Tax authorities are fighting rental fraud

Housing prices in Israel are rising rapidly, and the shockwaves are being felt in the rental market. Landlords demand higher rents, and tenants sometimes have to pay hundreds or even thousands of shekels more to stay in the same home. However, landlords sometimes encounter an obstacle, namely a tax liability, when the monthly rental income exceeds a certain amount. For 2022 the amount is 5196 NIS.

However, this does not necessarily stop them, and some find creative, even illegal, ways to circumvent the obstacle: secret annexes to the treaty; collection of part of the rent in cash; renting a separate parking space; and even “agency fees” paid to the landlord. And this is only a partial list.

“A month ago, the landlord asked me to make the checks I give him for 5,100 NIS a month, even though the rent I pay is higher, saying, ‘We’ll find a way to transfer the rest.’ It took me a while to realize that he wanted to avoid taxes. At the same time, he raised the rent, but that’s another matter, “a tenant from central Israel told us.

A person looking for an apartment in the center of the country wrote in a Facebook post that the landlord had asked for a rent of 5,200 NIS per month and another 5,000 NIS agency fees payable to himself, although he had not shown her the apartment. Someone renting an apartment in central Israel told the Globe: “We are renting an apartment. At the beginning we agreed with the tenants to rent from 5700 NIS, but then they started asking for all kinds of repairs and changes, so we offered the rent should be reduced to 5150 NIS, but the repairs should be at their cost, so we got rid of the need to deal with it and they won a discount. In this case, everything goes to income tax. “

Dividing the amount, market sources say, is a well-known practice: under the contract, the landlord takes the minimum, and the rest is reported as payments to the housing commission, or expenses, or payment for furniture, or a broker’s fee. , or simply taken in cash.

“There’s a lot of room for manipulating rents,” he said. Reut Felder, a lawyer with an office in Rehovot. “Any additional obligations that have not been communicated to anyone may be included in the annex to the rental agreement. For example, a separate rental of a parking space or storage space.”

In the absence of a national rental register, the Israeli tax office has difficulty enforcing tax laws on landlords who evade taxes or find various ways to avoid them. According to tax authorities, at the end of 2021, there were more than 340,000 people in Israel who owned more than one home. How many of them rent out the additional properties? No one knows. It is not known how many of them pay income tax.

“People aren’t afraid because they don’t know a lot of people who have been captured,” Fedler said. “We only hear about those who made money, not the case of the person caught. This is despite the fact that non-declaration is a crime punishable by up to two years in prison, a fine, or both. In more severe cases, the penalty can be up to seven years in prison. “

Sometimes, she says, it is preferable to report rental income only from an economic point of view. “Whoever doesn’t pay tax hurts himself when it comes to capital gains tax, when property is sold. Many people are not aware of that. And capital gains tax is much higher than the rent tax rate. “

The Israeli tax administration told the Globe: “As part of the general treatment of tax evasion, the tax authorities have intensified the application of taxation on rents in recent years. Various actions have been taken, such as auditing landlords and conducting hundreds of criminal investigations. and as part of the ongoing process of expanding the reporting network, cross-checking information has uncovered thousands of files for rental property owners, from which taxes of about 1.4 billion shekets have been collected, so far. “

However, NIS 1.4 billion is a drop in the ocean of sophisticated rental tax evasion schemes.

A tax official told the Globes: “Without the requirement to report rental housing, the authority must work very hard to catch tax evaders in the market. We are constantly checking real estate documents and home ownership databases. , but without a database of renters, we can’t reach everyone. “

The Israeli tax administration and the Ministry of Finance have tried to resolve the anomalies in the rental market in the latest bill on economic agreements and had to adopt a section obliging real estate investors to report rents received. However, the initiative was torpedoed by Justice Minister Gideon Saar, who said the reporting requirement would deter people from renting out housing due to the burden of reporting and that the stock of rental property would decline, and from Construction and Housing Minister Zeev Elkin and officials in his ministry who thought the new reporting requirement would hurt the rental market by raising prices.

Rental tax lines:

1. Full exemption for monthly rents not exceeding NIS 5,196.

2. 10% tax on rents over the released, without deductible expenses.

3. Taxation with the marginal rate of personal income tax. Rental income is taxed as part of the taxpayer’s total income, but he or she may deduct expenses such as legal fees, repairs, etc. The price of the property can also be depreciated by 2% per year.

Posted by Globes, Israel Business News – – on June 19, 2022.

© Copyright by Globes Publisher Itonut (1983) Ltd., 2022.

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