With proper planning and a stroke of luck you may avoid betterment tax

With proper planning and a stroke of luck you may avoid betterment tax

Yair Aloni, Adv.
November 5, 2018

Israeli Zoning Law provides a window of opportunity in the interim period between the date of publication of the bettering plan and the date of its entry into effect, 15 days after publication. With proper planning and a stroke of luck, one may sometimes be able to be spared from paying a betterment tax.

The Zoning Law empowers the local planning committee to charge betterment tax from a real estate owner or tenure lessee, when there is an increase in the value of the real estate due to approval of a plan, granting a relief or permitting excessive use. With regard to the betterment tax, there is a distinction between the tax event that creates the liability for the betterment tax (the effective date of the plan) and the payment date that applies only when the right to the land is actually used. Thus, when a person wishes to sell a real estate asset or receive some kind of a permit, such person may discover that a betterment tax exists regarding the asset, without payment of which, the planned act may not be performed.

The law defines the effective date in the event of approval of a plan and sets that a plan enters into effect 15 days after an official notice confirming its approval has been published. Thus, under the wording of the law and the interpretation under law of the term “day”, the commencement date is only "at the end of" 15 days from the date of the publication, i.e. 16th day.
Sometimes the authorities work to issue assessments of betterment tax even though the dates under law have not yet passed, either due to wrong understanding of the law or erroneous calculation of dates. In a case discussed in the District Appeal committee of the central district at the end of 2017, a sale took place during the 15th day after publication and the appeal committee held that as long as the sale agreement was signed during the 15th and before midnight, it should be regarded as an agreement signed prior to the "commencement of the plan". This means that the tax liability due to the bettering plan will be passed on to the next transaction and will apply in the future to the purchaser and not to the seller, who upon the effective date is no longer considered the owner of the land.

Utilizing the time window granted by law, in order to avoid paying the betterment tax, is a legitimate and reasonable tax planning and as long as the “back-door” in the law is not corrected by a legislative act one can rely thereon. Thus, before entering into a real estate transaction, it is recommended to consult with an appropriate professional to determine whether there are bettering plans applicable to the land, while examining the relevant dates. Proper planning and execution of a real estate transaction within the framework of a window of opportunity under law may lead to the non-applicability of the liability for betterment tax which in certain cases may reach hundreds of thousands of shekels. In any case, a real estate transaction is sometimes deemed by seller and purchasers as a simple transaction that can be done without lawyers, or with any lawyer, even if unexperienced. This misconception can cause huge damage that one does not always immediately see and it is vital to be escorted in any real estate transaction with a lawyer experienced in the field.