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PART FIVE: CAPITAL GAINS
Definitions
88. In this Part – 123
"means of control" in a body of persons – each of the following:
(1) the right to profits;
(2) the right to appoint a Director or General Manager of the company, or
holders of similar offices in other bodies of persons;
(3) the right to vote at the company's General Meetings, or in the
corresponding body of another body of persons;
(4) the right to a share of the balance of assets after debts have been paid
at liquidation;
(5) the right to instruct the holder of one of the rights said in paragraphs (1)
to (4) how to exercise that right;
all whether by virtue of shares, rights to shares or other rights, or in any
other
manner, including through voting or trusteeship agreements;
"substantive shareholder" – a person who directly or indirectly, alone or with
another, holds at least 10% of one or more categories whatsoever of the
means of control in a body of persons;
"together with another" – together with his relative, and also together with a
person who is not his relative, if they regularly – directly or indirectly –
cooperate by agreement on matters substantive to the body of persons.
"asset" – any property, real or movable, as well as any contingent or vested
right or benefit, all whether they are in Israel or abroad, except –
(1) movable property of an individual held by him for his personal use or the
personal use of members of his family or of his dependents;
(2) trading stock;
(3) a right of possession, whether in Law or in equity, of real estate used for
residential purposes, and not for earnings or profit;
(4) real estate rights and association rights, within their meaning in the Land
Appreciation Tax Law 5723-1963, the sale of which is chargeable with
Land Appreciation Tax or would have been so chargeable, if not for the
exemption under the said Law;
"depreciable asset" – an asset, for which a depreciation rate is set by
regulations under section 21 or in respect of which depreciation was allowed,
and which the assessee used for the purpose of producing income;
"trading stock" – within its meaning in section 85;
"index" – the consumer price index, as last published before the relevant date
on behalf of the Central Bureau of Statistics and – in respect of the period
before 1951 – the index determined by the Minister of Finance with the
Knesset Finance Committee's approval; however, if a person, while a foreign
resident, lawfully acquired any asset with foreign currency, then he may
request that the exchange rate of the currency for which the asset was
acquired be deemed the index; notwithstanding the aforesaid, in respect of a
security held by an individual, denominated in foreign currency or value linked
to a foreign currency, the currency exchange rate shall be deemed the index;
"determining date" – January 1, 2003;
"original cost" –
(1) for a purchased asset – the amount spent by the assessee on that
asset's acquisition;
(2) for an asset obtained by way of exchange – the consideration at the time
of the exchange;
(3) for an asset received by way of gift –
(a) before December 3, 1951 – the asset's value when the assessee
received it;
(b) from December 3, 1951 until March 31, 1968 – the balance of the
original cost of the asset when it was given as a gift by the last
acquirer who acquired it otherwise than as a gift, and for the 124
purposes of section 21, deduction of the depreciation shall be
allowed, as if the asset had not been given as a gift;
(c) on and after April 1, 1968 –
(1) if the asset was received as a gift not from a relative – the
consideration on the day of the sale, and the said amount of
consideration shall also be the original cost for purposes of
section 21;
(2) if the asset was received as a tax exempt gift under section
97(a)(4) or (5) – the balance of the asset's original cost
when it was given as a gift by the last acquirer who acquired
it otherwise than as a tax exempt gift, and for the purposes
of section 21 deduction of depreciation shall be allowed as if
the asset had not been given as a gift;
(4) for an asset received by inheritance – the asset's value on the day of the
testator's death; if the asset's value was determined for purposes of
inheritance tax, within its meaning in the Inheritance Tax Law 5709-
1949, then that shall be the value for this purpose; however, if the
testator died after March 31, 1981, then the value shall be that which
would have been determined if the testator had sold the asset; the said
value shall also be the original cost for purposes of section 21;
(5) for an asset that the assessee produced – the amount expended by the
assessee to produce the asset;
(6) for an asset which came to the assessee in any other way – the amount
expended by the assessee on the acquisition of that asset;
all with the addition of expenses incurred by the assessee for the asset's
improvement or maintenance from the day he acquired it until the day he sold
it, provided that they were not allowed to be deducted in the past in
calculating
the assessee's chargeable income (hereafter: improvement or maintenance
expenses, as the case may be);
"day of acquisition" – the day on which, in any manner whatsoever, the asset
came into the assessee's possession or on which the assessee became
entitled to it, whichever is earlier; however –
(1) if the asset came into the assessee's possession or the assessee
became entitled to it by way of a gift before April 1, 1968, or even
thereafter if the asset came into the assessee's possession by way of a
tax exempt gift under section 97(a)(4) or (5) – the day on which the asset
came into the possession of the last acquirer who acquired it not as a tax
exempt gift;
(2) if the asset came to the assessee by way of inheritance from a testator
who died after March 31, 1981, or by way of another person's
renunciation of his right to inherit from a said testator – the date that
would have been set as the date of acquisition, had the testator sold the
asset;
"depreciation" – the amounts deductible in respect of an asset under section
21, and also the amounts deducted from chargeable income in respect of the
original cost of the asset;
"balance of original cost" – the original cost of an asset after the amounts of
depreciation were subtracted from it;
"balance of adjusted original cost" – the balance of the original cost, not
including the balance of improvement expenses and half the balance of
maintenance expenses, multiplied by the index on the day of sale and divided
by the index on the day of acquisition, plus the balance of each improvement
expense multiplied by the index on the day of sale and divided by the index on
the day the improvement was finished; 125
"sale" – includes exchange, renunciation, disposition, transfer, grant, gift,
redemption and also any other act or occurrence in consequence of which the
asset passes out of the control of a person, all whether directly or indirectly,
but
exclusive of inheritance;
"security" – according to the definition of "securities" in the Securities Law,
including bonds or loans of the State of Israel or with its guaranty, bonds of
foreign states, units, oil prospecting participation units, motion picture
participation units, real estate association rights, securities issued abroad
and
also futures;
"commercial security" – according to the definition of "commercial securities"
in the Securities Law;
"future" – an undertaking or a right to deliver or to receive any of the
following:
differentials between foreign currency exchange rates, index differentials,
interest differentials, an asset or the price of an asset, all in the quantity,
in the
amount, at the time and on the conditions prescribed in the undertaking or in
the right, as the case may be, and also the sale of a security not yet acquired
by the seller;
"oil prospecting participation unit" and "motion picture participation unit"
– within their meaning in regulations under sections 20, 31 and 93, as the case
may be;
"consideration" – the price to be expected from the sale of an asset by a
willing seller to a willing buyer, the asset being free of any encumbrance
intended to secure a debt, of any mortgage and of any other right intended to
secure payment; however, if the Assessing Officer is satisfied that the price of
the asset was set in good faith and without being directly or indirectly
affected
by the existence of special relations between the seller and the buyer – and in
respect of real estate, also on condition that the sale was made in writing –
