Tax losses are not transferable by acquiring a company with losses in another area or by inheritance

A business owner dies with a capital losses carried from previous years that have not been offset in the amount of about ILS 46 million and carried losses from a business or occupation that have not been offset of about an additional ILS 2 million. One of the heirs, who inherited a third of the estate, sought to offset the carried losses against her income
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The Supreme Court has held that losses for tax purposes are a 'personal right', which cannot be transferred to another and cannot be bequeathed. Tax is paid only on the addition to wealth that has accrued to the taxpayer and therefore the tax is calculated on the income after offsetting all the amounts that the law recognizes as an expense or deduction. When in a particular tax year the full deductible expenses are not used, a loss is created for tax purposes and the law allows losses from one tax year to be carried to the next year and set off against income generated from another income source, as well as to offsets losses from one tax year against income from other tax years, in accordance with the provisions of the Israeli Tax Ordinance. The law allows a person to offset losses of that person only and therefore an heir cannot use the testator’s losses to offset against the heir’s income. Similarly, the offsetting of losses for tax purposes of a company, whose shares were purchased by a person for the purpose of using the losses only, is not recognized, when after the acquisition the company changed its colors and its income came from another business, even though it is the same legal entity. Thus, the right to tax losses of the deceased can be offset only against the tax debts of the deceased but cannot be used to offset the income of the heirs.