Until 2016, one of the sweeter forms of personal tax planning was to live in a company home.Suppose your company bought a home for NIS 5 million, lets you live in it and charges you a modest rent that saves you having to draw a salary of around NIS 10 million.New rules make major shareholders taxable on the entire capital amount if they enjoy the use of homes or certain other assets owned by their company commencing January 1, 2017. And the ITA has just issued not one but two circulars on all this.[email protected] The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.Who is affected? The new rules apply to any major shareholder with a 10%-or-more interest, alone or via relatives, in a public or private company in Israel or abroad.Which assets are affected? The new rules apply to the assets listed below if they are placed at the disposal of an individual (not corporate) shareholder or his relative (as defined) mainly for their private use, without being sold to them.First, a company home. This means a room or suite of rooms intended for residential use or for business or other purposes in Israel or abroad, owned or leased by the company, including contents as shown in the books of the company. Homes still under construction and vacation homes may be caught. Mainly for private use is taken to mean 51% of the floorspace is used privately.Second, works of art, jewelry, aircraft or boats owned by a company. Taxable event date: If the asset use is taxable, the taxable event occurs on December 31 at the end of the tax year, and increases are taxed each following year until the asset is returned to the company.Income classification: When a taxable event occurs, the income will be classified for tax purposes in the following sequence.First, as dividend if there are sufficient profits in the company at a tax rate for individual and a foreign investors of 30% to 33% generally, subject to any tax treaty.Second, as salary if there are employer-employee relations at tax rates of up to 50%.Third, as business income at tax rates of up to 50% for an individual and 24% for a company in 2017 (subject to any treaty). The company may deduct salary or business expenses recorded in the accounting records.How much is taxed under these rules? The amount taxed is the cost of the asset according to the company’s financial statements. In the case of a home, the amount taxed is the depreciated cost with deductions depreciation added back plus household contents.If the shareholder has a credit balance in the company, this may be offset against the cash withdrawal, and so may a promissory note issued to the shareholder with a term of up to five years. This assumes the company does not repay the credit balance to the shareholder within 18 months after the taxable event date; if it does, the offset is canceled and a new withdrawal is counted.An offset is also possible for a bank mortgage of three years or more obtained by a company to finance a home used by the shareholder. Comment: If the mortgage is paid down or the shareholder’s credit balance declines, we anticipate surprise tax bills.Interaction of different rules: The taxable event date for tax on the above assets is the end of the tax year. Until then, the use of the asset is taxed (not the asset itself) as a fringe benefit, being the higher of the market rent or a prescribed rate of interest, generally 3.41% per year at present.Anything paid by the shareholder for using the asset is deductible.Transitional rules – company homes Company assets other than homes may be taxed for the first time at the end of 2017.There are four options for pre-2017 company homes.First, return the home to the company by the end of 2018. Only the usage value is taxed from the beginning of 2017 until the end of 2018.Second, if the shareholder or his relative continues to use the home and pays tax on the entire capital amount at the end of 2018 and tax on the usage until then.Third, the company sells the home to the shareholder by the end of 2018 with all tax (except usage tax) deferred until an actual onward sale. Then the shareholder pays 25% to 50% tax.Fourth, the company sells the home to the shareholder, with immediate tax and usage tax due and a “stepup” of the cost to the taxed market value.Comments: These rules do not apply to a person who is not a major (10% or more) shareholder; other rules may apply to them.Where the rules do apply, they are incredibly complicated, with multiple taxes on usage, capital amount, actual sale and so forth.As always, consult experienced tax advisers in each country at an early stage in specific cases.