The Normative Framework
- Before I go into the facts of the cases before us and the arguments of the parties, I will elaborate on the legislation and case law that deal with the liability for betterment levy – a review that will serve as the basis for our discussion in this case.
The Betterment Levy Charge
- A betterment levy is a mandatory payment collected by a local committee from a landowner whose lands were improved as a result of a planning action (which is included in the list of cases listed in the addendum). At the basis of the obligation to pay betterment tax is distributive justice. The purpose of the levy is to participate in the expenses of the local authority and to share with the public in the taxpayer's enrichment that has arisen as a result of the efforts invested by the authority in the planning and development of the area (see: Civil Appeal 1341/93 Sea & Sun Beach Hotels in Tax Appeal v. Tel Aviv-Yafo Local Planning and Building Committee, IsrSC 52(5) 715, 720 (1999)); Civil Appeal 1321/02 Neve Building and Development in Tax Appeal v. Residential and Industrial Construction Committee, Central District, IsrSC 57(4) 119, 128-130 (2003)).
- The legal basis thatgrants the local committee the authority to collect betterment levy is found in section 196A of the Tax Credit, where the amount of the levy, the terms of its collection and the methods of payment thereof are regulated in the addendum.
- Section 1(a) of the Addendum defines the term "betterment" as follows:
"An increase in the value of real estate due to the approval of a plan, the granting of relief or the permitting of excessive use."
- Accordingly, and in principle, a landowner may be liable for betterment tax if two cumulative conditions are met: one – there has been an increase in the value of the land; andthe second – the increase in value is caused by one of the planning actions listed in section 1(a) of the addendum (see: Application for Administrative Appeal Leave 168/20 Barkol v.Holon Local Planning and Building Committee, paragraph 5 [Nevo] (February 15, 2023) (hereinafter: the Barcol case)). The first condition is therefore getting rich in the real estate market. The second condition embodies the requirement of a causal connection between the planning action and the enrichment as aforesaid. If these conditions are met, the levy charge arises; In other words: a tax event occurs.
- One of the planning actions that may establish the betterment levy charge is "plan approval". "Plan" is defined in Section 1(a) of the Addendum as "a local outline plan or detailed plan". However, over the years, case law has recognized that a national outline plan may also be a basis for charging betterment levy where the national outline plan led to a change in a local plan (see: Civil Appeals Authority 384/99 Assessed in Tax Appeal v. Tiberias Local Planning and Building Committee, paragraphs 4-5 [Nevo] (October 19, 1999)), or when The National Outline Plan allows for the issuance of building permits by virtue of it (see: Appeal Petition/Administrative Claim 8600/15 The Local Planning and Building Committee Kiryat Ata v. Paz Gas Ltd., para. 54 [Nevo] (November 1, 2018)).
- In this context, it was held that when we are dealing with a national outline plan that is not sufficiently concrete, and which leaves the discretion regarding its implementation to the local planning institution, such that the landowner has no "rights vested in it" – then the date of the tax event, the date on which the betterment took place, will be the date on which the national outline plan received specific realization in the form of obtaining a building permit (see: Application for Administrative Leave to Appeal 505/15 Opel Kardan Investments in Tax Appeal v. Local Planning and Building Committee, Ashkelon, paragraph 16 [Nevo] (April 20, 2016)). This state of affairs was referred to in case law as "abstract rights" (see: the Barkol case, at paragraph 15).
TAMA 38
- TAMA 38 is a national outline plan that aims to encourage the reinforcement of old buildings against earthquakes. Despite the fact that it is a national plan, TAMA 38 stipulates the provisions of a detailed plan in a manner that allows the local planning institution to grant building permits directly by virtue of it (see: section 21 of TAMA 38; Micha Gidron and Aharon Namdar, TAMA 38, 42 (2012) (hereinafter: Gidron and Namdar)). TAMA 38 grants the local planning institution broad discretion with respect to the granting of a building permit, including the power to refuse to grant the permit to the applicant (see: section 22 of TAMA 38; Gidron and Namdar, at pp. 338-339). In addition, TAMA 38 authorizes the local planning institution to approve a detailed plan for the purpose of reinforcing buildings against earthquakes whose conditions deviate from those set out in TAMA (see: section 23 of TAMA 38; Gidron and Namdar, at p. 309).
- The case law held that since the rights under TAMA 38 are "abstract rights" – rights whose realization is contingent on a concrete decision by the local planning institution at its discretion – the tax event in relation to it will only take shape upon the issuance of a building permit. The collection of the levy in such a case is subject to the exemption established by the legislature in section 19 of the addendum, according to which the obligation to pay betterment tax for betterment of real estate due to receipt of a building permit granted by virtue of TAMA 38 or by virtue of a detailed plan prepared in accordance with the provisions of the TAMA will not apply.
