The writer is a partner in the accounting firm Leon Orlitsky & Co.
The rental prices continue to climb in a one-sided direction in favor of the apartment owners, and the public struggle of the tenants rolls the responsibility to the doorsteps of the legislators and the government. While the members of the government are spreading promises under the auspices of the election period, it seems that the Ministry of Finance missed another opportunity to regulate the rental market through the update to the cash law.
A few months ago there was an unsuccessful attempt to regulate the enforcement of the tax payment on residential rent. The most recent Law of Arrangements almost included a clause in which all landlords were required to report their rental income as an absolute reporting obligation, including in the event that a tax exemption applies due to the amount of the rent. Despite this, the legislation was removed from the chapter due to various pressures exerted on the Ministry of Finance and thus this issue is still open and enforcement is minimal to non-existent.
The lifeboat
The Tax Authority is aware that many apartment owners who rent out their apartments for amounts that are higher than the existing monthly exemption (about NIS 5,200 per month), do not bother to report this at all and pay the required tax. Even though the reporting is relatively simple and the amount of tax in case you have exceeded the ceiling is 10% – which by all accounts is low. The renters are afraid to appear on the radar of the tax authority. A large part of the lessors, the owners of the apartments, are employees who have no file at all with the tax authority and therefore are not obliged to submit an annual report.
The expected update in August to the Law on Reducing the Use of Cash, 2018-2018, the famous “Cash Law”, could have served as a lifeline and a second chance to regulate the field, but unfortunately the Ministry of Finance apparently did not pay attention to it. The new update further reduces more the ability to use cash in transactions, this reduction process is happening all over the world and also here as part of the tax authorities’ war on unreported black capital. The ceiling for cash payments between businesses in Israel has dropped to a total of 6,000 shekels instead of 11,000 shekels until now and between private individuals to 15,000 shekels With the exception of the sale of a car that will remain NIS 50 thousand (it is not clear why) this was also the previous ceiling for payment between private individuals.
For our purposes, the big mistake is that the law does not have any specific reference to the issue of paying rent for residences. The amendment to the cash law could have been an opportunity to kill two birds with one stone. A specific reference in the amendment to the law to the subject of rent, which is of course relevant to renting an apartment for residential purposes between individuals, could have been a complement to the long-awaited enforcement. All this through two changes that were supposed to be made in the amendment to the law.
fear the tax authorities
The first change that also adds a ban on receiving cash in an apartment rental transaction in the amount of over NIS 5,200 per month, which is, as mentioned, the ceiling of the exemption. And the second amendment is in the definition of a rental transaction for the recipient of the payment which should have included all of his income from renting an apartment so that he cannot collect in cash total amounts below the exemption in the event that he has several apartments, each of which is rented for an amount that is below the ceiling.
Such a ban would have required the rent payments to be made by bank transfers, checks or any traceable means, which would have caused those landlords who ignore the law to fear even more that the hand of the tax authority will catch up with them in the end.