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27 March 2015

Are you required to file a 2014 tax return?

This post is a similar post from last year, with the required amendments etc. pertinent to the 2014 tax year. The current deadline for filing your 2014 tax return is 31st May 2015 (but this is likely to be extended by a month).

The Tax Law states that every Israeli resident is required to file a tax return every year, and doing so late results in hefty penalties (in excess of NIS 1,000 for each month between the official deadline and the actual filing).

That being said, a supplementary ruling to the law grants exemptions from filing if you (and your spouse - assume this the whole way through this post) meet certain criteria.

The exemptions are in place in order to relieve the burden on the already-overstrechted tax authorities having to process tax returns for people who won't have any supplementary tax to pay anyway.

There are though certain people whose circumstances dictate that they must file, regardless of their earnings. If you fall into at least one of the following categories, you must file a return:

(1) You are a controlling shareholder (10%+ ownership including holdings of close family) of a company or similar corporation. This applies to all Israeli corporations, and many overseas corporations.
(2) Earned income of husband and wife is assessed together, rather than seperate calculations. See here for more.
(3) You received severance pay that was spread over a number of years - one of those years being 2014 (known as פריסת פיצויים).

(4) You were required to file a tax return for 2013, but not for one of these reasons.
(5) You own shares in a non-publically traded non-Israeli corporation.
(6) The value of your overseas assets at any point in 2014 exceeded NIS 1,874,000. This requirement is not relevant for those who fall into the "10-year exemption" for new olim.

So, assuming you do not meet any of the criteria above, you are exempt from filing a 2014 tax return if your income in 2014 was exclusively from the following list. If you had income from any other source, you are required to file:

(1) Salary (including pension and פיצויים) - if the gross amounts received were less than NIS 660,000 (per spouse) and tax was deducted at source.
(2) Rental income (above the exemption limit), provided that (a) the total gross rents were less than NIS 337,000 and (b) the 10% tax was paid by 30th January 2015.
(3) Foreign interest, dividends, capital gains etc, provided that (a) the total gross income was less than NIS 337,000 and (b) the tax (the rates depend on the exact nature of the income) was paid using the "short form" at the post office or online by 30th April 2015.
(4) Foreign pension, provided that (a) the total gross income was less than NIS 337,000 and (b) no tax is due in Israel under the provisions of section 9c of the tax law (see here for more) - beyond the scope of this post - perhaps I'll address it some other time).
(5) Israeli-sourced interest and/or linkage income, provided that either (a) it is exempt from Israeli tax or (b) tax was deduced at source and the gross income was less than NIS 644,000.
(6) Capital gains made on the sale of publically listed shares provided that either (a) it is exempt from Israeli tax or (b) tax was deduced at source and the gross sales were less than NIS 1,874,000.
(7) Other types of income which are subject to tax and tax has been deducted at the maximum rate.
(8) Other income exempt from Israeli taxes.

(9) Your total taxable income from all sources was less than NIS 811,560.

If the total gross income of (7) and (8) combined is at least NIS 337,000, no exemption is granted.

Whilst this looks a little daunting, in many situations the requirement or exemption from filing is reasonably clear - but if in doubt, take professional advice.

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