- Accordingly, it was ruled in Civil Appeal Authority 3002/12 Givatayim Local Planning and Building Committee v. Ron [Nevo] (July 15, 2014) (hereinafter: the Ron case) that betterment levy should not be collected by virtue of TAMA 38 when exercising rights by way of sale, but only upon the issuance of a building permit:
"TAMA 38 applies to all real estate within the boundaries of the state, and ostensibly creates theoretical betterment for every building in the country [...] Therefore, it seems that from the outset the approval of TAMA 38 could not be viewed as an betterment event that ignites the tax charge and requires a levy already at the time of the sale. In this respect, TAMA 38 is likened to a kind of plan that hovers over the entire territory of the country, and by analogy to a "floating lien" that takes shape when a certain event takes place, so too the crystallization of the betterment is at the time of the issuance of the building permit [...] Therefore, I accept the position of the learned Namdar that with regard to TAMA 38, the legislature saw the date of issuance of the building permit as the date that ignites the obligation to pay betterment tax [...] and not the date of approval of the plan [...] To summarize this issue, Since TAMA 38 is general and applies to the entire country, it was not possible to collect betterment levy in respect of it from the outset at the time of the sale of the land" (see: ibid., at paragraphs 56-57; Emphasis added – A.S.).
- I will note that the judgment in the Ron case dealt with the law of conditional rights that were included in a local outline plan for the purpose of charging betterment tax, and the reference to TAMA 38 was made in the margins. However, there is currently no challenge to the determination that betterment levy should not be collected by virtue of TAMA 38 at the time of sale; In any event, let us not forget that according to the provisions of the law in their plain form, it is not possible to collect betterment levy by virtue of such a national outline plan.
The amount of the levy
- After we have realized what is the tax event that consolidates the betterment levy charge, we will briefly refer to the rules that apply to the calculation of the levy. To a large extent, this issue is at the center of our discussion.
- Section 3 of the addendum states, as stated, that "the rate of the levy is half of the betterment". Section 4(7) of the addendum states that the betterment assessment will be made "taking into account the increase in the value of the land and as if it were sold on a free market". In other words, the betterment will be calculated according to the price at which the real estate would have been sold in a transaction between a willing seller and a willing buyer on a free market. In order to determine the amount of the betterment levy, the appraiser is required to perform two valuations of the real estate: one, the value of the land "in its new state" in accordance with the rights granted in the framework of the betterment plan; and second, the value of the land "in its previous state" in accordance with the rights that existed prior to the approval of the betterment plan. As a rule, thedifference between the valuations embodies the amount of the betterment and half of it is obligated to pay a levy (see: Civil Appeals Authority 147/14 Tel Aviv-Yafo Local Planning and Building Committee v. Abramovich, para. 11 [Nevo] (December 31, 2014)).
- The last time this Court was addressed to an issue concerning the valuation of real estate for the purpose of assessing betterment levy was Civil Appeal 4487/01 Local Planning and Building Committee, Rehovot v. M. Lusternik & Son Engineering & Construction Company Ltd., IsrSC 57(5) 529 (2003) (hereinafter: the Lusternik case). In the same matter, the question was discussed as to whether in the framework of a betterment levy assessment following the approval of a city building plan, there is room to take into account the fact that one of the parts of the improved land is located on a busy street and in the heart of a residential construction neighborhood, so that despite the previous agricultural designation of that part of the land, expectations for future planning affected its value even before the preparation of the betterment plan (the zoning plan).
- The Late Judge A. Levy, z"l, stated there as follows:
"The market value of real estate can be affected by a large number of factors [...] However, it seems that the planning authorities have a decisive influence, since they determine the potential of the land and the possibilities of exploitation inherent in it. The value of land intended for construction is not the value of agricultural land, and the value of that land is not the same as the value of land designated for public purposes. However, the value of real estate may change in response to expectations of a planning change, and not necessarily to the planning-statutory change itself. In other words, the very knowledge of the possibility of preparing a plan may affect the value of the land, and the question is therefore whether it is correct to attribute weight to such expectations, and to which of them, and to be precise: expectations for a change in planning designation can arise from a large number of factors, and not necessarily from a hope for the approval of a particular plan" (see: Lusternik, at p. 537; emphasis added ).
- Justice Levy therefore distinguished between a general expectation of a planning change (for example, an expectation that derives from the potential inherent in the type or location of the property) and a specific expectation for the approval of a particular plan. Against this background, it was determined that the assessment of the value of the land may include the general expectations for the development of the land, but the specific expectations that derive directly from the betterment plan (hereinafter: the neutralization rule) should not be taken into account. In the absence of the neutralization rule, the expectation of betterment that will come as a result of the preparation of the betterment plan will increase the value of the land in its pre-plan state, and as a result, it will reduce the betterment, to the point of canceling it altogether, and will reduce, or even reduce, the levy even though the plan that was observed caused part of the betterment – hence the causal connection between the overall betterment of the land and the plan. Accordingly, Justice Levy ruled that "a direct causal connection is required between the betterment plan and the increase in value, and from this you learn that any expectation in which there is no connection of this kind, the appraiser is entitled to take into account" (ibid., at p. 539; Emphasis added - A.S.).
- This is the place to make a terminological note that will serve us throughout my judgment. When it is sought to "neutralize" any component of the real estate value "in the previous state", it refers to a reduction of a certain amount from the market value of the real estate. In contrast, when it is requested to "include" a certain component in the value of the real estate, the intention is not to separate the component in question from the market value of the real estate. In other words, we are dealing with the valuation of the real estate in the market as they are (without neutralization). For example: if, as in our case, the component that is requested to be neutralized is the contribution of the approval of TAMA 38 (X) to the value of the land (V), then, following the neutralization, the value of the land "in the previous state" will be V minus X (V-X). In contrast, inclusion means the assimilation of the contribution of TAMA 38 to the value of the land as it was on the date prior to the betterment plan (V). Neutralization therefore increases the betterment, and consequently the levy.
Background and Previous Proceedings