Your Taxes: Charity and Squatting

They say charity begins at home, but now the Israeli Tax Authority (ITA) wants charity to begin at your employer! The ITA issued a long-expected announcement on November 13, 2024, regarding the Israeli tax credit for donations to Israeli charities if they are approved under Section 46 of the Income Tax Ordinance.

Charitable donations to certain approved Israeli charities in the year may qualify for a 35% tax credit within certain limits. In 2024, the minimum donation is NIS 207, and the maximum tax credit is NIS 10,354,816 or 30% of income). For example, if you donate NIS 1,000, you may get a NIS 350 reduction in your Israeli tax bill.

Until now, it was necessary to wait until after the year-end and then file an annual Israeli tax return to get a tax refund.

The ITA activated an automatic electronic system on November 13. If the charity is hooked up to the electronic system, when an employee makes a donation, his employer should receive a notice straight away of the amount of tax credit due to the employee. However, the name of the charity won’t be disclosed to the employer for privacy reasons. The employee should then receive the tax credit against tax on his/her salary without having to request it.

This began as a pilot project in April 2024, it seems it has gradually been widened to more charities. It remains to be seen how smoothly it all works.

Charities may presumably start signing us all up on monthly donation standing orders.

Not mentioned in the ITA announcement are charitable donations by Israeli residents to US “friends of Israel” charities – these get a similar tax credit under the US-Israel tax treaty but are limited to 25% of US income. 

No VAT on Squatters?

In an unrelated matter, the Krayot Magistrates’ Court has just ruled that VAT does not apply to squatters who were made to pay rent (State of Israel Vs. Mukbal Mukbal, Case 58611-01-20, decided November 9, 2024).

The case concerned a forest near Shfaram, where squatters began their occupation on an unknown date – but apparently in the 1930s. The squatters claimed they worked the land, and inaction against them gave them occupation rights. In 2019, the Israel Land Authority took legal action to clear the land, but then the Shfaram municipality took over ownership of the land. The municipality instead demanded a fair rent for using the land.

The Magistrates' Court ruled on the level of rent, but a secondary question arose as to whether VAT had been applied. It is not clear how many years back rent and VAT were claimed.

The matter was referred to the District Court, which referred the matter back to the Magistrates’ Court. The Magistrates’ Court then surprised everyone by ruling that no VAT was due on the rent. This was because the rent levied in this case was restitution for unjust enrichment as a remedy for benefits wrongfully gained.

The Court cited an earlier Supreme Court precedent and English Common Law. When someone infiltrates your land, two legal remedies are available – compensation for unjust enrichment or damages for tort. Compensation is due under whichever results in a higher amount. In the case of tort damages, even if the wrongdoing is commercial, the compensation does not amount to a business transaction for VAT Law purposes.

As for the claim that even private individuals not in business pay VAT, the Court said it depends on the type of transaction and asset. For example, on property used for public purposes or mixed assets, VAT is generally not due, such as a cemetery, road, etc. In this case, the Court ruled that the land was registered as forest, and no evidence was brought as to whether VAT applied.

It seems the judgment was specific to the circumstances of this case. It may well be appealed or distinguished in other cases. So please don’t start squatting or evicting squatters just to get a VAT advantage. Legal advice is needed.

As always, consult experienced legal and professional advisors in each country at an early stage in specific cases.