This week we witnessed in Israel two tax broadsides on the institution of marriage. First, in guidance from the Israel Tax Authority (ITA) on starting or stopping Israeli fiscal residency. Second, in a Supreme Court judgment on couples working in the family business.Starting or stopping Israeli fiscal residency On January 29, the ITA issued a circular on “Determining the date of ceasing to be Israeli resident and the date when a foreign resident becomes Israeli resident.”In general, the Income Tax Ordinance defines an Israeli resident is as an individual whose “center of living” is in Israel, taking into account the person’s family, economic and social links. A rebuttable presumption of Israeli residency will apply in either of the following circumstances: (1) the individual is present in Israel at least 183 days in a tax year ending December 31; or (2) the individual is present in Israel at least 30 days in the current tax year and 425 days cumulative in the current and two preceding tax years.All this is rather vague. The law does list a few extra factors to consider, such as: location of a permanent home; place of residence of the individual and his/her family; place where the individual regularly works or is employed; location of active and material economic interests; place where the individual is active in various organizations, associations or institutions; employment by certain official bodies.The circular tries to clarify things by citing 11 examples of residency tax rulings the ITA has issued. The circular is contradictory in places and reads like a series of anecdotes. Nevertheless, among the things it seems we can glean are: • If the wife and children live in Israel and the husband visits them for 125 days per year on average, he will be deemed Israeli resident, in order “not to facilitate the split of the family unit.”• But ex-wives need not trigger Israeli fiscal residency.• Also, hospitalization of a person in Israel will not in itself trigger Israeli fiscal residence for that person (under Israeli tax regulations). Nor will visits to Israel to care for other family members in a hospital, according to the circular.• If a person relocates for at least three years with his wife to a country that has a tax treaty with Israel, they may be treated as foreign residents in that period.• Israeli National Insurance Institute status is always a factor, but not always a decisive factor.Couples working in the family business A typical tax-planning technique around the world is “income splitting” – put your wife (or husband) on the family business payroll and let them receive a salary on which they pay tax at their own marginal tax rate, not yours.This does not work too well in Israel. In principle, Section 66 of the Income Tax Ordinance allows separate tax calculations for husband and wife.However, Section 66(d) only allows separate tax calculations “if the income of one spouse comes from an income source that is independent of the income source of the other spouse, and this is not the case if the income comes, among other things, from: (1) a business or profession of the other spouse; (2) a company in which the other spouse controls, directly or indirectly, a management right or 10 percent of the voting rights, unless... the recipient received such income at least a year before their marriage or five years before the other spouse acquired such rights; (3) a partnership in which the other spouse controls at least 10% of the capital or rights to profit.”Over the years, two out of three earlier District Court cases ruled that separate tax calculations are permissible if the taxpayer couple can prove the amount of income paid to each is based on arm’slength considerations – in terms of the amount and the necessity for the second spouse. However, the ITA appealed these decisions.Consequently, in an omnibus decision covering all three cases, (Malchieli, Shkori, Cohen, Civil Appeals 8114/09, 8297/09 and 1177/10, judgment dated February 1, 2012), the Supreme Court ruled in favor of the ITA.Its ruling said: “The clear language of the section does not leave room for any interpretation that the independence requirement is a requirement capable of rebuttal, even if there are weighty reasons for this.... Section 66(d) must be interpreted as prescribing that in every case in which the income of a couple is interdependent, a joint income calculation is needed, even if the amount of income is not based on tax considerations. The legislature did not allow taxpayers to dispel the absolute assumption prescribed in instances involving interdependent incomes, for reasons of administrative efficiency at the ITA, certainty, stability and consistency.”The Supreme Court judgment criticizes this situation, saying: “There is no need to add tax considerations to the list of reasons weakening the family unit.This so-called law does not match the reality of our times and will in various cases lead to discrimination against a married couple, by granting a tax benefit to an unmarried couple.”After pointing out the tax efficiency of living in sin, the Supreme Court concludes by saying: “Let us hope the legislature will reconsider whether the drafting of Section 66(d) is still desirable.”Note that another subsection, Section 66(e) of the Income Tax Ordinance, allows separate spousal tax calculations for income below NIS 48,960 (in 2012, approximately $13,000) earned over at least 36 hours per week for at least 10 months in the year. The Supreme Court derides this amount as being below the statutory minimum wage (currently NIS 4,100 per month for adults in 2012).To sum up Unfortunately, marriage is not always tax efficient. But it does have other redeeming qualities.As always, consult experienced tax advisers in each country at an early stage in specific email@example.com Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.