Vol XXXVII: I am a Canadian citizen considering aliyah. I receive a pension from various Canadian sources and US social security, I also do day trading and expect compensation for wrongful dismissal. Would all of the above be exempt from tax under the new legislation passed by the Knesset?
By MIRIAM VILNERFor 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 InstituteSend us your questions >> and please leave your comments on the Q&A below.
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Vol XXXVIIQ: I am a Canadian citizen considering aliyah and I am 1) receiving a pension from various Canadian sources in addition to US social security 2) engaged in active day trading with accounts in Canada, and not investing or trading Israeli securities 3) expecting to receive compensation for wrongful dismissal. Would all of the above be exempt from tax under the new legislation passed by the Knesset for the next 10-year period for olim from this day forward?
The online day trading (continuing to operate a business outside Israel)in $US stocks only, in a Canada-based account would, hopefully result in capital gains ... and there would not be any income from this activity. Does this not make a difference? Can one get advance rulings on tax issues in Israel?
A: Thank you for your e-mail.
Firstly, if you are "considering Aliyah" please remember that correct to date, the special laws giving new immigrants and veteran returning residents exemption from ALL incomes accrued outside Israel applies only to those who enter Israel between 01/01/2007 and 31/12/2009. Not "from this day forward". It might be extended but it also might not.
2. Social security is tax exempt in Israel.
3."Pensions from various sources" may be problematic and you would require professional advice concerning this. Pensions paid following an employer/employee relationship to which the employer contributed are not exempt (except for Olim in the above period) but the one receiving such pensions cannot be charged more tax in Israel than is liable abroad. This is wonderful for US citizens who can decide how much to pay per year but I don't know what the case is for Canadians. Re- the proviso that the pension was paid following the status of being an employee, it would obviously be easier to claim this if you had only one pension.
4.If you trade in Israel, even foreign shares and you use a computer based in Israel, this is considered an Israeli business and taxable as for any resident. In my personal opinion, the situation is arguable on the strength of income abroad being exempt for new immigrants in the required time period but this would probably mean going to court as the tax authorities would claim profits accrued from an Israeli based business. I have a client who plays poker from his home in Israel on a platform in Cyprus - he is liable for tax in Israel.
5. The compensation for wrongful dismissal would be considered a salary earned abroad. Again the time period is relevant. Today it's exempt. As from 01/01/2010, it might well not be. Never expect anything in Israel to be permanent.
6. As trading from here is an Israeli business, you would be required to file a report concerning day trading complete with a year's history of all your trades.
7. One could, in the past, ask for pre-ruling from the Tax Authority; I will find out for you if it is still possible
a. They will immediately claim that it is a business based in Israel and liable for tax here.
b. It costs a fortune - several thousand shekels to obtain a pre-ruling
c. I don't know whether they give them to anyone who is not a tax specialist: lawyer, CPA and tax advisor.
I can probably find out for you. But if you do this or I do it for you, you will spend a lot of money and be obliged to act according to their instructions.
8. Capital gains are not taxable but if you don't plan to take out the money, why do it? It's very risky. I, personally, attempted it after 3 courses using virtual money (Thank G-D it was virtual) and gave up after a virtual loss.
Q: I made aliyah on 25.05.05. I was told that my annuity from the UK would be exempt from Israeli tax for 5 years. I have, however, been taxed in full (up to the amount I would have paid in the UK) because, I am told, under the double taxation arrangements, my annuity will only be exempt from UK tax if it is subject to Israeli tax and "subject to" means tax is actually paid. This surely makes a mockery of the exemption I was promised and the new exemptions promised to new olim today - or have I been paying tax when I shouldn't have needed to pay anything?
A: Thank you for your e-mail however, nothing "makes a mockery of the exemption you were "promised" except the person who promised you this exemption.
1. Since you made Aliya in 2005, your annuity is not exempt, only '"passive income" such as rentals and savings interest would be exempt. Since I do not know exactly what you mean by "annuity", I cannot express an opinion on whether this could be considered "passive income".
2. All you were told about your tax liability is correct. According to paragraph 9C of the Income Tax ordinances (Israel) you cannot be charged more tax in Israel than your liability in England. And this is providing that the source of the pension is from a fund into which both employer and employee paid. But as I said, I don't know what your "annuity" constitutes. This happens to be a very useful paragraph for US citizens who can negotiate their tax payments.
I have one British client for whom we have successfully used this paragraph and he pays no tax in either country. I could discuss this with you if you care to arrange a meeting, please call me. I charge 300 NIS for the first hour of consultation.
3. The new exemptions do not apply to you since you did not come on aliyah between 01/01/07 and 31/12/09.
You have been paying tax according to the law. The mutual tax agreement between England and Israel is only in order to prevent double taxation in both countries, not to exempt anyone from all tax liabilities. Subject to paragraph 9C, you should be paying tax, however, as I said, we could sit together and see if there is a way around this.
For the time being, rest assured that you are not being cheated by anyone except the person who promised you an exemption.
I will have available, by the end of April, a revised version of my booklet Tax Reform 2003 A Guide for western Immigrants and returning Residents
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