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CHAPTER FOUR "B": TRUSTEESHIPS
Definitions
75C. In this Chapter –
"means of control", "substantive shareholder", "relative" and "consideration" –
as defined in section 88;
"trustee income" – income produced or accrued from trusteeship assets; "vesting"
– transferring an asset to a trustee under a trusteeship, not for consideration;
"trust asset holding company" – a body of person that directly or indirectly
holds trusteeship assets for the trustee;
"distribution" – transfer of an asset or of income by the trustee to the
beneficiary or to his credit, while the trusteeship is in existence or because
of its liquidation;
"creator" of a trusteeship – within its meaning in section 75D;
"trusteeship protector" – the person who – under the trusteeship documents – has
the power to appoint and to dismiss the trustee, to give the trustee orders, or
whose approvals are needed for the trustee's acts;
"trustee" – a person in whom assets or income from assets were vested, or who
holds assets in trusteeship; wherever in this Chapter the word "trustee"
appears, that means a trustee in this position in the trusteeship at hand; for
this purpose vesting in a trust asset holding company shall be treated like
vesting in the trustee, and a body corporate specified in Schedule One "A" shall
be deemed a trustee; the Minister of Finance may add, by Order, bodies corporate
to Schedule One "A";
"trusteeship" – an arrangement, under which the trustee holds the trusteeship
assets for the benefit of the beneficiary in Israel or abroad, whether defined
as a trusteeship under statutes applicable to it, or defined in some other
manner;
"irrevocable trusteeship" – a trusteeship that is not a revocable trusteeship,
on condition that a lawfully certified affidavit by the creator of the
trusteeship and by the trustee was delivered to the Assessing Officer on a form
and at the time prescribed by the Director, stating that it is an irrevocable
trusteeship; 104
"revocable trusteeship" – a trusteeship for which at least one of the following
holds true:
(1) it is possible to cancel it or to transfer or return the asset or the income
to the creator, his spouse, his estate or to a held body of persons, all either
directly or indirectly;
(2) the creator or his spouse are one or more of the beneficiaries, or the
creator or his spouse can become a beneficiary;
(3) one or more of the beneficiaries is a child of the creator, who in the tax
year has not reached age eighteen, or there is a possibility to transfer an
asset or income directly or indirectly to his aforesaid child, on condition that
the creator or his spouse is still alive;
(4) one or more of the beneficiaries are bodies of persons, which are not public
institutions as defined in section 9(2), in which 10% or more of any means of
control are held by the creator, by his spouse or by his child who has not yet
reached age eighteen if the creator or his spouse is still alive, all either
directly or indirectly (in this definition: held body of persons);
(5) the trustee or the protector of the trusteeship is the creator or a held
body of persons;
(6) the trustee or the protector of the trusteeship is a relative of the
creator, unless it was proven to the Director's satisfaction that there was a
special justification for the relative's appointment as trustee, and that the
appointment does not demonstrate any ability to direct the trustee's activity or
to issue instructions on the matter of the trusteeship; for purposes of this
definition: "relative" – as defined in paragraphs (1) to (3) of the definition
of "relative" in section 88;
(7) the creator or his relative are able to direct the trustee's activity or to
give him instructions on the way the trusteeship and its assets are managed, its
beneficiaries are changed, or trust assets and trust income are distributed to
beneficiaries, or his approval is required for acts of the trustee, or he is
able to order the trusteeship to be cancelled or the trustee to be replaced,
otherwise than for statutory grounds, all whether directly or indirectly;
(8) the identity of one or more of the beneficiaries is not known, or the
identity of a direct or indirect holder of shares in a beneficiary that is a
body of persons is not known, unless it is proven to the Assessing Officer's
satisfaction that that beneficiary cannot be the creator, his spouse, the
creator's child who has not reached age eighteen, or a held body of persons,
(9) the beneficiaries of a trusteeship have been replaced or new ones were
added, without instructions to that effect having being included in the
trusteeship documents;
(10) no certified affidavit was delivered on the form and at the time prescribed
by the Director, as said in the definition of "irrevocable trusteeship";
"trusteeship created by foreign residents" – a trusteeship said in section 75I;
"trusteeship under a will" – a trusteeship said in section 75L;
"foreign resident beneficiary trusteeship " – a trusteeship said in section 75J;
"trusteeship of Israel residents" – a trusteeship said in section 75G;
"beneficiary" in a trusteeship – within its meaning in section 75E;
"asset" – any property, real or movable, and also any prospective or vested
right or benefit, all whether in Israel or abroad;
"trustee assets" – assets vested in the trustee or acquired or received by him,
105 also if held for him by a trust asset holding company, even if registered in
its name;
"foreign resident", in respect of a creator – including a creator who was a
foreign resident at the time of his death;
"Israel resident" – including an Israel citizen who is resident in an area, as
defined in section 3A, and in respect of a creator – including a creator who was
an aforesaid Israel resident or Israel citizen at the time of his death.
