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29 June 2014

The new one-page tax form for low earners

With much fanfare, the tax authority announced last week a one-page tax return for the smallest of businesses. The form can be found here.

The form is designed to allow the smallest businesses - who wouldn't reach the tax threshold anyway - to just report their income, without the extra pages relating to deductions and credits.

However, it must be noted that the tax authority reserves the right to ask for a full tax return anyway, as well as any other paperwork deemed necessary; making this process somewhat meaningless is my opinion.

Who can use the report?

The explanation notes (which can be seen here) list five possible scenarios to be allowed to file such a return. These can be summarised as follows:

(1) If one or both spouses has small freelance businesses, the total business turnover of the business - added to that person's other earned income is less than NIS 60,000 in the tax year.

(2) If one of the spouses does not have a freelance business, their only income - if any - is from salary and/or pension. This income must have had tax deducted at source in full according to the law, AND they can have no other income.

It should be noted that someone with a disability allowance can also use this form and report the income exempted under the disability allowance.

Who cannot use the report

There is a long list of people who cannot use the short report:

(1) Someone who should have done a Teum Mas, and didn't.
(2) Someone who is required to file a tax return as a result of spreading pitzuyim (severance payments) over a number of tax years.
(3) Shareholder (10%+) in a corporation
(4) Non-Israeli resident
(5) Israelis with foreign income and/or significant foreign assets
(6) Settlor, trustee or beneficiary of a trust
(7) Partner in a business partnership
(8) Someone with losses (current-year or carried forward from prior years) - presumably this is assuming that you wish to claim the losses
(9) Someone wishing to claim a tax refund
(10) Someone who has unearned income (e.g. rental) - since these are taxed at higher rates, with the exclusion of investment income which was fully taxed at source by the bank/financial institution
(11) Some with investment income which was not fully taxed at source
(12) Someone who was declared bankrupt
(13) Someone with total income (from all sources) exceeding NIS 811,560 (for 2013) - they are liable to pay the 2% high-earners tax
(14) Anyone who has made payments on account to the tax office (e.g. mikdamot, rental tax payments, capital gains etc.)

As you can see, it is fairly difficult to meet the criteria. And even if you do, it's not such a big deal to put the same information into the full tax return and simply tick the box which says that you (and your spouse) are Israeli resident - which would give the same outcome!

Another potential down-side is that Bituach Leumi may over-tax you as there is no room to claim deductions that are allowable in that calculation e.g. disability allowance and Keren Hishtalmut payments.

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