then the price set shall be the consideration; all less selling expenses
incurred
by the assessee in respect of that sale; when debentures or commercial
securities are redeemed, the linkage differentials shall be deemed part of the
consideration;
"relative" – each of the following:
(1) spouse, brother, sister, parent, parent's parent, offspring and spouse's
offspring, and the spouse of any of these;
(2) offspring of a brother or sister, and brother or sister of a parent;
(3) a body of persons controlled by a person or his relative, the person who
holds it and a body of person held by the person that holds it; for the
purposes of this definition: "holding" – direct or indirect, alone or with
another, of at least 25% of one or more categories whatsoever of means
of control;
(4) a trustee, as defined in section 75C, in respect of the creator of a
trusteeship of Israel residents or of a revocable trusteeship, as well as a
trustee for the beneficiary of a foreign resident beneficiary trusteeship or
in a trusteeship under a will;
however, in respect of a tax exemption under section 97 only those
enumerated in paragraphs (1) and (2) shall be deemed relatives;
"capital gain" – the amount by which the consideration exceeds the balance of
the original cost;
"inflationary amount" –
(1) the part of the capital gain that equals the amount by which the adjusted
balance of the original cost exceeds the balance of the original cost;
(2) and (3) repealed
"chargeable inflationary amount" – each of the following: 126
(1) repealed
(2) the amount that would have been deemed the inflationary amount, had
the asset been sold on December 31, 1993, the consideration being the
adjusted balance of the original cost;
"real capital gain" – the capital gain, less the inflationary amount;
"real capital gain up to the determining date" – real capital gain, multiplied
by the ratio between the period from the day of acquisition until the day before
the determining date and the period from the day of acquisition until the day of
the sale; the Minister of Finance may prescribe rules for rounding off the said
periods;
"balance of real capital gain" – the differential between the real capital gain
and the real capital gain up to the determining date;
"capital loss" – the amount by which the balance of the original cost exceeds
the consideration;
"real estate investment fund" – as defined in section 64A2;
"trust fund", "unit", "unit holder", "fund agreement" and "prospectus" –
within their meaning in the Joint Investment Trusts Law;
"chargeable trust fund" – a trust fund, in the fund agreement or in the
prospectus of which it was determined – by a determination that cannot be
changed– that it shall be a chargeable trust fund;
"exempt trust fund" – a trust fund, in the fund agreement or in the prospectus
of which it was determined – by a determination that cannot be change – that it
shall be an exempt trust fund.
How to deal with consideration and capital gain
89. (a) The consideration shall be treated like income under section 2, and a
capital gain like chargeable income, all mutatis mutandis as the case
may be, as long as there is no other explicit or implicit provision in this
Part or in Part Five "A".
(b) (1) An Israel resident is liable to tax on a capital gain accrued or
produced in Israel or abroad; for this purpose: "Israel resident" –
including an Israel citizen within its meaning in paragraphs (1), (3)
and (4) of the definition of "Israel citizen" in section 3A, who is a
resident of an area, as defined in the said section;
(2) a foreign resident is liable to tax on a capital gain accrued or
produced in Israel;
(3) in any of the following instances the place where a capital gain
was produced or accrued is Israel:
(a) the sold asset is in Israel;
(b) the sold asset is abroad and in essence it is a direct or
indirect right to an asset or to stock in trade, or it is an
indirect right to a real estate right or to an asset in a real
estate association located in Israel (in this section: the
property), in respect of the part of the consideration that
stems from the property located in Israel;
(c) a share or the right to a share in an Israel resident body of
persons;
(d) a right in a foreign resident body of persons, which in
essence is the owner of a direct or indirect right to property
located in Israel, in respect of that part of the consideration
that stems from the property located in Israel.
(c) If the profit from the sale of any asset may be liable to tax both under
Chapter One of Part Two and under this Part or Part Five "A", then it
shall be deemed liable to tax only under Chapter One of Part Two; the 127
Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe that certain sales of rights to an intangible asset
for periods he designated shall be classified as income under Chapter
One in Part Two, all on conditions that he shall prescribe.
(d) An amount received under a life insurance policy, the premiums for
which were not allowed as an expense under section 32(10), shall, after
the deduction of those premiums, be deemed chargeable with tax only
under this Part.
(e) Notwithstanding the provisions of subsection (c), linkage differentials
received upon the redemption of debentures or commercial securities,
from which income does not constitute income from a business or
vocation, shall be deemed liable to tax only under this Part.
90. Repealed
Tax on capital gain
91. (a) A body of persons shall be liable to companies tax on real capital gain
at
the rate at the rate prescribed in section 126(a).
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NOTE: Under section 74(1) of Amendment No. 147, the following
replaces the above
subsection (a) in tax years 2006 to 2009 – Tr.
(a) A body of persons shall be liable to tax on real capital gain at the rate of
25%; however, the capital gain from the sale of a security, within its
meaning in section 6 of the Inflationary Adjustments Law, as formulated
before its repeal in the Income Tax Ordinance Amendment Law
(Amendment No. 147) 5765-2005, other than a said capital gain by a
body of persons to which the provisions of section 6 of the Inflationary
Adjustments Law or provisions under section 130A did not apply before
the publication of that amendment, shall be charged tax at the rate
prescribed in section 126(a).
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(b) (1) An individual shall be liable to tax on a real capital gain
as said in
section 121, at a rate no greater than 20%, and the capital gain
shall be deemed the highest bracket of his chargeable income.
(2) Notwithstanding the provisions of paragraph (1), real capital gain
as said in section 121, upon the sale of securities in a body of
persons where the seller is an individual who was a substantive
shareholder when the shares were sold or at any time within
twelve months before the sale, shall be charged tax at a rate of no
more than 25%.
(3) (a) Notwithstanding the provisions of paragraphs (1) and (2),
capital gains from the sale of debentures, commercial
securities, State loans and loans that are not index linked,
shall be charged tax at a rate of no more than 15%, or 20%
in respect of a substantive shareholder, and all the capital
gain shall be deemed the highest bracket of his chargeable
income.
(b) The Minister of Finance may, by Order, change the tax rate
prescribed in subparagraph (a), in accordance with an index
change.
(c) For purposes of this paragraph: "not index linked" – their
nominal value or amount is not index linked, or is partly
linked to all or part of the rate of increase of the index, all up
to the redemption or repayment. 128
(b1) (1) Notwithstanding the provisions of subsection (b), in respect of an
asset, the day of acquisition of which was before the determining
date, other than an asset that is good will for the acquisition of
which nothing was paid, the real capital gain shall be charged tax
at the following rates:
(a) on the real capital gain up to the determining date – as said
in section 121;
(b) on the balance of the real capital gain – at the rate
prescribed in subsection (b)(1), (2) or (3), as the case may
be;
(1a) upon the sale of a security of which the date of acquisition was
before the determining date, for purposes of calculating the real
capital gain up to the determining date and of the balance of
capital gain, the real capital gain, after its reduction by the profits
available for distribution, calculated as said in section 94B, shall
be the real capital gain.