Creator of a trusteeship
75D. (a) A person who directly or indirectly vested an asset in a trustee is the
creator of a trusteeship, and the following shall also be deemed creators:
(1) a person who directly or indirectly was a substantive shareholder in a body
of persons, when the body of persons vested the asset in the trustee;
(2) a person who directly or indirectly held one or more categories whatsoever
of means of control in a body of persons, when the body of persons vested the
asset in the trustee, and he or his relative are beneficiaries of that
trusteeship;
(3) if a trustee vested an asset or income in another trustee after the last of
the creators died or after the beneficiaries of the trusteeship were changed,
all without a provision to that end having been included in the trusteeship
documents, then the beneficiary shall also be deemed a creator of the
trusteeship under which the other trustee operates or in a trusteeship in which
the beneficiaries were changed, as aforesaid, as the case may be, unless it was
proven to the Assessing Officer's satisfaction that the beneficiary had no
influence on the said vesting or on the change of beneficiaries;
(4) if the beneficiary was able to control or influence – directly or indirectly
– the manner in which the trusteeship is managed, the trust assets, the
designation of beneficiaries otherwise than by virtue of designation by the
creator, the appointment or replacement of trustees, or the distribution of
trust assets or trust income to beneficiaries, then the beneficiary shall also
be deemed a creator;
(5) if, in a trusteeship created by foreign residents, an asset vested in the
trustee was transferred from an Israel resident – he and his Israel resident
relative being beneficiaries of the trusteeship – then the said Israel resident
shall be deemed a creator of that trusteeship.
(b) If a trustee vested an asset or income in another trustee, then the creator
who vested the asset or income in the trustee shall be deemed the person who
vested it in the other trustee, and the trustee shall not be deemed a creator.
Beneficiary of a trusteeship
75E. A person entitled to benefit directly or indirectly from the trust assets
or trust income is a beneficiary of the trusteeship, including the following:
(1) a person who will be entitled to be an aforesaid beneficiary when a
condition is fulfilled or when a date prescribed in the trusteeship documents
has been reached; however, if a person's rights are conditional on the demise of
the creator or of another, then he shall not be deemed a beneficiary as long as
the creator or the other beneficiary still are alive;
(2) a still unborn beneficiary; 106
(3) an indirect beneficiary through a chain of trusteeships;
(4) a person who directly or indirectly holds one or more of any category of
means of control in the beneficiary, which is a body of persons other than a
public institution defined in section 9(2).
Tax liability of trust income
75F. (a) Trust income shall be charged tax in the year in which it was produced
or accrued.
(b) Trust income shall be treated as the creator's income or the beneficiary's
income, as the case may be, as specified in sections 75G, 75I, 75J or 75L.
(c) The trustee shall be the person assessed and charged tax in respect of trust
income and of acts with trust assets.
(d) The tax rate at which trust income shall be charged is the maximum tax rate
prescribed in section 121.
(e) Notwithstanding the provisions of subsection (d), if a special tax rate is
prescribed for a certain category of an individual's income, then trust income
of the same category shall be charged at the tax rate so prescribed.
(f) A tax exemption for income limited by a ceiling shall not apply to trust
income, and the provisions of section 11 and the provisions of Chapter Three in
Part Three also shall not apply to it.
(g) Trust income or chargeable trust income shall be determined under the
provisions of this Ordinance, also if the trustee is a foreign resident and also
if the trusteeship is under foreign Law or if the provisions of foreign Law
apply to it.
(h) Losses suffered by a trust (in this Chapter: trust losses) cannot be set off
against the income of the creator or the beneficiary, and the tax that applies
to trust income cannot be set off against the tax that applies to income of the
creator or of the beneficiary, except when this Chapter explicitly makes a
different provision.
(i) Losses by the creator or by the beneficiary cannot be set off against the
trust income, and the tax that applies to the creator's and the beneficiary's
income cannot be set off against the tax that applies to the trust income,
excerpt when this Chapter explicitly makes a different provision.
