Empty office (Photo: ShutterStock)
A blow to office owners: many local authorities tend to "lure" high-tech companies to locate their offices in their jurisdiction, and in exchange for this they benefit from the payment of reduced property taxes.
Hi-tech and start-up companies in Tel Aviv pay according to the classification of software houses, which is significantly lower than office rates (about 178 NIS per square meter per year compared to about 409 NIS).
But what happens when the company closes or leaves the property and it remains empty?
Should property tax continue to be collected from it as a software house, or according to its useful potential as an office?
What did the Supreme Court decide? (Photo: ShutterStock)
This issue came up for discussion in the Supreme Court and yesterday a ruling was issued stating that the Tel Aviv Municipality can charge a company, which owned 4 empty properties, the high rate of offices and not the low rate of a software house, as the owner of the properties believed.
The main test for classifying an asset is the test of the actual use of the asset.
However, when the property is empty and unused, the use test is determined according to the possible use of the property in accordance with its building permit.
Most of the local authorities have decided that when a certain property is not used and its building permit is intended for office use, it should be charged according to its potential use.
This is also what the Tel Aviv Municipality did with a company that owned 4 properties, as mentioned, that had been empty since 2018.
Initially, the company received an exemption from property tax for six months in accordance with the law, but after 6 months passed and the exemption ran out, the municipality charged the properties with a high office rate.
The company appealed this determination and the district court ruled that since the assets are empty they should be charged according to the low rate of Beit Tochha.
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The Supreme Court overturned the district's decision
The Tel Aviv Municipality appealed this ruling to the Supreme Court, which overturned the decision and stated that, although the use of a software house is possible and permitted according to the building permit of the property, the property is not entitled to "enjoy" the cheap classification of a software house when it stands empty.
The supreme judges justified their decision by saying that the low classification for high-tech companies was intended to "implement a policy that would encourage the establishment of high-tech factories within the domain of the Authority.
This, against the background of the existing competition between local authorities for the operation of properties of this type, and from the concept that this will affect the economic well-being of the authority - both through the creation of jobs and the promotion of local employment, and through attracting an affluent population to its areas." However, the judges noted, when there is
no Any use of the property and even though the building permit allows it, there is no justification to charge an empty property at a reduced rate of a software house, because the purpose of the discounted classification is not fulfilled in an empty property.
Attorney Moti Itzkowitz from the Katz office, Geva, Itzkowitz, who specializes in municipal taxation (Photo: Ehud Dayan)
According to attorneys Moti Itzkowitz and Eliran Haliva from the office of Katz, Geva, Itzkowitz, which specializes in municipal taxation, which they did not represent in the case, "it seems that the court separates the economic hardship from the trial and states that the owner of a property that is standing empty will pay an unreasonable business property tax, as if it were in an active and profitable business, and even beyond the payment paid by a software company. This is a continuation of the trend of reducing the exemption periods received by owners of empty or unusable properties. The big question is from what source can the citizen pay the funds, when his property is empty or destroyed, when the interest rates High, very high and the banks demand excessive collateral? There is no doubt that in this problematic period, many property owners, who are an important part of the economy that sustains the country, are in a very vulnerable place."
Real estate
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