A capital gain is the profit created on the sale of equipment that is not
trading stock of the business, so, for example, if your business is a law
office and you sell a computer at a profit, the profit is a capital gain. On
the other hand, if you are the owner of a store that sells computers, the
sale of these computers is normal income and not a capital gain.
Types of Capital Gains
In calculating the profit, a distinction is made between inflationary profit
which reflects the increase in value in terms of inflation from the date of
purchase until it is sold.
The real profit is that reflected by the profit in excess of the cost of the
asset sold, after it has been adjusted for inflation.
The rate of tax: From 1.1.94, there is no tax obligation on inflationary
capital gains, the real capital gain is subject to tax at the normal rate;
from 1. 2003 the tax rate for the real capital gain is 25%.
The law makes the payment of an advance on income tax compulsory on a
capital gain within 30 days of the date on which the asset is sold.
Spreading the Capital Gains
The Law allows you to spread the capital gain over 4 years, ending in the
year of the sale. This relief is significant if in the 3 years preceding the
sale, you did not have a taxable income or if you paid tax at a low rate.
Capital Gains of an Overseas Resident in Israel
If you are resident overseas and sell an asset in Israel or, in the case of
a transaction conducted outside Israel, you sell an asset that is located in
Israel, you will be liable for capital gains tax on this income.
Setting Off a Capital Gain
A real capital gain may be offset against a business loss in the year in
which the gain was created, or against a business loss in previous years.
Similarly, you may offset a capital gain against a capital loss.
The principles of taxation of real estate sales, in those instances in which
the sale is taxable, are very similar to that mentioned above in connection
with capital gains.