Tax expert: Inheritance from the US

Vol XXXIII: I am the executor for a will and live in the US. The will calls for a large distribution to be paid to a citizen of Israel. Will the benefactor need to claim the amount he/she is receiving on any tax form and pay tax?

tax88 (photo credit: )
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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 >> and please leave your comments on the Q&A below. * * *
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  • Volumes XXII-XXIII * * * Vol XXXIV Q: I was looking via the internet for a possibe solution the the questions below and found your column in the Post. I would like to know if you will be kind enough to answer the questions or direct me to someone who can. I am the executor for a will and live in the United States. The will calls for a large distribution (in excess of $30,000.00) to be paid to a citizen of Israel. I will be paying tax on the distribution to the United States Internal Revenue. My questions are: Is there currently an inheritance tax in Israel? A: No Will the benefactor need to claim the amount he/she is receiving on any tax form and pay tax? A: Not if it is an inheritance or gift from a member of the family If a check is issued and deposited in the bank, is there a certain deposit amount that "flags" the account for questioning? Should I issue two small checks? A: I'm afraid I don't know the answer to that. I wish I'd had that experience. The inheritor can just ask in the bank - they will give him the correct answer and won't report the question. You could also ask yourself at Bank Leumi or Poalim in the States. Q: I am an oleh (10 years). I have recently sold a property I owned in Australia. I have invested some of this money in products in an Australian bank. I work full-time in Israel. I have never submitted a tax return. I understand I need to submit a tax return in Australia and also declare this money to the Israeli authorities. Can you suggest someone who can help me prepare these applications? A: Thank you for your e-mail. Yes, you do have to declare your income in Australia in Israel. Also , sorry, but a number of negative comments: 1. After 10 years your new immigrant privileges are over. 2. IF no tax is deducted in Australia, you must submit a 6 monthly (in addition to the yearly report) to the Israeli tax authorities and pay a sum in advance for the final evaluation at the end of the year. The good news is that any tax paid in Australia will be deducted from your tax liability in Israel. We can prepare your Israeli reports but not the Australian ones ( we have a consultant for the US but not Australia.) I will however make enquiries for you. Q: I plan on making aliyah when I retire from the US Military (Unfortunately, I can't until 2019. It was a difficult decision to make, but I am 100% committed and am now making sure my future investments are set up well in advance). I have read and read and read though, and I still can't find a clear answer about my tax question. The way I understand, my military pension will only be taxed in the US, even after I become an Israeli Citizen, and it will never be taxed by Israel even after the 5 year exemption for New Olim, because it is from the US Government, not just an American company. Is this correct? The other part of my question is about an IRA. I currently (since 2005) have a Roth IRA. Will that be taxable in Israel when I withdraw it as an Israeli? If it is then I am paying taxes on the same money twice- now to the US and later to Israel. Would it make more sense to have a Traditional IRA and take the tax deduction now, then pay taxes to Israel when I withdraw it? What would be my American tax obligation, if any, when I withdraw it? Please help! It's so confusing! A: Thank you for your e-mail. I am afraid that I am an Israeli qualified C.P.A. and British-born so I do not know the ins and outs of IRA taxations. I have forwarded your question to our consultant on the IRS but it is his own decision whether he is prepared to answer e-mails. Re your pension. Whether from the Government or an ex-employer, if it was liable for tax in the US, it is liable for tax in Israel. (This means that Social Security is exempt) However, According to Paragraph 9C of the Income Tax Ordinances in Israel, you cannot be taxed more than you were taxed in the US which means no additional taxes so long as the pension was accrued from an employer/employee relationship. Again However, you are talking about 11 years ahead, who knows what the law will be then. Israel is the only country in the world where C.P.A.s have to take courses regularly to up-date on new laws, ordinances and regulations. Q: I have a client based in the US with a subsidiary in Tel Aviv. We are putting in place an executive benefit plan. My question is this. How are disability benefits taxed in Israel? Is it the same or similar as the US? In the US the tax treatment of the benefit is correlated to the tax treatment taken for paying the premium. Pay premium with pre-tax $ the