Capital Gains Taxation in Israel
In Israel, capital gains are subject to taxation under the Income Tax Ordinance (ITO). The ITO defines capital gains as profits or gains derived from the sale, exchange, or other disposition of capital assets. Capital assets include real estate, stocks, bonds, and other investments.
The ITO distinguishes between short-term and long-term capital gains. Short-term capital gains are those realized within one year of acquiring the asset, while long-term capital gains are those realized after one year. Short-term capital gains are taxed at the taxpayer's marginal income tax rate, while long-term capital gains are taxed at a preferential rate of 25%.
The ITO provides for several exemptions and deductions in the calculation of taxable capital gains. These include:
- The sale of a primary residence is exempt from capital gains tax.
- The sale of assets used in a business is eligible for a deduction for depreciation.
- The sale of certain types of investments, such as government bonds, is exempt from capital gains tax.
The ITO also provides for a number of anti-avoidance rules to prevent taxpayers from artificially reducing their capital gains tax liability. These rules include:
- The "look-through" rule, which treats certain transactions as if they were made directly between the taxpayer and the underlying asset.
- The "same-day" rule, which prevents taxpayers from selling and repurchasing the same asset on the same day to create a capital loss.
The ITO's capital gains tax provisions are designed to ensure that taxpayers pay their fair share of tax on profits realized from the sale or disposition of capital assets. The preferential rate for long-term capital gains is intended to encourage investment and economic growth.
Relevant Legal Provisions
- Income Tax Ordinance (ITO), Section 88
- ITO, Section 91
- ITO, Section 92
- ITO, Section 93
Legal Reasoning and Policy Objectives
The ITO's capital gains tax provisions are based on the principle that taxpayers should pay tax on all income, including profits realized from the sale or disposition of capital assets. The preferential rate for long-term capital gains is intended to encourage investment and economic growth by making it more attractive for taxpayers to hold onto their investments for a longer period of time.
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