YEtax Real Estate Tax expert Adv. Roy Grilak shares his contribution and additional insights from his interview by Globes Israel on the matter of Land Appreciation Tax
Original Hebrew publication in Globes written by Ela Levi-Weinrib
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In the case ruling of Shlomo Nehama, the issue in dispute was regarding the liability for Land Appreciation Tax for the sale of a luxury apartment that was sold for NIS 45 million. Immediately after the sale, the tax authority knocked on the Nechama’s door and demanded a tax on the sale. At the heart of the dispute between Nechama and the tax authority was a renovation which he carried out in the luxury apartment he purchased. Until that renovation, the apartment was completely naked (no toilet, shower, kitchen, etc.), and was considered an empty “shell“ of an apartment.
In the sale of a residential apartment, the seller is granted an exemption from Land Appreciation Tax, while the sale of an apartment shell that is not suitable for living, does not qualify for an exemption. The problems of the tax authority were with the timing of the renovation, with the quality of the finish that is not suitable for a luxury apartment and also with the fact that the purchaser was not interested in the renovation at all and wanted to design the apartment as he wants.
Following Nechama’s appeal to the District Court, the district ruling determined that this is a legitimate tax planning, which is within the limits of the law. The tax authority did not give up and filed an appeal to the Supreme Court with the claim that the renovation is an artificial transaction, lacks a business purpose and its entire purpose is tax avoidance.
Now, in a long and reasoned ruling, the judges of the Supreme Court ruled by majority opinion that this is not an artificial renovation and that there is no significance to the finish and “prestige” of the renovation or to the gap between it and the level of “prestige” of the apartment. According to them, even turning an empty property into a residential apartment for the sole reason of taxation does not necessarily point to artificiality.
We learn from this ruling that taking an initiative in order to “enter” the scope of tax exemption is a legitimate action. The message that comes out of the ruling is the confirmation of the Supreme Court’s well-known statement that the right to tax planning is part of the taxpayer’s property rights, and he is entitled to economize his steps in order to pay the minimum tax possible. The fact that Nehama hurried before the amendment to the legislation came into force in order to benefit from an exemption from Land Appreciation Tax, is a legitimate tax planning, since he acted in accordance with the law.
It seems that the Supreme Court criticized the position of the Tax Authority by stating that the main goal is the collection of Real Tax, in light of the language of the law and its purpose, and the Tax Authority should not try to give a different interpretation that will result in tax collection at the highest possible rate.
AUTHOR:
Roy Grilak