(j) In respect of the calculation of capital gain on the trustee's sale of an
asset that was vested in the trustee exempt of tax or not liable to tax, which
was vested in him for no consideration, and in respect of the calculation of
depreciation on a said asset, the original cost of the asset, the balance of its
original cost and the day of the asset's acquisition shall be determined as they
would have been for the creator, and the amount of depreciation shall be the
amount the creator was entitled to deduct in respect of that asset.
(k) The place of residence of an unborn beneficiary shall be determined
according to the place of residence of his parents.
Charging the trustee's income in the hands of the creator or the beneficiary
75F1. (a) Notwithstanding the provisions of section 75F(c), the following are
assessable and chargeable to tax in respect of the trustee's income and in
respect of acts with trust assets:
(1) in a trusteeship of Israel residents –the creator who was an Israel resident
in the tax year, and if more than one creator was an Israel resident in the tax
year, then only one of them (hereafter: 107 representative creator);
(2) in a trusteeship under a will that under section 75L is deemed an Israel
resident –a beneficiary who is an Israel resident in the tax year, and if more
than one beneficiary was an Israel resident in the tax year, then only one of
them (hereafter: representative beneficiary); on condition that that all the
conditions specified in subsection (b) , as the case may be, were complied with
in the said trusteeships and the provisions in subsection (c) shall apply.
(b) (1) There is no Israel resident trustee in the trusteeship;
(2) the trustee in the trusteeship gave notice that he elected the application
of the provisions of this section and declared that he undertakes to communicate
to the representative creator or to the representative beneficiary, as the case
may be, all the information he needs in order to have full information about the
trustee's income or the trust assets;
(3) in respect of a trusteeship of Israel residents – all the creators,
including the representative creator, gave notice of their choice of the
representative trustee as assessable and chargeable and of the applicability of
the provisions of this section;
(4) in respect of a trusteeship under a will that under section 75L is deemed an
Israel resident – all the beneficiaries, including the representative
beneficiary gave notice of their choice of the representative beneficiary as
assessable and chargeable and that the applicability of the provisions of this
section;
(5) notices said in paragraphs (2), (3) or (4) shall be submitted to the
Assessing Officer on forms prescribed by the Director, together with the return
under section 131(a)(5b)(4) for the first tax year in which the trustee and all
the creators or the trustee and all the beneficiaries opted for the
applicability of the provisions of this section.
(c) (1) The choice of the trustee and creator or of the trustee and beneficiary,
as the case may be, shall also apply in the tax years after the first tax year
as said in subsection (b)(5), and they shall not have the right to retract their
decision if the representative creator or the representative beneficiary, as the
case may be, is still alive and still is an Israel resident or as long as there
is no Israel resident trustee of the trusteeship.
(2) The provisions of section 75F, other than subsection (c) thereof, shall
apply to the representative creator or the representative beneficiary, as the
case may be, all in the manner and in the amount that the trustee would have
been assessed or charged, if not for the choice of the provisions of this
section.
(3) The provisions of any statute on the tax payment, reporting, collection and
penalties shall apply to the representative creator or the representative
beneficiary, as the case may be, in respect of the trustee's income and in
respect of the trust assets.
(4) A final tax debt of the representative creator or the representative
beneficiary, as the case may be, may be collected from the trustee, and a final
tax debt of the representative creator also from all the creators, also if he
ceased being an Israel resident; for this purpose, "final tax debt" – as defined
in section 75O(f).
(5) The provisions of section 75O(d) shall apply, except that "if the trustee"
shall be replaced by "if the representative creator or the 108 representative
beneficiary, as the case may be".
(d) Wherever this section speaks of a representative creator or a representative
beneficiary, that is in the relevant trusteeship.
Trusteeship of Israel residents
75G. (a) (1) A trusteeship of Israel residents is a trusteeship in which – at
the time of its creation – at least one creator and at least one beneficiary
were Israel residents, and at least one creator and at least one beneficiary
thereof were Israel residents in the tax year.
(2) A trusteeship that is not a trusteeship created by foreign residents and not
a foreign resident beneficiary trusteeship shall also be deemed a trusteeship of
Israel residents.
(3) Notwithstanding the provisions of paragraphs (1) and (2), a trusteeship
under a will shall not be deemed a trusteeship of Israel residents.
(4) A trusteeship shall be deemed a trusteeship of Israel residents, whether it
is a revocable or an irrevocable trusteeship.
(b) In a trusteeship of Israel residents the trust income shall be treated like
the creator's income and the trust assets shall be created like the creator's
assets.
(c) A trusteeship of Israel residents shall be deemed an Israel resident, also
when the creator ceased being an Israel resident, and the trust income shall be
treated like the income of an individual Israel resident and the trust assets
like the assets of an individual Israel resident.
