When the Law Meets Reality: Protecting Olim's Eligibility for Purchase Tax Benefits in Israel

Purchasing a home in Israel is one of the most significant steps for a new oleh seeking to establish a life in the country. Yet sometimes, the path to the long-awaited home does not follow the timelines contemplated by law, specifically the Israeli land tax law.

A decision by the Real Estate Tax Appeals Committee in Jerusalem, given about a year ago, illustrates how, in appropriate circumstances, the courts may favor a substantive examination of real-life circumstances over a rigid application of statutory deadlines.

Two Different Tax Benefits – One Dispute

The case concerned a new oleh who purchased an apartment from a developer before making Aliyah to Israel. In connection with the purchase, she sought to benefit from two separate purchase tax reliefs awarded by law:

The first was the reduced purchase tax rates applicable to the acquisition of a sole residential property by an Israeli resident;

The second was the specific purchase tax benefit available to new immigrants (Olim) under Regulation 12 of the Real Estate Taxation Regulations (Purchase Tax).

Although both benefits concern purchase tax, these are distinct legal arrangements, subject to different requirements and serving different purposes.

While the sole-residence benefit is intended to provide relief in connection with the purchase of a residential property by an Israeli resident, the benefit afforded to new olim is specifically designed to encourage Aliyah and facilitate their integration into life in Israel.

The Dispute

The apartment was purchased “on paper” from a developer. Following execution of the purchase agreement, delivery was significantly delayed beyond the contractual delivery date. As a result, a discrepancy arose between the statutory timelines and the circumstances that ultimately unfolded in practice.

The Israel Tax Authority maintained that the purchaser no longer satisfied the conditions required for the tax benefits, including due to the period that had elapsed between the date of purchase and the date on which she actually became an Israeli resident.

The purchaser argued, however, that she should not be deprived of benefits intended to encourage Aliyah and the purchase of a home in Israel because of a delay in delivery caused by the developer – a circumstance entirely beyond her control.

The Tax Appeals Committee’s Decision

The Appeals Committee accepted the appeal, holding that the relevant provisions regarding the purchase tax benefits should be interpreted in accordance with their underlying purpose rather than solely through a technical reading of their wording.

Significant weight was given to the fact that the purchaser had genuinely intended to establish the center of her life in Israel, and that the statutory timetable was disrupted by the developer’s delay rather than by her own conduct. The Committee therefore adopted a substantive approach, examining both the circumstances as they actually unfolded and the purpose of the legislation, rather than applying the statutory deadlines rigidly.

Why Is This Decision Important?

The significance of the decision extends beyond the individual purchaser. Delays in the delivery of new apartments have become increasingly common in recent years, and their consequences may affect not only when purchasers receive their homes, but also their tax rights.

The decision serves as an important reminder that, in appropriate cases, eligibility for tax benefits may be examined in a broader context, taking into account both real-life circumstances and the legislative purpose behind the benefit.

For new olim, returning residents and purchasers of new-build apartments, the decision demonstrates a willingness to consider reality as it actually unfolds - and not merely the calendar.

Legislative Update: An explicit arrangement now exists for purchasing an apartment "on paper" prior to Aliyah

It is important to note that, following the period relevant to the aforementioned court ruling, the Purchase Tax Regulations were amended. As part of the amendment, Regulation 12 was narrowed to apply to the purchase of a business property by an Oleh, while Regulation 12A was added alongside it to regulate the benefit granted to an Oleh purchasing a sole residential apartment.

It is particularly noteworthy that the new regulation explicitly addresses the scenario where an Oleh purchases an apartment from a developer prior to moving to Israel, while construction is still incomplete. In such a case, the construction period is excluded from the calculation of the one-year period preceding entry into Israel, provided that no more than three years have passed between the date of the apartment's purchase and the Oleh's initial entry into Israel, and that one of the required Oleh certificates was obtained within one year of the purchase date.

Thus, the law now provides a more explicit response to the tension between the timeframes stipulated in the regulations and the reality of purchasing an apartment "on paper" - precisely the type of difficulty that lay at the heart of the aforementioned ruling.

As of this writing, there is no known subsequent ruling overturning the decision in this matter, nor any ruling on an appeal against it. However, each case must be examined based on its specific circumstances and the applicable legal provisions in effect at the time of the transaction.

(Case No. 22899-10-22 Eisler Vs. The head of land tax Jerusalem)