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NOTE: Under section 74(2) of Amendment No. 147, the following replaces the above
paragraph (1a) in tax years 2006 to 2009 – Tr.
(1a) notwithstanding the provisions of subsection (a), a body of persons
shall be liable to tax at the following rates in respect of an asset of
which the date of acquisition was before the determining date,
other than an asset that is a security within its meaning in that
subsection or an asset that is good will, for the acquisition of which
nothing was paid:
(1) on the real capital gain up to the determining date – at the
rate prescribed in section 126(a);
(2) on the balance of the real capital gain – at the rate of 25%;
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(2) For the purposes of this subsection, the capital gain shall be
deemed the highest bracket of the chargeable income.
(b2) Notwithstanding the provisions of subsections (a), (b) and (b1). upon the
sale of an oil prospecting participation unit or a motion picture
participation unit, part of the capital gain, in the amount of the depletion
allowance, in the amount of prospecting and development expenses or
in the amount of the motion picture production expenses, which were
allowed under regulations under sections 20, 31 and 98, as the case
may be, shall be charged tax as said in section 121 in respect of an
individual, and at the rate prescribed in section 126(a) in respect of a
body of persons.
(c) The tax on the chargeable inflationary amount shall be 10%.
(d) (1) When an asset has been sold, then within thirty days after the sale
the seller shall submit a return to the Assessing Officer on a form
prescribed by the Director, specifying the calculation of his capital
gain or capital loss and the tax calculation in respect of the said
sale, and he shall pay an advance in the amount of the tax that
applies to the profit under this section;
(2) If a return said in paragraph (1) was not submitted to the
Assessing Officer, and if the Assessing Officer concludes that a
certain person sold an asset and must pay an advance, then he
may demand that a return be submitted and the advance paid
within seven days after the demand, and if there is no response,
then he may determine the original cost of the sold asset, the
consideration received, and the amount of advance which the seller must pay in
respect of the capital gain; when the Assessing
Officer has determined as aforesaid, then the advance shall be
paid within seven days after the determination was served on the
seller.
(2a) If the Assessing Officer had reasonable cause to assume that the
advance which the seller must pay in respect of the capital gain is
at least 20% greater than the amount of advance specified in the
return submitted under the provisions of paragraphs (1) or (2),
then he may increase the amount of the advance by the amount of
the expected differential; when the Assessing Officer has
determined as aforesaid, then the differential shall be paid within
thirty days after he gave his decision.
(2b) A decision said in paragraphs (2) and (2a) shall be treated – in
respect of contestation and appeal – like an assessment under
section 145(b), but a decision under paragraph (2) can be
contested only by submitting the return said in paragraph (1).
(2c) (a) The provisions of this subsection shall not apply to capital
gain from the sale of a security, which is listed for trading on
an Exchange, or from a single sale, if – at the time of the
sale – capital gains tax was deducted under section 164.
(b) If the tax was not deducted as said in subparagraph (1) and
if the seller must file a return under section 131, then –
notwithstanding the provisions of paragraph (1) – the return
about the capital gain shall be submitted on July 31 and on
January 31 of each tax year in respect of securities sales
during the six months that precede the month in which the
reporting date occurs; when the said return is submitted as
aforesaid, the advance shall be paid in the amount of the tax
that applies to the capital gain under the provisions of this
Ordinance.
(c) The Minister of Finance may – with approval by the Knesset
Finance Committee – prescribe further instances to which
the obligation to report and to pay an advance as said in this
paragraph shall apply, both in respect of categories of
assets and in respect of categories of assessees, all with
prescribed adjustments, conditions and changes.
(2d) Notwithstanding the provisions of paragraph (1), upon the sale of a
share in a body of persons, the liquidation of which was begun
under section 93(a), the seller shall – within thirty days after
liquidation was begun – give the Assessing Officer notice of the
beginning of liquidation proceedings; if the liquidator transferred an
asset to a member of that body of persons, as said in that section,
then the member shall report his capital gain, as said in this
subsection, within thirty days after the asset was transferred to
him, and he shall pay tax at the rates prescribed in this section, as
the case may be, of the value of the asset transferred as
aforesaid; for purposes of this paragraph: "asset" – as defined in
section 93(b6).
(2e) If there is sufficient reason for doing so, the Assessing Officer may
extend the time for the payment of an advance, and he may also
postpone payment of the tax or reduce the amount of the advance,
if he concludes that there it is reasonable that the capital gains tax
will not apply or that the applicable tax will be in a different amount.
(3) If the assessee did not pay all or part of the advance said in 130
paragraphs (1) or (2) on time, or if he paid a said advance and it
subsequently is found that the tax due from him exceeds the tax
paid, then he shall – from the end of the said 30 days until the date
of payment –
(a) pay linkage differentials and interest, within their meaning in
section 159A(a), on the difference between the amount he
paid and the amount of tax due from him;
(b) repealed
(3a) If the assessee was obligated to pay an advance under section
48A of the Land Appreciation Tax Law, or if a self assessment or
final assessment was made for him under that Law, and if it is
found that the tax he owes is greater than the tax which he was
charged under the Land Appreciation Tax Law (hereafter: amount
due), then he shall have to pay linkage differentials and interest,
within their meaning in section 159A(a), on the difference between
the amount payable and the amount of tax he was obligated to
pay, from the end of the period prescribed in the Land
Appreciation Tax Law until the day of payment.
(4) If a person was obligated to pay linkage differentials and interest
and a fine under paragraph (3), then he shall not – in respect of
the same amounts and periods – be liable to the payments said in
sections 187 and 190.
(5) (a) If the assessee paid an advance said in paragraphs (1) or
(2) or the amount of tax to which he is liable under the Land
Appreciation Tax Law in excess of the amount due under
the return filed by him under section 131, then the balance
shall be refunded to him as provided in section 159A(b), with
the addition of linkage differentials and interest within their
meaning in section 159A(a) for the period from the day of
payment until the day of the refund.
(b) The provisions of section 159A(c) and (d) and of section 160
shall not apply to a refund said in subparagraph (a).
(6) An amount deducted under sections 93(b4), 164 and 170 in
respect of capital gains, shall be deemed a payment on account of
the advance which the assessee must pay and he may set it off
against the advance, on condition that he holds written certification
of the deduction; however, a set-off against tax, to which a
substantive shareholder is liable, shall be carried out only after the
deducted amount was paid to the Assessing Officer, except when
the substantive shareholder holds less than 50% of a certain
category of means of control and he proved to the Assessing
Officer's satisfaction that he did not know that the deducted
amount had not been paid to the Assessing Officer, or that he took
all reasonable steps to assure the payment.
