Tax expert: Paying taxes when income too low

Vol XXXI: In 2003 we received notification from the Israel Tax Authority that they were closing our file because our income was too low to attract taxes. We heard recently, that even though our income is too low to pay taxes, we must submit an annual return. Is this correct?

By MIRIAM VILNER
tax88 (photo credit: )
tax88
(photo credit: )
For Red Tape resources click here. Miriam Vilner is a licenced CPA (Isr.), a member of the Institute for Certified Public Accountants in Israel and a qualified Arbitrator registered with the Ministry of Justice. She holds degrees from London University and the Weizman Institute Send us your questions >> * * *
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  • Volumes XXVII-XXVIII * * * Vol XXXI Q: On Dec 9th in the Yediot Archronot Newspaper Hebrew ed. There was an article called GD Bless America, which stated that Americans living in Israel could collect benefits from America for their children, such as Social Security Disability. When I contacted Social security I got two different answers, do you know anything on the subject? My son has PDD. A: Hi, thank you for your e-mail. 1. Regardless of PDD, you are entitled to $1,000 a year for each child under the age of 18. Our office deals with this on a regular basis. Our fee for filing the request is 790 NIS + V.A.T. The rights to this tax rebate is dependant on your income in Israel and does have limitations ehich may be the reason you received different replies. If you let me have further details as to your income and that of your wife, we will check it out for you (free). If you hurry, and supply me with all the information, we can claim back to 2004. 2. Regarding PDD, unfortunately, I am very experienced having two cases in the family. I am not certain whether you can claim any extra from the Social Security. I will get back to you with the answer. 3. PDD is recognised in Israel as autism and you arer entitled to tax benefits. We would be happy to prepare the tax return requests for you. Our fee for this is 15% of the return and we can file as from 2002-2007. However, please be informed that there is some paperwork involved that you will have to submit. Q: In 2003 we received notification from the Israel Tax Authority that they were closing our file because our income was too low to attract taxes. Up until that time, we had an accountant who submitted our tax returns annually on our behalf. Since then we have not submitted tax returns. We heard recently, that even though our income is too low to pay taxes, we must submit an annual return. Is this correct? A: Hi, thank you for your e-mail. Without seeing the letter you got from the Income tax Authority stating that your file is closed, I cannot give you an opinion. You can fax it to me at 050-8975934 (this is a fax - not telephone - don't talk send the fax.) What else did it say? If you had a business previously, there is usually a qualifaction that the file will only be finally closed after all the tax liabilities have been determined by an Income Tax auditor and paid. 2003 is not yet obsolete. As I said, it depends on the wording of the letter you got. Also look at the second letter you received at the place where it says "סוג תיק". If it's 9.8 the file is closed. If it's 9.6 it is nmot finally closed and you may receive a request to come to a meeting at the Income Tax office. IF YOU ARE ASKED TO COME, ON NO CONDITION GO ON YOUR OWN WITHOUT A PROFESSIONAL Send me both letters and call me the next day and I'll tell you what to do and where you stand. * * * Vol XXX Q: Hi Miriam. My parents, who live outside of Israel (they are not Israeli residents or citizens), have purchased a house off-plan here in Israel, and are making regular payments to the building company every few months. I am a permanent resident in Israel (aliya 4 years ago) and have their power of attorney to conduct all transactions and deal with all matters concerning the house. My parents periodically transfer the money to pay for the house itself and additional expenses into a bank account which I set up exclusively for the house project. So technically I am receiving large amounts into my account which I am then paying out immediately into the real estate accounts etc. Could this be a problem as far as the tax authority is concerned, since the money is touching a bank account in my name, even though the house is purchased exclusively in their names? How would I go about dealing with the tax authorities in this regard? Many thanks. A: Hi and thank you for your e-mail. Why should you have to deal with the tax authorities? Don't stir up trouble and let sleeping dogs lie. Having said that, I am not very conversant with the laws dealing with the transfer of large sums of foreign exchange. It may be that the Bank has to report these transfers, presumably to the Bank of Israel. They MAY - but I doubt it - transfer information to the tax authorities. The situation could possibly be questioned on the basis of money laundering rather than tax evasion, as it is transferred from parent to child. Money transferred within the family is completely tax-free. Parents can be as generous as they want and can afford to their children. Whether the money is to purchase an apartment in their own name or yours is irrelevant. However, it is important that you keep all documentation (for 10 years I would say) so that if it is ever questioned, you have no problem proving that the money comes from your parents. Q: I am a US citizen, take foreign earned income deduction for my Israeli salary and pay no tax to the US. I heard that I can get a credit of $1500 per child if I file differently. Is this true? A: Hi, thank you for your e-mail. If your earnings are in the defined limits, you can get a child allowance of $1100 per year. The forms required are different from those required from a US requesting a deduction on foreign earned income. Q: I have some US savings bonds that have been earning interest for 15 years, and I have deferred paying US income tax on them. If I redeem the bonds now, I will have to pay US tax on the interest earned. Will I also be liable for Israeli tax on the period that the bonds earned interested before I made aliyah? A: Hi, thank you for your e-mail. If you sell the bonds within 10 years of coming on Aliya and held them abroad