From the Arrangements Law it appears: the renters of the apartments on the intention of the Tax Authority (Photo: ShutterStock)
Upheaval in the rental market: According to the second and updated draft of the Arrangements Law, published today (Wed), it seems that the Tax Authority is already starting a concrete work plan to fight black capital among the population of apartment renters.
The main change in the second draft of the Settlements Law, published today as mentioned above, is the postponement of the annual reporting obligation, for those who until now were not required to report.
We contacted Yaniv Angel, a taxation expert, partner and manager of the taxation department at the consulting firm Auren Israel, to get an answer to the question - what is going to change?
What is the main change proposed?
The main change concerns the tax exemption
.
As of 2023, the landlord of a residential apartment in Israel has a monthly income tax exemption of NIS 5,471 per month.
This amount is constantly increasing.
In 2022 it was NIS 5,196 per month and in 2021 it was NIS 5,074 per month.
The exemption ceiling is linked to the price index and is updated every year according to the increase of the index.
The Tax Authority basically proposes to cancel the linking of the exemption ceiling, and as a result, in cases of an increase in the consumer price index, the tax exemption will not change.
In the last year we saw that the increase in the consumer price index increased both the residential rent and the exemption ceiling.
Fixing the exemption ceiling regardless of the increase in the index, may lead to a freeze on the increase in prices in the rental market, among landlords who would like to stay below the tax exemption ceiling, and could affect the halting of the increase in the price of rental prices in Israel.
Another change concerns the exemption from reporting
.
It is proposed to cancel the reporting exemption for tax-exempt landlords.
That is, every person who rents an apartment, even those who are exempt from tax as mentioned, will be obliged to report the apartment, address, amount of rent, etc.
The goal is to include as many people as possible in the reporting basket, whether tax-exempt or not.
This is based on the understanding of the tax authority that the obligation to report also, regardless of tax payment, reduces the phenomenon of black capital.
The draft law directs the Director of the Tax Authority to establish a convenient and user-friendly digital reporting platform to perform this reporting.
What are the differences between the first and second drafts of the Settlements Law?
In the first publication on January 26, 2023, it was written that the method of reporting and the details of the report, and the additional changes will apply starting in 2022. It seems that the government understands that the actual implementation of such changes is a process that takes time and assessments, both among the apartment renters, and among the tax authority and the technological set-up, and therefore is now being proposed In the second draft, the section will apply starting in 2024 with reference to the revenues received from 2023. In fact, it is a delay of one year for the implementation of the provision, so that the parties can organize accordingly.
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What is the "interim period" proposed for the first time in the new draft?
In the interim period, it is proposed that enforcement procedures will not be taken against the general public, but only against those who did not report, were warned about it, and came back again and did not report.
In other words, it is proposed that in the first tax year of the reporting obligation, an immediate sanction will not apply to failure to report rental income below the ceiling, unless the violator has committed one violation, received a written warning about it, and returned and committed another violation.
From the Arrangements Law it appears: the renters of the apartments on the intention of the Tax Authority (Photo: ShutterStock)
In conclusion, it seems that during the three weeks since the publication of the first draft, the Ministry of Finance did their homework and made the necessary adjustments, and in addition, the understanding that the plan would be practical for implementation only in a year.
Bottom line, these changes show that the Treasury is determined to go all the way with this reform, with the aim of reducing tax evasion among apartment renters.
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