by Don Shrensky, CPA
On December 5th, 2011, the Knesset passed the first of the Trachtenberg committee recommendations. The new law is entitled “The Bill to Change the Tax Burden”. The goal of this law is to lower the income tax for the middle classes, starting from 2012.
Some components of the law are as follows:
- Lowering the ceiling for income subject to Bituach Leumi to NIS 41,000 per month (from NIS 73,422 per month in 2011).
- Increasing by 50% the refund from negative income tax for working mothers and single parent fathers.
- An additional two credit points for working men with children under the age of 3, which can add around NIS 400 net to a monthly salary.
- Interest exemption for seniors (over 67 years of age) will increase to NIS 13,000 for individuals or NIS16,000 for couples where both are over 67.
- Company tax rates are 24% in 2011 and were scheduled to decrease by 1% every year until it reached 18%. In 2012 it will increase to 25% and remain at that rate.
- Tax rates on dividends, interest, and capital gains will increase for shareholders of private companies from 25% to 30%.
- Tax rates on dividends, interest, and capital gains from publically traded securities will increase for individuals from 20% to 25%.
- Individual annual tax rates for 2012 (changes are in bold):
- Up to NIS 60,840 – 10%
- NIS 60,841 to 103,920 – 14%
- NIS 103,921 to 168,840 – 21% (Instead of 23%. This will mean NIS 80-120 decrease in your monthly tax bill)
- NIS 168,841 to 254,880 – 30%
- NIS 254,881 to 489,480 – 33% (Instead of up to NIS 482,760)
- For every additional NIS over 489,480 – 48% (Instead of 44%)
These changes present tax planning opportunities for the end of 2011. Please call the office to speak with one of our Israeli tax experts if you feel that you would benefit from some year-end tax planning.
1) Shareholders of private companies (Israeli or foreign) should consider distributing dividends before 31 December 2011.
2) If you hold publically traded securities, and were planning on selling soon, consider selling them before 31 December 2011 (but only if at a gain) to take advantage of the 2011 lower tax rate.
3) However, for non-publically traded assets (e.g. real estate, privately held companies), the future gain on the sale after 31 December 2011 will be proportioned to the
- a. Gain up to 2011 (taxed @ lower rates) and
- b. Gain from 2012 taxed @ 25%
In all cases, speak to us before you do anything!
Don Shrensky, CPA (Israel, USA) is affiliated with the Institute of Certified Public Accountants in Israel, American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.