(d) In a trusteeship of Israel residents vesting in the trustee by an
individual, carried out not for consideration, shall not be deemed a sale for
the purpose of the provisions of Part Five.
(e) If a trusteeship became a trusteeship of Israel residents after one creator
thereof became an Israel resident for the first time, a veteran returning
resident or a returning resident, as said in section 14(a) or (c), then the
provisions under sections 14(a) or (c), 16 or 97(b) or (b3), as the case may be,
shall also apply to the trust income, in addition to the provisions of section
75F.
(f) Distribution of an asset of a trusteeship of Israel residents shall be
charged tax or shall be exempt of tax for the purposes of Part Five, as it would
have been if the asset had been transferred directly from the creator to the
beneficiary; for this purpose the creator shall be deemed an Israel resident,
even if at the time of the distribution he is a foreign resident; if a
trusteeship had several creators, and if the transfer from at least one of them
to the beneficiary would have been liable to tax, had it been carried out
directly, then the distribution shall be liable to tax.
(g) The provisions of section 75F(a) to (i) and (k) and of subsections (b), (c)
and (e) shall not apply to trust income in a trusteeship of Israel residents
that is an irrevocable trusteeship distributed to an Israel resident
beneficiary, and it shall be deemed the beneficiary's income on condition that
all of the following hold true:
(1) the distribution took place before six months had elapsed after the end of
the tax year in which the income was produced or accrued or up to the date for
submission of the return for the said tax year, whichever was earlier;
(2) the income was included in the return submitted by the trustee under section
131 as distributed income, and it was not taken into account in the calculation
of the trustee's income or chargeable income; 109
(3) the income was included in the return submitted by the beneficiary under
section 131 for that tax year;
(4) the trustee and the beneficiary attached to their returns under paragraphs
(2) and (3), as the case may be, a notice of the distribution and of their
choice that the distributed trust income be deemed the beneficiary's income;
(5) if income was produced by or accrued from different sources of income, then
it shall be deemed to have been distributed proportionally from each said source
of income, unless the writ of trusteeship prescribed that the distributed income
was earmarked for the beneficiary who received it.
(h) The provisions of section 75F and of subsections (b) to (h) shall not apply
to a trusteeship of Israel residents that is a revocable trusteeship, in which
there is only one creator who is an Israel resident, if the creator and the
trustee gave notice of their choice that the creator be assessable and
chargeable to tax for the trust income; for this purpose a creator and his
spouse shall be deemed a single creator, provided the spouse is an Israel
resident; a said application shall be submitted to the Assessing Officer
together with the return under section 131 for the tax year in which the
trusteeship was created; when such an application has been submitted, the
following provisions shall apply:
(1) the creator shall be the assessee and the person liable to tax in respect of
the trust income, and he must submit a return thereon under section 131 as long
as the creator still is alive;
(2) the creator's final tax debt in respect of the trust income may also be
collected from the trust assets and from trust income;
(3) the creator's and trustee's choice shall also apply in coming tax years, and
they cannot withdraw their choice as long as the creator is alive and an Israel
resident. The provisions of this subsection shall apply as long as the creator
is an Israel resident.
(i) The provisions of section 100A shall not apply to a trusteeship of Israel
residents on the day on which the creator ceases to be an Israel resident, as
long as the trusteeship is an aforesaid trusteeship.
Trusteeship that ceased being a trusteeship of Israel residents
75H. (a) A trusteeship shall cease being a trusteeship of Israel residents from
the date on which one of the conditions prescribed in section 75G(a) ceased to
apply (in this section: the final day).
(b) If a trusteeship ceased being a trusteeship of Israel residents and became a
foreign resident beneficiary trusteeship, then for the purposes of the
provisions of Part Five the trust assets shall be deemed to have been sold to a
foreign resident on the final day`.
(c) If a trusteeship ceased being a trusteeship of Israel residents and became a
trusteeship created by foreign residents, then the provisions of section 100A
shall apply on the final day, mutatis mutandis.
Trusteeship created by foreign residents
75I. (a) A trusteeship created by foreign residents is a trusteeship, all
creators of which were foreign residents when it was created and in the tax
year, or all its creators and all its beneficiaries are foreign residents in the
tax year.
(a1) A trusteeship shall be deemed a trusteeship created by foreign residents,
irrespective of whether it is a revocable trusteeship or an 110 irrevocable
trusteeship.
(b) The provisions of section 75G – except for its subsections (a), (c) and (h)
– shall apply to a trusteeship created by foreign residents, mutatis mutandis.
