A "green" tax reform was approved by the Knesset Finance Committee on November 25. It includes provisions that will change the tax paid by individuals for the use of company cars (shovi shimush) for new cars registered on or after January 1, 2010. There will be no change for cars registered before then.
The car-usage value is a prescribed amount added to the salary of an employee for Israeli income-tax purposes if the employer makes a car (or other vehicle) available for the employee's use.
The prescribed usage value depends on the cost of the vehicle when it is new. Until now, there were seven price groups. The new regulations will be more precise and introduce something known as the "linear usage value" (shovi shimush lineari).
For 2010, the monthly linear usage value will be 2.04 percent if the price of the car is up to NIS 130,000 and 2.48% if the price is more. In 2011, the rate will probably be 2.5%, but if in the coming year there are major changes in car prices, the rate may be adjusted to between 2.43% and 2.6%. The upper price limit when calculating the linear usage value will be NIS 450,000.
Nevertheless, in the case of hybrid (gas-electric) cars registered before or after January 1, 2010, the usage value will be reduced by NIS 500.
There will also be adjustments to the rules to increase vehicle expense and depreciation deductions for driving-school teachers, taxi drivers, light public buses and pool vehicles, with retroactive effect from January 2008; this follows a promise previously given by the Israel Tax Authority to the Knesset Finance Committee.
So what does this mean in cash terms?
The Tax Authority published a comparative table of the old and new taxable car usage values for 2010. Following are some examples of the old and new taxable monthly car usage car values for certain new car prices:
â€¢ Car price NIS 100,000: old usage value NIS 2,340; new usage value NIS 2,040.
â€¢ Car price NIS 120,000: old usage value NIS 3,120; new usage value NIS 2,450.
â€¢ Car price NIS 150,000: old usage value NIS 3,770; new usage value NIS 3,720.
â€¢ Car price NIS 250,000: old usage value NIS 6,750; new usage value NIS 6,200.
Therefore, if a company car cost NIS 120,000 in 2010, the employee will be taxed on deemed income of NIS 2,450 - compared with NIS 3,120 if we register that shiny metal before 2009 - a difference of NIS 670.
For a top-rate taxpayer (up to 45% income tax in 2010, plus National Insurance Institute payment of up to 12.43% currently), the employee may enjoy a monthly tax saving of up to NIS 384 plus a NII reduction at various rates, depending on the circumstances. The effect for the employer should also be factored in.
If the car is a hybrid, the difference would rise to NIS 1,170 in this example, and the monthly tax saving could be up to NIS 671.
Note that the above figures are expressed in November 2009 terms, so some price changes are possible after then.
To sum up, the tax on the usage of cars provided by an employer to an employee gets better in 2010, especially if the car is a hybrid. But will this save the planet?
As always, consult experienced tax advisors in each country at an early stage in specific cases.