(e) (1) On the assessee's application, tax on a real capital gain shall be
calculated as if the profit had accrued in equal annual installments
over a period of not more than four tax years or over the period in
which he owned the asset, whichever is shorter, ending with the
year in which the profit accrued; however, in order to determine the
advances under sections 174 to 181, the income in each year of
the said period shall be deemed to have been increased by the
annual installment; the tax calculation shall take into account the
tax rate prescribed in subsection (b), and in respect of
Appreciation Tax – take into account the tax rate prescribed in 131
section 48A(2) of the Real Estate Taxation Law, and also taking
into account the tax rates that apply to the assessee's overall
chargeable income and the balance of credit points to which the
assessee is entitled in each of the tax years during the said period;
for the purposes of this section, "period of ownership of the
asset" – the period that began at the beginning of the tax year
after the tax year in which the asset came into the assessee's
possession and ended at the end of the tax year in which the asset
left his possession.
(2) If an asset is sold and the day of its acquisition was before the
determining date or if a real estate right is sold or a real estate
association act is carried out and the acquisition date of the real
estate right or of the right in the real estate association, as the
case may be, was before the initial day, then the provisions of
paragraph (1) shall apply with the following changes:
(a) the real capital gain up to the determining date and the
balance of real capital gain, or the real appreciation up to the
initial date and the balance of the real appreciation, as the
case may be, shall be calculated as they would have been
calculated, if the assessee had not submitted the application
said in paragraph (1);
(b) the tax calculation shall take into account the tax rates
prescribed in subsection (b1) or in section 48A(b1) of the
Real Estate Taxation Law, as the case may be, and it shall
also take into account the tax rates that apply to all of the
assessee=s income and the balance of credit points to
which he is entitled, as said in paragraph (1);
(c) in this subsection, Areal estate right@, Areal estate
association right@, "initial day", Aappreciation tax@, Areal
appreciation up the initial day@ and Abalance of real
appreciation@ – as defined in the Real Estate Taxation
Law.
(f) (1) In respect of an asset acquired until tax year 1948, tax shall not
exceed 12% of the capital gain, and in respect of an asset
acquired in tax years 1949 to 1960 tax shall not exceed 12% of the
capital gain, plus 1% for each year from tax year 1949 until the
year of acquisition.
(2) Beginning with tax year 2005, the tax rate said in subparagraph (1)
shall be increased by 1% for every tax year or part thereof, but if
the tax rate on capital gains in the year of the sale under the
provisions of this subsection exceeds the rates prescribed in
subsection (a) or (b)(1) or (2), as the case may be, then the capital
gain shall be charged at the rates under the provisions of
subsections (a) or (b)(1) or (2), as the case may be.
(g) The tax on a capital gain upon the expropriation of any asset shall be
half of the tax due according to subsections (a) to (f).
(h) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe that – in respect of special occurrences or special
circumstances under which assets were transferred between controlling
members or linked parties – the tax rates said in sections 121 or 126
shall apply, as the case may be, notwithstanding the provisions of this
section. 132
Set off of capital loss
92. (a) (1) The amount of capital loss suffered by a person in a given tax
year, which – had it been a capital gain – would have been
chargeable with tax, shall be set off first against the real capital
gain, and every new shekel of the balance shall be set off against
NS3.50 of the chargeable inflationary amount; for this purpose,
appreciation and loss shall be taken within their meaning in the
Real Estate Taxation Law 5723-1963, as if they were a capital
gain or a capital loss, as the case may be.
(2) repealed
(3) If a person incurred a capital loss from the sale of an asset abroad
which – had it been a profit would have been liable to tax in Israel
– then the provisions of paragraph (1) shall apply to it, but the
capital loss from the said asset shall first be set off against a
capital gain from abroad.
(4) If a person incurred a capital loss from the sale of a security during
the tax year, then the provisions of paragraphs (1) or (3) shall
apply to him, as the case may be, but the capital loss shall also be
set off against the following:
(a) interest or dividend income paid in respect of that security;
(b) interest or dividend income in respect of other securities, on
condition that the tax rate applicable to the interest or
dividends received by that person not exceed 25%;
(5) expenses in respect of securities, as the Minister of Finance
determined with approval by the Knesset Finance Committee,
which were not deducted during the tax year, shall for this purpose
be treated like capital losses from securities.
(b) An amount that wholly or partly cannot be set off in a certain tax year, as
said in subsection (a), shall be set off only against capital gain, as said in
subsection (a), during the tax years that follow the year – one after the
other – in which the loss was incurred, on condition that a return for the
year in which the loss occurred was submitted to the Assessing Officer,
as said in sections 131 and 132; if the amount that could not be set off is
the loss from the sale of an asset abroad, then the loss shall first be set
off against capital gains from the sale of assets abroad.
(c) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe provisions for the implementation of this section
and provisions on returns and on ways of proving aforesaid losses, and
he may also prescribe provisions to restrict the set off of some or all
losses from the sale of securities, or prohibit said set-offs, prescribe the
order in which losses are set off and profits are related, as well as ways
of proving and provisions for the implementation of this section.
Capital gain in body of persons that was wound up
93. (a) The following provisions shall apply to a body of persons, winding up of
which has begun:
(1) profit from the sale of an asset by the liquidator shall be deemed
a taxable capital gain of that body of persons;
(2) if the sale is by way of the liquidator transferring an asset from
the body of persons to its member, then the consideration shall
be taken to be as it was on the day of sale;
(3) shares or other rights of a member in that body of persons shall
be deemed to have been sold, and the assets received by that member from the
liquidator shall be deemed the consideration for
the said shares or rights;
(4) capital gain in respect of a member of that body of persons shall
be calculated after all the assets have been distributed; however,
if distribution is not completed within two years after the day on
which winding up began, then the assets shall be deemed to
have been distributed at the end of that period, but the Director
may extend the period if it is proved to his satisfaction that
distribution was not completed for a reasonable cause.
(b) repealed
(b1) The provisions of this section shall also apply to the liquidation of a
real
estate association.