(c) A trusteeship created by foreign residents shall be deemed a foreign
resident, and the trust assets shall be deemed assets held by a foreign resident
and the trust income the income of a foreign resident individual; if the
creators are residents of several foreign countries, then the trust assets shall
be deemed to be held in proportional parts by individual residents of their
creators' countries of residence, and the trust income shall be deemed to have
been produced or accrued for individual residents of those countries, in
proportion to the value of the assets vested in the trustee by each creator, as
it was on the day of vesting.
Foreign resident beneficiary trusteeship
75J. (a) A foreign resident beneficiary trusteeship is a trusteeship in respect
of which all the following held true in the tax year, on condition that the
provisions of section 75G(a)(1) do not hold true for it and that it is not a
trusteeship under a will:
(1) it is an irrevocable trusteeship; for purposes of this section a trusteeship
shall not be deemed a revocable trusteeship only because of the provisions of
section 75D(a)(3) or (4);
(2) all its beneficiaries are individual foreign residents, whose identity is
known; for this purpose an unborn beneficiary shall be deemed a beneficiary
whose identity is known;
(3) at least one of its creators is an Israel resident;
(4) if, at the time it was created, the conditions said in paragraphs (1) to (3)
held true for it, then the following also held true –
(a) the trusteeship documents explicitly provide that no Israel resident
beneficiary can be added;
(b) in a notice that the creator submitted under section 75P1 it was declared
that in it there is no Israel resident beneficiary and no Israel resident
beneficiary whose entitlement under the trusteeship is conditional on his
ceasing to be an Israel resident, and that no beneficiary as aforesaid can be
added to it.
(b) In a foreign resident beneficiary trusteeship the trust assets shall be
deemed the beneficiary's assets and the trust income the beneficiary's income.
(c) A foreign resident beneficiary trusteeship shall be deemed a foreign
resident, and the trust assets shall be deemed assets held by an individual
foreign resident, and the trust income shall be deemed the income of an
individual foreign resident; if the beneficiaries are residents of several
foreign countries, then the trust assets shall be deemed to be held in
proportional parts by individual residents of the beneficiaries' countries of
residence, and the trust income shall be deemed to have been produced or accrued
for individual residents of those countries, in proportion to their shares of
the trust income and the trust assets.
(d) In respect of the provisions of the Ordinance, vesting a trustee in a
foreign resident beneficiary trusteeship shall be charged tax, as it would have
been if the asset had been transferred directly by the creator to the foreign
resident beneficiary.
(e) A distribution to the beneficiary of a foreign resident beneficiary
trusteeship shall not be deemed a sale for purposes of the provisions of 111
Part Five.
(f) Every year the trustee shall attach to the return he submits under section
131, on a form prescribed by the Director, a notice about every distribution
made in the course of the tax year, including the names of the beneficiaries and
the amounts distributed to them, as well as a declaration said in subsection
(a)(4)b), but if the trustee does not have to submit a return under section 131
for that tax year, then he shall submit the said declaration to the Assessing
Officer until April 30 of the year after the tax year.
Partnership that ceased to be a foreign resident beneficiary trusteeship
75K. (a) If one of the beneficiaries of a trusteeship became an Israel resident
for the first time, a veteran returning resident or a returning Israel resident,
as said in section 14(a) or (c), then the trusteeship shall cease being be a
foreign resident beneficiary trusteeship; beginning with that day, the
provisions of section 75G shall apply to the trusteeship, as well as provisions
under sections 14(a) or (c), 16 or 97(b) or (b3), as the case may be, as they
would have applied, if the income were produced directly by the beneficiary who
became an Israel resident.
(b) If the trustee did not submit the notification and declaration said in
section 75J(f) for a certain tax year, then it will be deemed that there was an
Israel resident beneficiary in the trusteeship in that tax year and the
provisions of section 75G shall apply.
(c) If the Assessing Officer concluded that – in spite of the creator's and the
trustee's declarations – the conditions said in section 75J(a)(4)(b) were not
complied with, or that the trusteeship is a revocable trusteeship, then the
trusteeship shall be deemed not to have been a foreign resident beneficiary
trusteeship from the beginning and the Assessing Officer shall assess the trust
income accordingly; for the purposes of this section, a trusteeship shall not be
deemed a revocable trusteeship only because of the provisions of section
75D(a)(3) or (4); if, when the said assessment is being made, the trustee has
final assessments for preceding years, then the Assessing Officer may –
notwithstanding the provision of any statute – assess the trust income in those
years within two years after the end of the tax year in which he concluded as
aforesaid.
