How Much Income from Apartment Rentals Will Be Considered a Business?

Ohad Shpak Law Office
Ohad Shpak Law Office

How Much Income from Apartment Rentals in Israel Will Be Considered a Business and will be taxed accordingly? 


Last week, the Israeli Tax Authority published its position on how much apartments owners could earn income from, before being considered as businesses and paying income tax.


This position specifies that income from the rental of 10 apartments or more is considered to be business income, i.e. income that is liable to be taxed in accordance with the taxpayer’s income levels, that is, the person receiving the income from the rental of those apartments.


In addition, the Tax Authority assumes that receipt of income from the rental of five or fewer apartments is considered passive income – non-business income. This does require the payment of tax, in accordance with the amount of the rental, but regardless of the taxpayer’s total income


As for the rental of more than five residential apartments but less than 10, the income is examined in accordance with various tests.


These include: the quality of the residential apartments, the manner in which their purchase was financed, the period of time in which the real estate assets have been in the person’s possession, expertise in carrying out the transactions, frequency of transactions, or operations, financial scope of the transactions, the entrepreneurial test (i.e. of the apartments’ improvements and their marketing), and what the Tax Authority defines as the “Supreme Test” – examining specific circumstances.


The Tax Authority uses this test to examine every relevant circumstance that may help it distinguish between business and passive income.


According to the Tax Authority, 3,517 persons in Israel own at least five apartments and 401 persons own more than ten apartments each. According to the figures, 6,120 persons in Israel own between 5 and 10 apartments.


The Tax Authority determines that when income is produced in a systematic and frequent manner, and direct connection can be established between the income, the personal income and the human capital of the person generating the income (or its representatives), and when a system or system activity is required to operate the rental, this is a significant indication that a business of apartment rentals exists and this requires payment of income tax.


Until now, the Tax Authority has refrained from establishing a clear number of apartments on this issue, which has led to many appeals to the courts, the most prominent being of the businessman and one of the richest lawyers in Israel, Shraga Biran.


In the case of Biran, who owned 24 apartments, the District Court ruled that this was not a business, but the Israeli Supreme Court recently reversed that decision and ruled that the income received by Biran from these rentals should be regarded as business income, requiring payment of income tax.


The Tax Authority’s position reflects the court’s decision in the Shraga Biran case.

Leave a comment

About us

The Firm specializes in real estate and property tax, as well as commercial litigation and labor law. The Firm represents commercial entities, contractors, entrepreneurs, hedge funds, importers and exporters, associations / non-profits, cooperatives, tenants of urban renewal projects & private clients.

Our offices are located:
Tel Aviv – 13 Yehuda and Noah Mozes St.
Jerusalem – 34 Keren Hayesod St. 9214913

Recent posts

Follow us

Please leave details and we will get back to you as soon as possible

Open chat
Skip to content