(b2) If there was a tax exempt transfer of real estate from the liquidator to a
member under the provisions of section 71 of the Real Estate Taxation
Law, then the following provisions shall apply:
(1) the original cost of the shares shall be deemed the original cost,
less the original cost multiplied by the ratio of the value of the real
estate right or of the association right, as the case may be, the
sale of which was exempt of tax, to the amount obtained by
adding the consideration received as said in section 93(a)(3) and
the value of the real estate right or of the association right, the
sale of which was exempt of tax, as it was on the day on which
liquidation of the association began;
(2) for purposes of the provisions of section 94B of the Ordinance,
the profits available for distribution – as defined in that section –
shall be reduced by an amount equal to the additional profit, as it
would have been if the real estate right had been sold on the day
on which liquidation of the association began, on condition that
the said additional profit is a positive amount;
(b3) in respect of subsections (b1) and (b2), every term shall have the
meaning it has in the Real Estate Taxation Law, including section 71A
there, unless a different meaning is explicitly provided;
(b4) a liquidator who transferred an asset of a body of persons, liquidation of
which began, to a member thereof shall deduct from it – at the time of
the transfer – tax at the following percentage of the asset's value:
(1) if the asset was transferred to a member that is a body of
persons – at the rate said in section 91(a);
(2) if the asset was transferred to a member who was an individual
substantive shareholder in the body of persons when the
liquidation began or at any time within twelve months before that
date – at the rate of 25%;
(3) if the asset was transferred to a member who is an individual for
whom the conditions said in paragraph (2) do not hold true – at
the rate of 20%;
unless the Assessing Officer certified in writing that no tax be deducted,
or tax at a lower rate than the aforesaid rates.
(b5) The tax said in subsection (b4) shall be paid to the Assessing Officer
within seven days after the asset was transferred to the member; a
return about the transferred asset and about the deducted tax shall be
attached to the payment; within the said period the liquidator shall
transmit to the member certification of the deduction on a form 134
prescribed by the Director.
(b6) For the purposes of subsections (a)(2) to (4), (b4) and (b5): "asset" –
any property, real or movable, as well as any vested or prospective right
or benefit, all whether in Israel or abroad, other than a real estate right
or a real estate association right transferred to the member exempt of
tax under section 71(a) of the Real Estate Taxation Law.
(c) The Minister of Finance may – with approval by the Knesset Finance
Committee – prescribe special provisions on the definition of "asset"
and "consideration", and he may also determine that this section apply
to the winding up of real estate associations, as defined in the Real
Estate Taxation Law, and the adjustments made necessary by
aforesaid determinations.
Special provisions on liquidations in tax year 2003
93A. (a) The provisions of section 93 shall not apply to the voluntary
liquidation
of a company, which began and was concluded in tax year 2003, and
the sale of assets or activities shall not be charged tax under this
Ordinance or under the Inflationary Adjustments Law, as the case may
be, if all the following hold true:
(1) the company was formed during a period from tax year 2002 until
June 1, 2003, or it was formed before the said period, but had no
assets, activity, income, expenses or losses before that period;
(2) the company was formed by an individual who has income from
an vocation as said in section 2(1) or from employment as said in
section 2(2) (in this section: service provider) and who is the
controlling member of that company;
(3) the activity of the service provider was transferred to the
company, and if assets or real estate rights, as defined in the
Real Estate Taxation Law, were also transferred, then their
purpose was not changed in the course of the transfer;
(4) the sale of the assets or activities is a sale without consideration
to those shareholders, from whom the assets or activities were
transferred to the company in accordance with their proportional
share in the rights in the company, and their purpose was not
changed in course of the sale;
(5) the company and the shareholders requested that the provisions
of this section apply to the liquidation proceedings;
(6) in the course of the liquidation proceedings all profits available for
distribution, all surpluses and all amounts of money left in the
company (in this section: surpluses) were paid to the
shareholders, all as the Minister of Finance prescribed with
approval by the Knesset Finance Committee and they were
charged tax for the shareholders under sections 2(1) or 2(2);
(7) other conditions, restrictions and adjustments prescribed by the
Minister of Finance with approval by the Knesset Finance
Committee.
(b) Notwithstanding the provisions of Chapter Three in Part Five "B", a
liquidation to which the provisions of this section apply shall not be
deemed a violation of the conditions set there.
(c) The Director may approve application of provisions under this section to
the voluntary liquidation of a company, even if it was concluded after
tax year 2003, on condition that the conditions in subsection (a) and the
following two conditions were met:
(1) the company did not have any income after tax year 2003; 135
(2) all assets and activities of the company were sold to the
shareholders, as said in subsection (a)(4), by the end of tax year
2003, and all the surpluses said in subsection (a)(6) were paid to
them.
(d) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe provisions for the implementation of this section,
as well as conditions and adjustments, inter alia in respect of original
cost, the day of acquisition, setting off losses, calculation of the
surpluses and calculation of capital gains, and he may also prescribe
that – against the tax on the surpluses – credit shall be allowed on the
tax paid by the company, if it had a loss that stems from the surpluses
and can be carried forward to tax year 2004, all on conditions set by the
Minister of Finance and on condition that no credit be allowed that is
greater than the applicable amount of tax.
Bonus shares and option certificates
94. (a) When a person sells bonus shares allotted to him or the shares on
which the bonus shares were allotted (hereafter: principal shares), then
the following provisions shall apply:
(1) a bonus share shall be treated as if it had been acquired on the
day on which the principal share was acquired;
(2) the original cost of a single bonus share or a single principal
share shall be an amount proportional to the original cost of the
total of bonus shares and principal shares, in the ratio of the
nominal value of that individual share to the nominal value of the
total of those shares.
The provisions of this subsection shall apply, mutatis mutandis, to units
of a joint investment trust fund, within its meaning in the Joint
Investment Trusts Law.
(b) repealed
(c) If a person sold an option certificate in a company, the securities of
which are not listed for trading on an Exchange, or if he sold the shares
which he obtained by way of realizing the option certificate, then the
Minister of Finance shall determine, by regulations with approval by the
Knesset Finance Committee, the original cost and the acquisition date
of the securities by virtue of which the option certificate was allotted, of
the option certificate and of the securities obtained by realizing the
option certificate.
(d) In this section –
"option certificate" – a security that entitles its owner to acquire shares
issued by a company against a realization supplement, at a price or on
terms prescribed in the option certificate;
"bonus shares" – including the bonus component in rights allocations or
in shares that stem from aforesaid rights.
(e) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe rules for calculating the amount of the bonus
component.
Sale of loan together with shares
94A. If an unlinked interest free loan is sold at least three years after a
shareholder
extended it to the company, together with shares or other rights which he has
in that company, then the consideration for the loan shall be taken to be that
part of the total consideration for shares and loan, as is equal to the adjusted
balance of the original cost of the loan; a capital loss from the sale of
shares, 136
due to the aforesaid calculation, shall be set off, shekel for shekel, against
the
capital gain from the loan.
Profits available for distribution
94B. (a) When the share of a company, the shares of which are not listed for
trading on an Exchange, is sold by an individual and the day of
acquisition of the shares was before the determining date, or by a body
of persons, then the following provisions shall apply:
(1) the tax rate on the part of the real capital gain that equals part of
the profits available for distribution, in the proportion of the
seller's part of the right to profits in the company to all rights to
profits in the company, shall be the tax rate that would have
applied to them under sections 125B or 126(b), as the case may
be, if they had been received as dividends immediately before the
sale.