Trusteeship under a will
75L. (a) A trusteeship under a will is a trusteeship for which all the following
hold true:
(1) the trusteeship was created under a will;
(2) all creators of the trusteeship are testators who were Israel residents at
the time of their demise.
(b) In a trusteeship under a will the trust income shall be deemed the
beneficiary's income and the trust assets shall be deemed the beneficiary's
assets.
(c) (1) If there is at least one Israel resident beneficiary in the trusteeship
under a will, then the trusteeship shall be deemed an Israel resident, and the
trust income shall be treated like an Israel resident's income and the trust
assets shall be treated like assets held by an Israel resident.
(2) If there is no Israel resident beneficiary in the trusteeship under a will,
then the provisions of subsections (c) and (e) of section 75J shall apply to the
trusteeship. 112
(d) Vesting in the trustee in a trusteeship under a will and distribution to a
beneficiary in a said trusteeship shall not be deemed sales for the purposes of
Part Five.
(e) The provisions of section 75F and of this section, other than subsections
(d) and (g), shall not apply to a trusteeship under a will with only one
beneficiary who is an Israel resident, if the beneficiary and the trustee
requested that the beneficiary be assessable and chargeable to tax; for this
purpose, a beneficiary and his spouse shall be deemed one beneficiary, provided
the spouse is an Israel resident; a said request shall be submitted to the
Assessing Officer as said in section 75G(h), and the provisions prescribed in
paragraphs (1) to (3) of the said section shall apply, mutatis mutandis.
(f) The provisions of section 75G(g) shall also apply, mutatis mutandis, to
trusteeships under a will.
(g) If under the trusteeship under a will at least one beneficiary becomes an
Israel resident for the first time, a veteran returning resident or a returning
resident, as said in section 14(a) or (c), and if in that tax year there was no
other Israel resident beneficiary in the trusteeship, then – in addition to the
provisions of section 75F – the provisions of sections 14(a) or (c), 16 or 97(b)
or (b3), as the case may be, shall also apply to the trust income.
(h) If the beneficiary of a trusteeship under a will ceased to be an Israel
resident, then on that date the provisions of section 100A shall apply, mutatis
mutandis.
Vesting by a body of persons
75M. If a body of person vested an asset in a trustee, then the following
provisions shall apply:
(1) the vesting shall be deemed a sale for purposes of the provisions of the
Ordinance;
(2) the vested asset shall be treated like a dividend distributed to the
individual shareholders, who directly or indirectly hold rights in that body of
persons.
Distribution to the beneficiaries after the end of the trusteeship
75N. (a) If a trusteeship of Israel residents or a trusteeship created by
foreign residents came to an end and if, after its assets were distributed,
losses remained that had not been set off and which – had they been profits –
would have been liable to tax in Israel, then the losses shall be deemed losses
of the creator; if the trusteeship had several creators, then a proportional
part of the losses shall be deemed the loss of each of the creators, according
to the value of assets vested in the trustee, as it was at the time of the
vesting.
(b) If a foreign resident beneficiary trusteeship or a trusteeship under a will
came to an end, and if, after its assets were distributed, losses remained that
had not been set off and which – had they been profits – would have been liable
to tax in Israel, then the losses shall be deemed losses of the beneficiary; if
the trusteeship had several beneficiaries, then a proportional part of the
losses shall be deemed the loss of each of the beneficiaries, according to his
proportional part in the distribution of the assets and the income, as it was
during the four year period that ended at the end of the year in which the
trusteeship ended.
(c) At the end of the trusteeship the trust losses shall be classified according
to sources of income, as they were classified by the trustee, and the losses of
the trustee transferred from previous tax years shall be 113 deemed transferred
losses of the creator or of the beneficiary, as the case may be.
(d) In respect of the calculation of the capital gains byf a beneficiary to whom
an asset was distributed and in respect of the asset's depreciation, its
original price, the balance of its original price, and the day of its
acquisition shall be as they would have been for the trustee, and the amount of
depreciation shall be the amount which the trustee was entitled to deduct in
respect of that asset.
Provisions on tax payments, collection, returns and penalties
75O. (a) The provisions of any statute on the payment of tax, on returns,
collection and penalties shall apply to the trustee in respect of the trust
income and the trust assets, except where an explicitly different provision is
made in this Chapter.
(b) In a trusteeship of Israel residents a final tax debt of the trustee may be
collected from each of the creators, even if he ceased being an Israel resident.
(c) The provisions of subsection (b) shall also apply, if the Assessing Officer
found in respect of a certain foreign resident beneficiary trusteeship that –
notwithstanding the creator's and the trustee's declarations – the conditions
prescribed in section 75J(a)(4)(b) were not complied with.
