Real Estate

On June 5, 2011 the real estate taxation law has been amended in regards to the capital gain tax exemption one is entitled for upon selling an acknowledged apartment. The following bulletins are the highlights of those amendments.

 

• A seller of an apartment will be entitled for capital gain tax exemption while selling an apartment which is not an acknowledged apartment (according to the fifth chapter 1 to the real estate taxation law), since it was not used as an apartment as demanded by the law, as long as the apartment will be adjusted for residential conditions, be used for residential purposes for two years at least after the selling and that the exceeding permit for the apartment will be canceled.

• A seller of an acknowledged apartment which who owns more than one residential property in Israel and the region, will be entitled for capital gain tax exemption for the period of which he owned a number of properties, for one apartment only for any given time period by his choice at the time of the property sale, and the remainder properties one owned at that period will be taxed for that period at the time of their sale.
• When selling an acknowledged apartment which was acknowledged to the 31.12.2012, the time period of which one must pay capital gain tax on will not include the period of the property acquisition until the coming of this amendment to force.
• When selling an acknowledged apartment which was not acknowledged  on the 31.12.2012 the taxable gain period will include the period of the property acquisition until the determine date.
• Article 49(E) will be amended in such a way that capital gain tax exemption will be given to an apartment seller not more than once according to the following terms:
• The seller has sold one\two apartments within 12 months prior to the selling.
• The gain for the prior selling with an addition to the relevant apartment being sold did not exceed 2.2 million NIS (New Israeli Shekel).
• The seller acquired a year prior to the selling or will acquire in the following year another apartment in Israel or in the region, in total worth of 90% at least of the total earnings, and that the acquired apartment will be the only one in the seller ownership for six years at least from the day of purchase or from the day the apartment was sold (according to the latter).

Article 9 to the Israeli real – estate law, 1969 stipulate that a contradicting transaction is a situation where one has obligated towered someone to make a transaction in real – estate and before that transaction was concluded with registration he has returned and obligated towered someone else with a contradicting deal.

The law determines that the right of the first possessor is favorable. However if the second possessor was operating in good faith, paid and the transaction was registered while he was acting in good faith his right is preferable.

One of the main verdicts in contradictory real estate transactions is CA 2643\97 Gans Shlomo VS British & colonial co’ INC & others.

In this case the Supreme Court has explained the meaning of article 9 and the importance of the second possessor clean hands and good faith in order for him to enjoy preference.

The latest decision 1171 that was issues by the Land Administration counsel at 5.1.09 is actually decision 1106 with a small change, but how small is it really?

Decision 1106 was issued in order to encourage companies and entrepreneurs to participate in the Administrations tender for lands which are designated for apartment’s houses purely for rental.

The tender stipulates that the land will be chartered for a period of 98 years with extension rights for an additional 98 years when the purpose of the charter is residential.

According to the tender the administration has the right after 25 years of rental usage upon the request of the rights owner to change to purpose of the chartering to normal residential.

The change however did not come in any of the tender normal characteristic but in one detail – the financial identity of the bidder.

Decision 1106 made it perfectly clear that any entity who wishes to bid at the tender has to provide with financial stability document showing that it could build and maintain a project of such type, a demand which seems to be necessary in our days of the biggest financial crises since 1930s’ however decision 1171 who was issued in the early days of January 2009 actually demands all of the demands that decision 1106 does, except for the demand of financial stability proof.

A combination deal is one way of reducing one’s taxes on real estate transaction in some situations.

The meaning of a combination deal is when an owner of a land is selling to an entrepreneur (contractor), his entire land or a part of it in return for parts of a future structure (building) which will be built on the land.

The first step is having an incorporated company buying a land as a real estate union (according to the “Real estate law – capital gaining, selling and acquisition, a real estate union is a union that all of his assets directly or indirectly are real estate rights).

In the second step the company’s owner which is the land owner allocates shares of the company to the contractor who’s a limited company, to build on the land. The importance’s of these actions are two:

• The allocating of the shares from the real estate union to the contractor is tax exempt and a part to a form that needs to be filed to the capital gain tax authority is not subject to any report.
• Dividing profits as dividends between the union and the contractor are also tax exempt (article 126 to the income tax directive).

The third step is having both the contractor and the union to found a new incorporated company that its shares will be divided according to the agreement.

The last step is the selling of the apartments by the joint company and dividing the profits according to the will of the partners.