benefit is taxable, pay with after tax $, the benefit is not taxable. Thank you in advance for your assistance. A: Thank you for your e-mail. Israeli laws are either original to Israel or based on British law not American. As far as I know there is no special law regarding disability pensions from the States in Israel. If they fall into the category of a pension paid following employer/employee relationship, then they cannot be further taxed in Israel over and above the tax in the US according to paragraph 9C of the Income tax Ordinances. If they are part of a US Government pension AND exempt in the US (such as Social Security) then they are also exempt in Israel. If none of these apply then I would assume that by default they are taxable. However, if the receiver of a disability pension appears before a National Insurance committee (Bituach Leumi) and is classified as having over 90% aggregate disability, not only will his pension from the States be exempt but large portions if not all of his total incomes. Q: When I signed up as an Osek Patur, I was told by the VAT clerk that I must have receipt books printed up at a printer or use special (Hadar publishing) books created especially for this. Well, those Hadar books have about 400 receipts and the least I could find so far to print would be 135 NIS for 50 receipts (2 books x 25). Since I am an Osek ZAIR, I expect to issue less that 50 receipts the whole year, possibly less than a dozen, and I would like to print and staple a booklet of my own, or print receipts as needed and keep scanned records. Not to mention that I might want to change the graphic design of my collateral. Does it make sense to require so much expense from an osek zair? Did I just get a clerk on a bad day? Also, is there any CPA who dares call him/herself an Osek Zair expert and will answer questions for prices relevant for the volume and business prices such an osek deals with? A: Thank you for your e-mail. The point of my column in the Jerusalem Post is to answer questions which are of general interest to the English speaking community especially new immigrants. To be quite honest your questions and suggestions are so naive that I don't think they can be of general interest but maybe there are others out there who don't realise that there are laws governing business reporting in Israel. 1. You are not an Osek Zair. This classification was annulled at least 5 yeas ago. 2. No. No C.P.A. will be prepared to charge for his services according to the clients business turnover. In fact the rules of etiquette for C.P.A. as laid down by the Certified Public Accountants Institute specifically forbid this. It is a punishable offence and so are all your other suggestions. 3. No. You cannot make your own rules for book-keeping. They are laid down by law. Law-breakers who are caught are punished and you could find yourself facing thousands of shekels in fines. You are obliged to open files with the Income Tax, Bituach Leumi and V.A.T. BEFORE starting business. Or to pay a professional to do this for you. You are obliged to have and issue receipts BEFORE you accept any payment. Your book-keeping obligations are laid down in the Income Tax Ordinances vol. 2 Every type of business has different requirements for book-keeping. All the books you use must be bound and numbered sequentially. You are not allowed to tear out pages. You must consult a professional to ascertain which books you are obliged to keep and how. And if you don't? One day you, as any other business, will be called into one or more of the authorities to show your books. If they do not conform to the law, they will be annulled, you will be fined PLUS they Income Tax or/and V.A.T. will have the right to make their own decision as to how much you actually earned. They will then charge you thousands of shekels in tax and you won't be able to refute their decision because you have no books - they were annulled. In addition, you have to report your earnings to the Income Tax every 2 months and Bituach Leumi once a month before the 15th or to pay a professional to do this for you. If you employ workers, extra reporting is required. The idea of stapling together receipts was really amusing. I could just the the typical Israeli business man sorting through his unbound receipts deciding which ones to staple and report and which to throw away. You could in principle print your own receipts in three copies, go to a bookbinder to bind them. But they must be numbered sequentially and contain all the details and information required by law. It would cost you more. There are receipt books in Office Depot, where you could fill in all the details but I would advise shopping around for a printer specialising in printing receipts and buy a book with 25 pages and 8-10 receipts on one page. Sorry but if 135 NIS is a big expense for you, you are going to find it difficult setting up in business, which always costs more than you expect. * * * 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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