(d) If the trustee has a final tax debt, then it can also be collected from
every beneficiary, to whose credit distribution was made after the beginning of
the tax year, in respect of which the debt exists, whether the trusteeship has
ended or not; however, no more shall be collected from any beneficiary than the
final tax debt or than the amount or the value of the assets he received in the
distribution, whichever is less.
(e) The trustee of a trusteeship created by foreign residents, the trustee of a
foreign resident beneficiary trusteeship, and also a trustee of a trusteeship
created under a will in which there is no Israel resident beneficiary does not
have to submit a return under section 131 about the trust income created or
accrued abroad, also if the trustee is an Israel resident and if he submitted a
return under section 131 about income produced or accrued in Israel.
(f) In this section, "final tax debt" – as defined in section 119A(d), and also
fines imposed under this Ordinance or under the Taxes (Arrears Fine) Law
5741-1980.
General provisions
75P. (a) If a trusteeship had more than one trustee, then the trustees are
jointly and severally liable for the tax applicable to the trust income.
(b) A trust asset holding company shall not be obligated to submit a return
under section 131 or to pay tax in respect of trust income or in respect of
trust assets that it holds for a trustee.
(c) The fact that a trustee is an Israel resident does not create a tax
liability or an obligation to submit a return in respect of trust income, in
addition to the obligations specified in this Chapter, such as would not exist
if all the trustees were foreign residents.
Creator's obligation to give notice
75P1.(a) If, in a tax year, an Israel resident creator created a trusteeship or
vested an asset or income from an asset in a trustee, then he must submit a
notice to the Director within 90 days after creation of the trusteeship or after
the vesting, as the case may be. 114
(a1) In respect of a creator who became an Israel resident for the first time or
a veteran returning resident as said in section 14(a) the provisions of
subsection (a) shall not apply during ten years from the date on which he became
an Israel resident as aforesaid, on condition that – during the entire said
period – he vested only assets abroad or income from assets abroad; at the end
of the said ten years the provisions of subsection (a) shall apply, but the
notice said there shall be submitted until April 30 of the first tax year after
the end of that period; if the obligation to submit a return under section 131
applies to the creator, then the said notice shall be submitted when the return
is submitted.
(b) The notice said in subsection (a) shall be submitted on the form prescribed
by the Director, and the following shall be specified in it:
(1) the particulars of each of the creators and of each of the beneficiaries,
the particulars of the trustee and of the trusteeship protector, if there is
one, and the residential status of each of these;
(2) the particulars of the assets vested in the trustee or of which the income
was vested in the trustee, including the original cost, the balance of the
original cost and the day of acquisition, all as defined in section 88, the
value of the acquisition and the date of acquisition within their meaning in
Chapter Three of the Real Estate Taxation Law, and the balance of the
acquisition value, as defined in section 47 of the said Law, as the case may be,
as well as particulars of the income from the said assets that was vested in
trustee;
(3) the date on which the said assets or income, as the case may be, were
vested.
(c) (1) Without derogating from the provisions of subsection (a), a creator of a
trusteeship created by foreign residents that became a trusteeship of Israel
residents or a foreign beneficiary trusteeship because the creator became an
Israel resident must submit a notice to the Director by April 30 of the tax year
after the tax year in which the creator became an Israel resident, but if the
creator is under obligation to submit a return under section 131 – at the time
for submitting the return; a said notice shall be submitted on a form prescribed
by the Director and the particulars said in subsection (b) shall be specified in
it, but in respect of the particulars of the assets and income, as said in
subsection (b)(2), the creator shall specify the particulars of the assets and
income that he vested in the trustee during the five years before the tax year
in which the creator became an Israel resident.
(2) Notwithstanding the provisions of paragraph (1) –
(a) a creator said in paragraph (1), who became an Israel resident for the first
time or a veteran returning resident as said in section 14(a) shall not be
obligated to give notice as said in that paragraph during ten years after the
date on which he became an Israel resident as aforesaid, on condition that –
when he became an Israel resident – the trustee in the trusteeship had only
assets abroad or income from assets abroad and that during that entire period
only aforesaid assets or income were vested in the trustee; at the end of the
said ten years the provisions of paragraph (1) shall apply, but the dates for
the submission of the notice said in that paragraph shall be in the first tax
year after the 115 said period ended, as the case may be; if, during the said
ten years assets in Israel or income from assets in Israel were vested in the
trustee, then the provisions of paragraph (1) shall apply, but the dates for the
submission of the notice said in that paragraph shall be in the first tax year
after the said period ended;
(b) a creator said in paragraph (1), who became an Israel resident for the first
time or a veteran returning resident as said in section 14(a) shall have to give
notice as said in that paragraph at the times stated there, if – when he became
an Israel resident – the trustee in the trusteeship had assets in Israel or
income from assets in Israel; however, in respect of the particulars of the
assets and of the income said in subsection (b)(2) the creator shall only
specify the particulars of the assets in Israel and of the income from assets in
Israel, which the creator vested in the trustee during the five years before the
tax year in which the creator became an Israel resident.