(2) Notwithstanding the provisions of paragraph (1), the tax rate on
the real capital gain that equals the part of the profits available for
distribution – as said in paragraph (1) – until the determining date
shall be 10%; for purposes of this section: "the profits available
for distribution until the determining date" – the amount that
would have been deemed profits available for distribution, if the
share had been sold on the determining date.
(a1) The provisions of subsection (a) shall apply, mutatis mutandis, to the
sale of a share in a company, the shares of which are listed for trading
on an Exchange, on condition that – on the date of the sale or on any
date within the preceding twelve months – the seller of the share was a
substantive shareholder in the company the shares of which are being
sold.
(b) For purposes of subsection (a):
(1) "profits available for distribution" – aforesaid profits
accumulated by the company from the end of the tax year before
the year in which the share was acquired, until the end of the tax
year before the year in which it was sold, and in the case of
winding up – until the day on which winding up procedures are
concluded, on condition that aforesaid profits available for
distribution, which accrued before January 1, 1996, not be taken
into account, all according to the company's balance sheet at the
end of the tax year before the year of sale or before the day on
which winding up began, as the case may be, including profits
that were capitalized; however, amounts accumulated in a capital
stabilization fund, within its meaning in section 53K of the
Encouragement of Capital Investments Law 5719-1959, or
amounts that were deductible under section 53Q of the said Law,
or aforesaid profits in a cooperative society in those years, in
which sections 56, 57, 61 and 62 applied to the calculation of its
income and those profits were included in the balance of the
original cost, shall not be deemed profits available for distribution,
and the amount of profits available for distribution shall not
exceed the amount of profits that were chargeable with tax –
including Land Appreciation Tax – during the said period, less the
tax on them and less dividends distributed out of them and with
the deduction of any loss created and not set off in the company
the shares of which are being sold, and with the addition of profits
that would have been chargeable with tax as aforesaid, had they 137
not been exempted;
(2) an increase – within the two years that preceded the sale – of the
part of the seller of the share in rights to the company's profits
shall not be taken into account.
(c) The provisions of subsection (a) shall apply, if the seller submitted to
the Assessing Officer a calculation that shows the profits available for
distribution, as said in subsection (b).
Deduction of dividends
94C When a share is sold by a body of persons, then the amount of capital loss
due to the sale of the share shall be reduced by the amount of dividends,
which the body of person received in respect of the share during the 24
months before the sale, but not by more than the amount of the loss; for this
purpose:
"dividend" – other than a dividend on which tax was paid at a rate of 15% or
more;
"tax" – other than tax paid abroad.
Redemption of share in a cooperative society
94D. (a) When the share of a member in a cooperative society is redeemed by
the society at the society member's retirement after 25 years of work or
membership in the society, or when the member retires because of his
loss of working ability or at his death, and if the day of its acquisition
was before the determining date, then the following provisions shall
apply:
(1) the redemption amount, multiplied by the ratio of the number of
months from the acquisition of the share until the determining
date to the number of months from the acquisition of the share
until the redemption day (in this section: the exemption period
ratio) shall be tax exempt up to an amount of NS317,000 (in 2003
to 2008 – Tr.), and the balance of the redemption amount shall
be chargeable to tax;
(2) the original cost of the balance of the redemption amount, less
the original cost multiplied by the exemption period ratio, shall be
the original cost;
(3) the day on which the share was acquired shall be the day of
acquisition of the balance of the redemption amount; however, if
the amount exempt under subparagraph (1), less the adjusted
original cost of the share, is less than NS 317,000 (in 2003 to
2008 – Tr.), then the day of acquisition or the first day of tax year
1961, whichever was later, shall be the day of acquisition.
(b) For the purposes of this section: "cooperative society" – a society
registered under the Cooperative Societies Ordinance, which in
accordance with its objectives operates in one of the following spheres:
transportation, haulage, production or services.
Capital gain from the sale for shares in a company
95. (a) If one or more persons derive a capital gain from the sale of an asset
to
a company only against shares in that company, then that profit shall
not be charged with tax if, immediately after the sale, the seller or
sellers hold at least 90% of the voting power in that company.
(b) When the asset acquired by a company as said in subsection (a) is
sold, and also when the shares received by the seller for the said asset
are sold, then the balance of the original cost of that asset for the seller 138
said in subsection (a) shall be their original cost, and the date on which
it was acquired by the person who sold it to the company shall be the
date of the asset's acquisition.
(c) This section shall apply to a capital gain obtained by one or several
persons from an asset sold up to January 1, 1994.
Capital gain from asset for which a depreciation rate was set
96. If a capital gain accrued to an assessee from the sale of a depreciable
asset
and if – within twelve months after or four months before the day of its sale –
he acquired another asset to replace the sold asset at a price that exceeds
the balance of the original cost of the sold asset, then the assessee may
claim that only the amount by which the consideration received for the sold
asset exceeds the price of the acquired asset be deemed a capital gain and
he may do so in respect of the entire capital gain or only in respect of the
real
capital gain; when he has done so, the original cost – for purposes of
calculating the capital gain on the acquired asset when that is sold, and of the
amount of depreciation allowed on it under section 21 – shall be reduced by
any amount of capital gain which accrued to him upon the previous sale and
which was not charged with tax because of the assessee's claim; the tax
rates prescribed in sections 121 or 126, as the case may be, shall apply to
the amount reduced as aforesaid, which equals the capital gain partly
accrued before the determining date; for the purposes of this section: "part of
the capital gain accrued before the determining date" – part of the capital
gain, the ratio of which to the total capital gain is as is the ratio of the
period
between the day of acquisition and the determining date to the period
between the day of acquisition and the day of the sale.
Tax exemption
97. (a) A capital gain shall be exempt of tax if it arises out of
one of the
following –
(1) the sale of a debenture that is not convertible into a share and is
traded on an Exchange in Israel, on condition that the debenture
was issued before May 8, 2000, and was listed for trading on an
Exchange in Israel before the determining date;
(2) the sale of a debenture or of a loan certificate issued or
guaranteed by the State, on condition that it was issued before
May 8, 2000;
(3) repealed
(4) a gift to the State, to a local authority, to the Keren Kayemet
Le-Yisrael, to the Keren Hayessod – United Jewish Appeal for Israel,
or to a public institution, within its meaning in section 9(2);
(5) a gift to a relative, as well as a gift to another individual,
if the
Assessing Officer is satisfied that the gift was made in good faith
and on condition that the recipient of the gift is not a foreign
resident;
(6) repealed
(7) an individual's capital gain from the sale or redemption of a unit in
a chargeable trust fund.
