New accelerated depreciation rules apply to equipment purchased in the prescribed period of June 1, 2008, to May 31, 2009, under the Income Tax Regulations (Accelerated Depreciation for Equipment purchased in the prescribed period) 2008. Under these regulations, depreciation can be claimed at a rate of 50 percent of the original price of equipment if certain conditions are met. The equipment must be put into service within six months after the date of purchase or by May 31, 2009, whichever is later. The taxpayer must be mainly engaged in the tax year in a qualifying activity of the taxpayer. A qualifying activity is any of the following: â€¢ Productive activity in Israel in the field of industry, software production and development, agriculture and construction; â€¢ Hotel operation in Israel. The following do not count as qualifying activities: packing, commerce, transportation, warehousing, communication services, sanitary services and personal services. The taxpayer's main income must NOT be from the sale of an asset, or a real-estate interest, or an interest in a real-estate entity (whose principal assets are Israeli real estate). The equipment must be depreciable for Israeli tax purposes. Equipment includes machines and work vehicles as defined in the Traffic Ordinance, except trucks. The equipment must be used by the taxpayer in generating income from the qualifying activity throughout the period from initial entry into service of the equipment until the end of the tax year for which the accelerated depreciation is claimed. The taxpayer must obtain a confirmation from his professional representative of compliance with the qualifying conditions. The equipment must not be purchased from a related party. The definition of a "related party" includes various family members, companies with 25% ownership connection and certain trusts. The "purchase" must not be merely a change of purpose (for example, turning inventory into a fixed asset) or a tax-deferred reorganization (merger, division or asset transfer). The benefit will not apply to a taxpayer who received a main or sublicense from the State of Israel, nor a taxpayers whose budget is 20% financed by the State of Israel in 2008, 2009 or 2010. Grants under the Encouragement of Capital Investments Law do not count for these purposes. Eligible taxpayers face an "all or nothing" choice - they must elect the accelerated depreciation for all or none of the equipment they acquire in the prescribed period. Example: Equipment is purchased on December 1, 2008, at a cost of NIS 1,200. If accelerated equipment is claimed in an applicable case, the depreciation will be: â€¢ 2008: NIS 1,200 x 50% x 1/12 = NIS 50; â€¢ 2009: NIS 1,200 x 50% x 12/12 = NIS 600; â€¢ 2009: NIS 1,200 x 50% x 11/12 = NIS 550. As always, consult experienced tax advisors in each country at an early stage in specific cases. email@example.com Leon Harris is an international tax partner at Ernst & Young Israel.