Obligation of trustee to submit notice
75P2.(a) The trustee of a trusteeship shall submit a notice to the Director, on
a form prescribed by the Director, on the following matters:
(1) the creation of a trusteeship under a will – within ninety days after
provisions of the will on setting up the trusteeship were carried out;
(2) a change of the category of a trusteeship – until April 30 of the tax year
after the tax year in which the category of the trusteeship was changed, but if
the trustee is under obligation to submit a return under section 131(a)(5b) in
respect of that trusteeship – at the time for submitting the return; the
provisions of this paragraph shall not apply to the change in the category of a
trusteeship to a trusteeship of Israel residents because one creator thereof or
one beneficiary thereof, as the case may be, became an Israel resident for the
first time or a veteran returning resident as said in section 14(a), on
condition that – when he became an Israel resident as aforesaid – the trustee in
the trusteeship had only assets abroad or income from assets abroad.
(3) the conclusion of a trusteeship of Israel residents, the conclusion of a
trusteeship under a will that is deemed an Israel resident trusteeship under
section75L(c)(1) or the conclusion of a trusteeship that at its conclusion held
assets in Israel – until April 30 of the tax year after the tax year in which
the trusteeship was concluded; however, if the trustee or the creator is under
obligation to submit a return under section 131(a)(5b) in respect of that
trusteeship – at the time for submitting the return; a said notice shall include
the particulars of the assets that were distributed to beneficiaries because of
the conclusion of the trusteeship, and in respect of a trusteeship that held
assets in Israel at the time of its conclusion – particulars of the assets in
Israel that were distributed to beneficiaries because of the conclusion of the
trusteeship.
(b) The provisions of subsection (a) shall apply to a creator who elected to be
assessable and chargeable, to a representative creator and to a representative
beneficiary, as the case may be, according to provisions under sections 75F1,
75G(h) or 75L(e), mutatis mutandis.
Obligation of beneficiary to submit notice
75P3. (a) If an Israel resident beneficiary received an asset that is not money
from a trustee in a distribution, even if the distribution is not liable to tax
in Israel, then he must submit a notice to the Director until April 30 of the
tax year after the tax year in which the said distribution took place, but if
the beneficiary is under obligation to submit a return under section 131 – on
the date forf submission of the return.
(b) A notice said in subsection (a) shall be submitted on a form prescribed by
the Director, and on it the beneficiary shall specify the particulars of the
asset he received in the distribution and the date of the distribution.
Restrictions on applicability
75Q. The provisions of this Chapter shall not apply to each of the following:
(1) a trust fund, as defined in section 88, and also a joint investment trust
fund abroad;
(2) a benefit fund;
(3) a trusteeship created to secure a certain obligation;
(4) an estate manager, a Court-appointed custodian, a trustee in bankruptcy, an
appointee under section 350 of the Companies Law, a company liquidator, a
receiver;
(5) a religious endowment that is a public institution, as defined in section
9(2);
(6) a trustee as defined in section 102.
The Minister's authority
75R. The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe as follows:
(1) provisions on granting credit to a trustee, creator or beneficiary in
respect of taxes which the trustee, creator or beneficiary in that trusteeship
paid to a foreign state on income that was charged tax both in Israel and
abroad;
(2) provisions on how to calculate the trustee's chargeable income or the
capital gain upon the sale of trust assets, including the matter of setting the
original cost and the day of acquisition;
(3) provisions on taxing the trustee's income proportionally, according to the
shares of individual foreign resident beneficiaries or individual foreign
resident creators, on the conditions he prescribed, and the necessary
adjustments, and for this purpose provisions on capital gains tax liability in
respect of vesting, the amendment of assessments and the determination of income
also after the dates prescribed in this Ordinance;
(4) conditions, limitations, provisions and adjustments for the purposes of this
Chapter, including the matter of a trusteeship that ceased being a trusteeship
of Israel residents, a trusteeship created by foreign residents or a foreign
resident beneficiary trusteeship.
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