(b) (1) An individual became an Israel resident for the first time and a
veteran returning resident, as said in section 14(a), shall be
exempt of tax on the capital gain from the sale of any asset he
had abroad, if he sells it within ten years after the day on which
he became an Israel resident; for this purpose: "asset" – other
than an asset received by the individual fully exempt of tax under
subsection (a)(5) on or after January 1, 2007. 139
(2) A returning resident, as defined in section 14(c)is exempt of tax
on capital gains from the sale of assets he acquired abroad while
he was a foreign resident, if the asset – including the right or the
right in a foreign resident body of persons – is not a direct or
indirect right to an asset located in Israel, all if he sold it within ten
years after the day on which he became a returning resident; for
this purpose, "asset" – including assets abroad that are benefited
securities, as defined in section 14(c).
(3) If the asset said in paragraphs (1) and (2) was sold after ten
years had passed since the day on which the individual became
an Israel resident as said in those paragraphs, then the part of
the real capital gain until the end of the exemption period is tax
exempt, and the balance of the capital gain is liable to tax at the
rate prescribed in section 91(b); for this purpose: "part of the
real capital gain until the end of the exemption period" – the
real capital gain, multiplied by the ratio between the period from
the day of acquisition until ten years after he became an Israel
resident and the period between the day of acquisition until the
day of sale.
(b1) repealed
(b2) A foreign resident is exempt of tax on capital gains from the sale of
securities traded on an Exchange in Israel, if the capital gain is not in
his permanent enterprise in Israel; if the day of acquisition of the
security was before the day on which it was listed for trading on an
Exchange, and if – had it been sold before the said listing – the foreign
resident would not have been entitled to an exemption under
subsection (b3), then the part of the capital gain that would have
accrued if the security had been sold on the day before it was listed for
trading on the Exchange and not more than the amount of the capital
gain on the day on which the security was sold shall be charged tax at
the rate prescribed in section 91, on condition that its value on the day
of its listing is greater than its value on the day of its acquisition and
that the consideration on the day of its sale is greater than its value on
the day of its acquisition; the provision of this section shall not apply to
the capital gain from the sale of a share in a real estate investment
fund.
(b3) (1) A foreign resident is exempt of tax on the capital gain he earned
upon the sale of the security of an Israel resident company, or
upon the sale of a right in a foreign resident body of persons, the
main assets of which are rights, direct or indirect, in assets
located in Israel, if all the following hold true:
(a) the capital gain is not in his permanent enterprise in Israel;
(b) repealed
(c) the security was not acquired from a relative and the
provisions of Part Five "B", or the provisions of section 70
of the Real Estate Taxation Law did not apply to it;
(d) repealed
(e) repealed
(f) at the time of the sale the security is not traded on an
Exchange in Israel
(2) The provisions of paragraph (1) shall not apply to the capital gain
from the sale of the security of a company, if – on the day of its
acquisition and during two years before its sale – most of the
assets it directly or indirectly held were real estate rights or real 140
estate association rights.
(3) The provisions of this subsection shall also apply, mutatis
mutandis, to an individual who became an Israel resident for the
first time or who is a returning veteran resident, as said in section
14(a), provided that he was a foreign resident when on the date
of acquisition of the security, and the provisions of subsection (b)
shall apply to the matter of capital gain, as if the security were an
asset he had abroad before he became an aforesaid Israel
resident.
(4) The Minister of Finance may – with approval by the Knesset
Finance Committee – prescribe conditions, restrictions and
provisions for purposes of this section.
(c) Repealed
(c1) The Minister of Finance may, by Order with approval by the Knesset
Finance Committee, exempt of the payment of tax, in whole or in part, a
capital gain that is one of the following:
(1) a capital gain derived from certain types of transactions, on
condition that they are not with assets traded or listed for trading
on an Exchange or on an organized market, or in respect of
assets traded or listed for trading as aforesaid;
(2) a capital gain from the sale of a debenture convertible into a
share that is traded or listed for trading on an Exchange or on an
organized market in Israel or abroad, either in general or for
categories of assessees, all on conditions he shall prescribe.
Method of calculating capital gain
98. Notwithstanding the provisions of this Part, the Minister of Finance may, by
regulations, prescribe the method of calculating capital gains, both in general
and for the purpose of deduction at the source, provided that such a general
prescription requires approval by the Knesset Finance Committee.
98A. Repealed
Demand for information
99. The Director may require of a banking institution, within its meaning in the
Bank of Israel Law 5714-1954, of a person whose business or part of whose
business is trading in securities on behalf of other persons, or of a person
who holds securities in his own name for others, that they deliver to him full
particulars on the aforesaid trade in or the said holding of securities.
Transfer of an asset to trading stock
100. When the Assessing Officer is satisfied that a person transferred an asset
that he owns to his business as trading stock, or that he converted a fixed
asset in his business into trading stock in his business (hereafter in this
section: transfer), then the following provisions shall apply:
(1) if four years passed between the day on which the assessee acquired
the asset and the day of the transfer, then the transfer shall be deemed
a sale, but the assessee shall not be required to pay tax on it until the
sale of all or part of the said trading stock; if he sold part thereof, he
shall not have to pay tax to an amount exceeding the consideration
received by him for that sale;
(2) if four years have not passed as aforesaid, the transfer shall not be
deemed a sale, and the price at which the asset was acquired by the
assessee shall be the balance of the original cost.
141
Person who ceased being an Israel resident
100A. (a) The asset of a person who was an Israel resident and ceased being an
Israel resident shall be deemed to have been sold one day before he
ceased being an Israel resident.
(b) If a person said in subsection (a) did not pay the tax on the day he
ceased being an Israel resident, then he shall be deemed to have
applied to postpone payment of the tax until the asset is realized, and
at the time of the realization he shall pay the tax that was due for the
sale of the asset when he ceased being an Israel resident, in an
amount equal to the amount of tax on the part of the chargeable profit;
however, linkage differentials and interest, as defined in section 159A,
shall be added only from the date of the realization until the actual
payment of the tax.
(c) Notwithstanding the provisions of subsection (b), if the sale of the asset
was liable to payment of tax in Israel when it was realized, then the tax
due on the capital gain at the time of the realization shall be paid
instead of the tax under the provisions of subsection (b).
(d) For purposes of this section:
"part of the chargeable profit" – the real capital gain at the time of the
realization, multiplied by the period of ownership from the day on which
he acquired the asset until the day he ceased being an Israel resident,
and divided by the entire period from the day of the asset's acquisition
until the day of its realization;
"realization" – the actual sale of the asset;
"asset" – including shares and rights granted as said in sections 3(i)
and 102.
(e) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe provisions for the implementation of this section,
including provisions for the prevention of double taxation and on the
submission of returns.
