Important update for Olim buying real estate in Israel
A new immigrant to Israel (an “Oleh”) is entitled to a lower purchase tax rate when buying a residential property. A recent court ruling will have a significant impact on those who may be entitled to this benefit.
Gregrory Alal may Aliyah from France and bought an apartment in Tel Aviv. He used the Oleh tax benefit and saved an enormous amount in purchase tax. However, Mr. Alal continued to live in France most of the year except for approximately 65 days per year which were spent in the new apartment. When the tax authority learned that he was spending so little time in Israel, they demanded that he retroactively pay the full purchase rate for the apartment and Mr. Alal appealed to the court. The question before the court was: Is Mr. Alal entitled to the Oleh benefit?
According to the purchase tax regulations, an Oleh is entitled to the lower rate if the property will serve as his/her residence (or business). Does the Oleh have to live in the new property in practice or is it enough that he/she intends to live there when it’s purchased? The court ruled that it is not enough to intend to live in the property – the Oleh must live there in practice in order to be entitled to the Oleh benefit.
Until this court ruling, the tax authority would grant the benefit based on a statement from the Oleh saying that he/she intends on living in the property and would not necessarily check to see whether the Oleh would live in the property. According to this new ruling, there are people who may move to Israel as Olim but will not necessarily be entitled to this significant tax break, unless they prove that they live in the new property in practice.
It should be noted that with this benefit, an Oleh can save a significant amount in taxes in very specific scenarios but not under all circumstances. In some situations, it may be more wise to utilize alternative tax benefits. When buying a property, an experienced real estate attorney should be consulting in order to make the best possible tax plan.
Adv. Michael (“Mickey”) Levine