Gregory Alal V. Israel’s Tax Authority

In January 2015, Gregory Alal purchased an apartment on Nes Tziona St. in Tel Aviv for 7.4 million NIS. This was not Gregory’s only apartment in Israel.

In April 2015, Gregory officially changed his status in the Israeli Population Registry to “Oleh”. However, Gregory and his family did not actually move to Israel. They live in France and it is not clear whether they will in fact move to Israel.

Gregory attempted to claim the Oleh purchase tax benefit based on the following facts:

A) He purchased the apartment only a few months prior to his status changing.

B) He holds an immigrant identification card and is therefore entitled to Oleh rights.

C) The apartment is a “residential dwelling”.

The Israeli Tax Authority argued that Gregory was not eligible for the benefit since he did not reside permanently in the apartment and could not say for certain if and when he would in fact live there permanently.

According to the Tax Authority, in order for a new resident to claim the purchase tax benefit, the dwelling needs to serve as his permanent residence. Therefore, someone who spends 60 days a year in a dwelling and considers it to be a vacation home does not “live there” according to the criteria set forth by law.

Residential Dwelling: The Oleh’s Residence

Article 12 of the Purchase Tax Ordinance explicitly states that the benefit is offered on the condition that the purchased dwelling “serves as the immigrant’s residence”. This is similar to the purchase tax benefit offered to disabled persons, which also stipulates that the property must serve as the disabled person’s residence.

In a different case of another Oleh Chadash named Avraham Feder, the court dealt with a related question regarding eligibility for the purchase tax benefit.  

Avraham had previously held “Temporary Resident” status before leaving Israel for 20 years. Upon his return, he made Aliyah and received “Oleh” status, at which point he purchased a residential real estate and sought to claim the purchase tax discount.

However, the Supreme Court determined that Avraham was not eligible for the benefit since the purpose of the law is to “actively” assist new immigrants who make Aliyah, settle in Israel and do not leave for an extended period of time, not “veteran” immigrants who had immigrated to Israel in the past and return years later. 

Therefore, regarding the matter in question, the court ruled that eligibility for the purchase tax discount is contingent on the Oleh actually living in the purchased residence, and that an intention to live in the property is not in itself sufficient, even if it was an honest intention at the time of purchase.

60 Days a Year: Enough to Meet the Condition of “Residency”?

The court examined the term “residence” according to a precedent dealing with vacation homes, in which it determined that the term “residence” refers to three factors:

1. Nature – whether the dwelling is used in the same way as a dwelling that is lived in is used.

2. Intensity – how frequently the dwelling is used.

3. Length – duration of time that the dwelling is used.

The court determined that Gregory’s use of the apartment, for 2-3 months per year, could not be considered “residential” use, and that it was akin to staying in a hotel or vacation home and not a permanent residence.

According to the court, even if the property remains unused for the remainder of the year, and does not serve any commercial purposes, it still does not meet the requirement that an property must be the Oleh’s personal residence.

It is important to mention that there are sometimes justified circumstances for an Oleh’s extended absence from Israel, whereby his temporarily ceasing residence in the apartment is not considered him failing to meet the requirement set forth by the Israeli Purchase Tax Ordinance.

An example can be found in the case of Henrietta Ravnu, an Oleh who travelled outside of Israel for an extended period of time to care for her sick mother. During this time, Henrietta did not purchase an apartment abroad or work there, but rather lived in rented apartments or with her children.  Since Henrietta met the requirements set forth by the law and succeeded in providing a burden of proof, she was entitled to the purchase tax discount.

“Residency”: Within a Reasonable Time Frame

The Purchase Tax Ordinance stipulates that the purchased property must serve as the Oleh’s residence. However, there is no condition requiring that the Oleh must live in the apartment immediately upon acquisition. Gregory therefore argued that his declaration of intent to live there in the future should be sufficient.

In the Kdushai case, in which an Oleh applied for the purchase tax benefit on a property acquired for the purpose of establishing a new business, the count ruled that the passing of time, while an important consideration, could not be the sole deciding factor negating eligibility for the purchase tax benefit. Rather, additional circumstances would need to be examined, including whether business operations had been delayed for reasonable reasons or reasons not within the immigrant’s control. Depending on the circumstances, it might not be possible to determine at a particular stage whether the immigrant had failed to meet conditions for exemption, especially when within a “reasonable time frame”.

In our case, Gregory received the status of a new immigrant, purchased a residential dwelling and claimed the purchase tax benefit. However, he did not in fact make use of the property for his permanent residence within a reasonable time frame from the date of purchase, and he cannot offer justifiable reasons for this nor can he clearly state his future intent to live in the dwelling or the probability that he will do so.  Therefore, the court determined that according to Article 12 of the Ordinance, Gregory is not eligible for the purchase tax discount.

What Is the Required Time Frame?

At this time, no legal rulings have set forth clear principles regarding this question.

As long as there are \suspicious indications, such as renting out the apartment or selling it soon after receiving the purchase tax discount, the discount is more likely to be denied. On the other hand, reasonable reasons or extenuating circumstances might justify the sale of the apartment even after a relatively short time, as might a delay in the immigrant permanently beginning residence in the apartment.