Conversion of private shares into shares traded on an Exchange
101. (a) (1) The listing of a company's shares on an Exchange in Israel or the
listing of the shares of a company resident in Israel on an
Exchange abroad before tax year 2006 shall be treated like a
sale of the shares on the date of the listing, unless the
shareholder applied – when he first submitted a return under
section 131 after the listing– that it not be so treated.
(2) If a shareholder requested that listing the shares not be treated
like their sale, as said in paragraph (1), then he shall be charged
the tax when the shares are first sold after they had been listed
and the provisions of section 97(b2) shall not apply.
(3) Notwithstanding the provisions of paragraph (2), the shareholder
may rescind his application when he first sells the shares as
aforesaid and pay the tax that would have been due from him
because of the listing, plus linkage differentials and interest –
within their meaning in section 159A(a) – from the day on which
he would have had to pay the tax as said in paragraph (1), had
he not applied as aforesaid, plus the tax from the day of listing on
the Exchange up to the day of the sale, as prescribed in sections
91(a) or (b), or 97(b2), as the case may be; if a shareholder was
charged tax as said in paragraphs (1) and (3), then the day on
which the shares were listed for trading on the Exchange shall be
deemed the day of acquisition of the shares, and the 142
consideration set for the purpose of those paragraphs shall be
deemed their original cost.
(b) For the purposes of subsection (a):
(1) "shares" – including rights to shares and exclusive of aforesaid
shares and rights that were acquired after they were offered to
the public for sale under a prospectus, in which it was stated that
the Exchange's agreed to list them for trading;
(2) if the shares were sold to a person (hereafter: the recipient) while
an exemption applied to the sale or when no tax was imposed on
the sale, then that shall not be deemed a sale; when the recipient
sells them – that shall be deemed the first sale.
(c) (1) The provisions of subsection (a) shall not apply to shares listed
for trading after December 31, 1991, to which section 6(g)(1) of
the Inflationary Adjustments Law applies at the time of their sale,
and to shares listed for trading after December 31, 1999, the
rules under section 130A applying to their owners at the time of
their sale;
(2) the provisions of paragraph (1) shall not apply to the sale of
shares said in the said paragraph, if Chapter Two of the
Inflationary Adjustments Law or the rules under section 130A did
not apply to their owners at the time of their listing, provided that
– at the time of their sale – their owners elected to withdraw the
application said in subsection (a).
(d) If – after the shares were listed for trading on the Exchange – bonus
shares, as defined in section 94, were issued in respect of shares that
were listed for trading as said in this section, then the bonus shares or
the bonus component, as said in section 94, shall for all intents and
purposes be deemed part of the shares that were listed.
(e) Notwithstanding the provisions of section 94B, when a share is sold
under this section, then the provisions of that section shall apply to the
profits available for distribution, which the company accumulated from
the end of the tax year before the year in which the shares were
acquired until the end of the tax year before the date on which they
were listed for trading on the Exchange; however, if the shareholder
requested that listing the shares not be deemed their sale and if he did
not rescind that request when he sold the shares, then the provisions of
the section shall apply to the profits available for distribution until the
end of the tax year before the date on which the shares were actually
sold; for the purposes of this section: "profits available for
distribution" – as defined in section 94B.
(f) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe rules on the original cost and on the day of
acquisition in respect of shares that were listed for trading on an
Exchange without any issue to the public.
(g) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe the adjustments required for shares acquired
before the determining date or listed for trading on an Exchange before
the determining date.
Powers of the Minister of Finance
101A. (a) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe provisions on the following matters in respect of
capital gain from the sale of securities:
(1) the way and method of calculating capital gain and real capital
gain, setting its timing and tax calculation, in general or for 143
purposes of tax deduction, including the matter of setting off
losses when tax is deducted;
(2) allowing expenses and how they are to be related;
(3) in respect of an asset acquired before the determining date, or
acquired before it was listed for trading on an Exchange, or in
respect of which provisions of the Inflationary Adjustments Law or
provisions under section 130A apply – adjustments and
transitional provisions, including provisions on the tax rate,
calculation of the capital gain and the set-off of losses.
(4) circumstances and conditions, under which income from the sale
of a security will be deemed income under section 2(1), either
generally or according to the length of time in which the security
was held;
(5) the method for calculating the discount, including the
determination of instances in which the discount will be added to
the consideration;
(6) categories of cases in which a future will be deemed a hedging
operation, and circumstances under which a said transaction will
be deemed a transaction from which the income constitutes
income under section 2(1), or in which its result will be added to
the hedged asset or obligation, on prescribed conditions; for
purposes of this paragraph: "hedging transaction" – a future
carried out in order to protect the value of the asset or of the
obligation, whether present or prospective, on condition that it
was reported in accordance with prescribed rules;
(7) in respect of futures, and in respect a transaction of borrowing or
lending a security, selling a security short, and also said
transactions between linked parties – circumstances under which
the transaction shall be deemed a sale and the way of calculating
the income and its timing;
(8) tax exemptions or reduced tax rates on a foreign resident's
income from a security traded on an Exchange or in a banking
corporation, from the sale of a unit or its redemption or on profits
received in respect of a unit;
(9) provisions and conditions for the allowance of deductions of real
interest expenses and linkage differentials, the method for their
calculation, restrictions on real interest rates deductible when
special relationships exist between lender and borrower, and also
ways of proving the connection of the loan, of real interest
expenses and of linkage differentials to a security;
(10) provisions and conditions on the matter of sales and transactions
between relatives or between parties to a sale or transaction,
between whom there are special relationships, including
provisions on determining the consideration, the original cost and
the day of acquisition;
(11) conditions and circumstances, under which a shareholder shall
be deemed a substantive shareholder, in addition to the
provisions of section 88, if the provisions of Part Five "B" apply to
the company;
(12) instances in which a unit in an exempt trust fund shall be deemed
to have been sold and repurchased, in respect of certain unit
holders or in respect of all unit holders, all on conditions and with
adjustments he ordered;
(13) conditions and circumstances, under which a resale of securities 144
or a transfer for the restriction of exposure, as defined in the
Agreements on Financial Assets Law 5766-2006, shall be deemed
a loan and not a sale of securities, notwithstanding the provisions
of section 4 of the said Law.
(b) If an assessee claimed the deduction of real interest expenses and
linkage differentials before the provisions said in subsection (a)(9) were
prescribed, then his capital gain from the sale of securities shall be
charged tax at the rate of 25%.
Powers of the Director
101B. In respect of capital gains from the sale of securities the Director may
prescribe rules on returns to be submitted to the Assessing Officer by the
assessee and by an Exchange member, banking corporation, investment
portfolio manager and real estate investment fund, and also on the
certifications they must give the assessee; in this section: "investment
portfolio manager" – as defined in the Regulation of Investment Counseling
and Portfolio Management Law 5755-1995.
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