before you came on Aliya, then you are exempt from Capital Gains Tax. Anyway, it doesn't matter, new Oleh or not, the tax paid in the US is deductible from your tax owed in Israel. You cannot get a tax return but you can set off the tax paid in the US against the tax owing in Israel. Since the tax rate in Israel on capital gains is 20%. The subject is irrelevant. Q: Hi Miriam,I made Aliya with my wife in 1994, and lived in Israel for only a year. We have been living in the UK since. We are returning next year to live permanently in Israel. I understand that as we have been out of Israel for more than 6 month our Tax Rights[Income from abroad 7 year Bank Interest Petach Account 20 years] are frozen, therefore i assume we have; Income from Abroad 6 Years Remaining Petach Account 19 Years Remaining. Can you confirm if this correct or not,if so do I need to obtain any Certification from either Tax or Ministry Office in Israel. I am in Israel now for a few days looking to buy a property, i hope you can to respond ASAP. A: Thank you for your e-mail. I hope someone can forward my reply if you have already left the country. I don't know where you got the concept of "freezing". All immigrant rights are as of the date when the Oleh first came on Aliya so you have run out of rights for allconcessions except the Patch for which you have another 7 years. However, you can claim to be returning residents who receive similar concessions to an Oleh. Your Patach may be free for a further 20 years but you must supply the bank with the necessary documentation. Passive income from abroad should be tax-free for a further five years on assets held before and after returning to Israel and you receive a 10 year exemption from capital gains tax - not on the stock market. You seem to be rather confused about returning , I don't know what you mean by "6 months" or 7 year bank interest. Q: I own houses in both Israel and America. I spend the majority of the time in Israel but I earn a consultant fee by an American company and earn some interest through savings in USA. Am I a resident in both countries? Do I have to file in both countries? What is the amount earned per year that requires you to need to file tax return in Israel? What is the deadline in Israel to file for the previous year? A: Thank you for your e-mail. In your case, it may be that you have to decide where you are a resident. If you are single, both authorities would probably accept any decision you make. Otherwise the residency of your family is critical to the decision. If you earn a living in Israel and the US consultant fee from an American company is a little extra pocket money, then you have to file a report in Israel AND the U.S.A.' where you will be able to claim exemption using the suitable forms. If your entire income is from the States and you have a house there AND your close family is there and not here, then you can claim non-residency in Israel and file only in the US. Officially, if you have income from abroad and are resident in Israel then you again have to file in both countries If you pay taxes in the States, these will be deducted from the Israeli taxes owing. Our office can help you with the necessary forms. Check us out at www.lesstax4u.co.il. Hit the English tab. * * * Vol XXIX Q: I know that tax points are primarily awarded on an individual basis. However, I was wondering if it is possible for me to receive the points my wife will receive (both for herself, our daughter, and for being an olah). Is it possible if her income is very low? What if she does not work at all? A: Hi and thank you for your e-mail I am afraid you are rather muddled. A new Oleh has rights for reductions on the tax he pays by receiving extra concessions. If your wife does not have a taxable income, then there is no tax to reduce. However, if she has a low income then we could check out whether it is worthwhile to file a tax rebate form and claiming חישוב מאוחדThis means both your incomes are lumped together and taxed as if you had earned both incomes. In this case you will receive tax reductions for a working wife and child but not an extra lot for your wife being an Oleh Hadash. If you wish contact me at the end of the year so that I can check out whether it is worth filing a tax rebate report Q: How does Israel define residency? What are the guidelines you mentioned in your answer the other day? A: There is no hard and fast definition of residency. If it came to an audit in Mas hachnasa (income tax), it would be up to the individual inspector who would check if you owned a residence in Israel, if you had a car here, where your close family resides(for example, if your children go to school here), if you have any Bank accounts here and so on. Q: I have recently inherited property and money in Israel from a close relative. I have currently been living in the USA for the past 30 years as a "yored". My son, who has not been to Israel and does not have any Israeli identification papers also inherited part of the inheritance, and as far as I'm aware he is considered an Israeli citizen as well due to my citizenship. What tax laws should we be aware of? A: Thank you for your e-mail. You and your son may be citizens of Israel, however, you are obviously not residents. There is no inheritance tax in Israel so any money inherited is not liable for tax. Since the property you inherited is located in Israel, you would be liable for Capital Gains Tax when you sell it. And here comes the catch, the profit will be calculated according to the original price of the property, not on the day you inherited it but the price first paid by the original owner. less depreciation. In fact it means that often all the proceeds from the sale are considered real (as opposed to inflationary) profit. This is the way the Israeli Income tax compensates themselves for the lack of inheritance tax. *** I have available a booklet on the new Tax Reform which outlines the various tax rates and exemptions for 150 NIS or $35. Miriam Vilner B.Sc. (Lond.), M.Sc., C.P.A. (Isr.) 03-5343727 050-4564049 Fax: 03-5345637 e-mail miriamcpa@012.net.il * * * Cafe Oleh experts have been chosen for their knowledge and reputation. Cafe Oleh does not take responsibility for any advice they offer. Click here to send us your questions for Miriam.
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