Your Taxes: Filing extensions if you use a CPA

You get more time to file an annual tax return if you use an Israeli certified public accountant.

Money (photo credit: AP)
(photo credit: AP)
A feature of the Israeli tax system is that you get more time to file an annual tax return if you use an Israeli certified public accountant (CPA).
Is there a filing requirement? As explained in a previous column, not everyone has to file a tax return; for example, employees whose salary did not exceed NIS 599,000 in 2009 if the required tax was withheld at source and whose other income from investments was below certain prescribed amounts (depending on the type of income).
In addition, new and senior returning residents are exempt from Israeli tax and reporting obligations regarding non-Israeli source income and gains for 10 years after becoming Israeli resident. (Senior returning residents are individuals who lived abroad at least five years and returned to reside Israel in 2007-09, or lived abroad 10 years if they returned to Israel after 2009.) If you are required to file an annual return and in the year had business, employment or agricultural income, you must now file the return online as well as the old-fashioned way (on paper).
Tax circular On May 27, the Israel Tax Authority (ITA) published Circular 4/2010 containing rules for granting extensions for 2009 tax returns.
Initial deadline The initial deadline for filing 2009 annual tax returns has been extended to June 30 for: (1) individuals who file tax returns based on double-entry books; (2) individuals who must file online tax returns; (3) trusts. The initial deadline was extended to May 31 for individuals who are not required to file online tax returns and for those claiming “negative income tax” welfare payments. (This represents a one- to two-month relaxation over the deadlines prescribed by law).
Individuals who obtain an individual extension or an extension under the above rules must file by the date prescribed but no later than October 4.
Deadline if you use a CPA Alternatively, most accounting firms are allowed to spread out the filing of their clients’ tax returns over a longer period, without providing reasons, according to a special arrangement between the ITA and the Institute of Certified Public Accountants in Israel.
To enjoy the CPA arrangement, the taxpayer must sign a form allowing the CPA to represent him, and this must be registered with the ITA. This applies only to CPAs who are listed as your “primary representative.” Many businesses list their CPA as their primary representative and a bookkeeper as their secondary representative.
The CPA-related extensions depend on whether the CPA is linked electronically to a system known as Shaam – the ITA’s automated data-processing system. Merely filing online is not considered to be a Shaam CPA filing.
The CPA’s progress will be reviewed in January 2011 regarding individual clients and April 2011 regarding corporate clients. If they don’t meet their schedule, any subsequent filings will not be covered by the CPA-related extension program.
How much time can you gain? To qualify for CPA-related extensions, the CPA must stick to a schedule that specifies dates and percentages. The CPA must file a prescribed percentage of clients’ tax returns by each date; in this way, the filings are spread out. This is far more civilized than the painful US system, for example, of filing most annual tax returns by April 15.
Filing schedule For 2009 tax returns, here is the filing schedule for CPAs in Israel: • Individual clients – non-Shaam filings: 45 percent of client returns by June 30; 85% by July 29; 100% by August 31.
• Individual clients – Shaam filings: 15% of client filings by June 30; 35% by August 31; 100% by November 30.
• Corporate clients – non-Shaam filings: 30% of client filings by July 29; 70% by November 30; 100% by January 31, 2011.
• Corporate clients – Shaam filings: 20% of client filings by July 29; 50% by November 30; 100% by February 28, 2011.
If you go for a Shaam CPA filing, the directors/major shareholders can apply to the ITA to receive the same deadline as their company.
Capital declarations Capital declaration (hatsarat hon), if requested by the ITA: The deadline for filing capital declarations as of December 31, 2009, is the due date (generally 120 days after the request) or the date for filing the annual income tax return, whichever is later. This is unless the assessing officer decides otherwise.
As always, consult experienced tax advisors in each country at an early stage in specific cases. Leon Harris is an international tax specialist at Harris Consulting & Tax Ltd.