According to data from the Bank of Israel, the total managed financial assets of the Israeli public at the end of 2021 stood at a whopping NIS 5 trillion. This amount includes assets managed directly by the investors, as well as those whose money is managed by others, such as banks and investment houses. A bear market (a market in a downward trend), which resulted from a series of economic and geopolitical events meant that many investment portfolios experienced losses, when the stock markets around the world also suffered a decrease in value.
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But it turns out that a losing investment is not necessarily a bad thing, or at the very least it can be used in certain ways to sweeten the feeling of missing out a little. Among these other means you can find Form 867, which can save a lot of money and maybe even win a tax refund. The tax expert, Adv.
“The basic logic is that capital gains must be taxed at a rate of 25%. According to the law, banks or other investment entities must deduct tax at source from all profits generated in that year, that is, transfer the profits to you after the amount of tax has been deducted from them,” explains Adv. Eisenberg. “The form in which the deducted tax rate and the amount of accumulated profits are listed, includes a section where offsetable losses are indicated. That is, losses that occurred that year and can be deducted from capital gains, if you had any.”
What is form 867 and how to read it?
“Form 867, or by its long name: “Approval of withholding tax on capital gains from securities tradable on the stock exchange”, is one of the end-of-year confirmations that banks and investment houses send to private and business customers. The form details the profits and losses from deposits, securities, dividends and interest from securities, But mainly the tax deducted from your account in the year relevant to the form.” According to her, “If you have no profit that year, that is, you suffered losses, of course no tax will be deducted, and the amount of the allowed loss will be specified as an offset.”
“Form 867 includes several parts: 867 A+B. The form exists in two versions – the first version in case all the partners in the account are ‘members of people’, that is, a company, provident fund, registered partnership, trust fund, etc., and the second version for all others “, Adv. Eisenberg continues and adds. “867 C is a confirmation of withholding tax from dividends and interest from securities. 867 D is a withholding tax approval from interest and other profits from deposits and savings plans. Additional but less relevant parts are 867 E, which is a confirmation of withholding tax from loan fees, and 867 F, which is a confirmation of withholding tax on income from a real estate investment fund.”
Where can I find the form?
According to law, the financial institutions must send this form on their own initiative, explains Attorney Eisenberg and clarifies: “If you have not received it, it will usually appear in the personal area of the investment house’s website or the bank’s website, under ‘approvals and forms.’ You can of course request it by contacting the customer service of the financial institution where your account operates. The form is available starting at the end of March of the past year, that is, several months before the date of submission of a form known as the ‘annual report’.”
Why is the form important?
According to Adv. Eisenberg, the form is important because it is actually the solution to the problem of lack of synchronization between the years of financial activity, and between the various accounts that one person often has. Adv. Eisenberg also adds to describe the importance of the form that “comes to light when losses arise from market activity The capital, when there are losses that are carried over from previous years or, as thousands of Israelis have, multiple accounts: for example, 2 separate accounts in the same bank in the capital market activity, or in different financial entities: one account in the bank and another account in an investment house.”
After Attorney Eisenberg explained the importance of the form and how to get to it, she now turns to the most critical point.
How should the form be used?
“In order to reach a situation of paying as little tax as possible and even receive a refund from the IRS for tax balances paid, you will be required to submit an annual report to the tax authorities, to which Form 867 must be attached. If you are self-employed, Form 867 is sent to the IRS regularly as part of The annual report that freelancers are required to submit, and which is usually done by an accountant or tax consultant. On the other hand, employees are not required to submit an annual report, and in most cases they are the ones who may be entitled to a reduced tax payment or a tax refund.”
Attorney Eisenberg details the steps: “Download the form, on its two parts: A + B. If you invest through several financial entities, all forms from all financial entities and accounts must be attached. Form 867 alone cannot be submitted. Fill out the annual report, preferably with the help of an accountant or a lawyer specializing in the tax field. Submit the annual report on income that was in that tax year, attaching the 867 forms. Employees – the report must be submitted by April 30. Self-employed – by May 31, and this date is also for double accounting managers.”
Is it possible to use form 867 to offset additional taxes that are not in the capital market?
“Until now we have talked about the capital market and trading in securities, but capital gains are not only in the stock market,” replies Attorney Eisenberg. “We can offset losses incurred from trading in securities (which, of course, have not yet been offset from previous years) from capital gains tax generated from the sale of real estate,” she explains Adv. Eisenberg. “Furthermore, the offset can be made in the tax year in which the appreciation tax was charged, and not only if both tax events took place in the same year. If appreciation tax has already been paid for the profit from the sale of real estate, and there is a corresponding loss from securities, the offset can be made in the annual report, and the tax paid will be refunded.”
Attorney Eisenberg makes an important note: “Offset of capital gain loss from securities can only be done when a “tax event” is created, in other words: the actual sale of securities. Profits and losses “on paper”, meaning the absence of actual realization of the profit or loss, will not be found in form 867 anyway, and therefore are not relevant to the tax calculation. For example, if you own a share whose value has decreased by 30 percent, it has no meaning in terms of tax, until you actually sell the share.”
Anything else to note?
“A final note, a bit of financial consumerism,” Attorney Eisenberg wishes to draw attention to another point. “Form 867 also details the management fees that the bank or financial body charges you, in percentages and monetary value. These amounts may amount to considerable profit and hundreds and thousands of shekels a year.”
Attorney Eisenberg also claims: “Reviewing the form is also another opportunity to track the expenses of managing the investment portfolio, to compare the various benefits provided by the financial institutions, to bargain or transfer the investment portfolio to be managed by another financial institution.”