previous rates:

1. Children born on 31 May 2003 or before:

Child #
Monthly allowance (NIS)
Previous allowance (NIS)
1st
140
175
2nd
140
263
3rd
172
295
4th
336
459
5th +
354
389


2. Children born on 1 June 2003 or later:

Child #
Monthly allowance (NIS)
Previous allowance (NIS)
1st
140
175
2nd
140
263
3rd
140
263
4th
140
263
5th +
140
175

If the above tables are a little confusing, the following link takes you to a simulator on the Bituach Leumi website to calculate your entitlement: http://www.btl.gov.il/benefits/children/Pages/Calculator.aspx (available in Hebrew only).