The rate of rise in housing prices is breaking records, and the rental market is also experiencing the shock waves. The demands of apartment owners are rising, and tenants are sometimes forced to add hundreds and even thousands of shekels each month just to stay in the same apartment. But sometimes homeowners run into an obstacle – which is crossing the line to pay income tax. But as we shall see now, this too does not always stop them, and some find “creative” and legitimate ways to circumvent the limitation: secret appendices to the contract, collecting part of the amount in cash, renting the parking separately and even collecting “brokerage fees” to the landlord. And that’s probably just the bottom of the list.
“A month ago, the landlord asked me to transfer the following checks to him for NIS 5,100 a month, even though the rent I pay is higher, and the balance is ‘found a way to transfer’. It took me a while to realize that he wanted to evade tax. I have the rent, but that’s a different matter, “a tenant in the center of the country tells us.
A similar story came up last week in a large Facebook group, in the question of a tenant: her landlord announced that he would raise the rent, but asked that the contract say only NIS 5,100, and in practice the tenants would pay an additional sum of several hundred Shekels. The landlord is probably trying to evade paying tax, since up to a certain ceiling there is an exemption from paying tax on renting an apartment. He is wrong, since the exemption ceiling this year is already NIS 5,196 per month. And there are more examples.
A tenant who was looking for an apartment in a city in the center of the country wrote in a Facebook post that the landlord asked for rent for NIS 5,200 – and another NIS 5,000 in brokerage fees for himself, even though he did not show them the apartment at all. A landlady from the center of the country told Globes: “We rent an apartment. At first we agreed with the tenants on a price of NIS 5,700, but then they started asking for all kinds of repairs and changes, so we offered them to lower the price to NIS 5,150 – but the repairs will be on them. “We took the treatment away from ourselves and they also received a discount. In the meantime, we also left the price as it is, because what do I have to raise? In any case, everything will go to the income tax.”
Splitting the sums, the market says, is a well-known practice: taking the minimum and the balance in the contract is considered as house committee fees or bills or paying for furniture or brokerage, or taking in cash.
“There is a lot of play on the issue of rent,” says Adv. Reut Felder, who owns an office in the city of Rehovot. For example, renting the parking lot or warehouse separately. “Felder tells us about another way for apartment owners to get around the limit, and that is to split apartments. Such as property taxes.
It is better to report, and not just for peace of mind
In the absence of a national rental register, the tax authority has difficulty enforcing apartment owners who evade paying tax or adopting various methods to circumvent it. According to data from the Tax Authority, as of the end of 2021, there were over 340,000 people in Israel with two or more apartments. How many of them rent the properties? Unknown. Nor do some of them pay income tax.
“People are not afraid, because they do not know many people who are caught,” says Advocate Felder. Both together.In more severe cases, the sentence may even reach up to seven years in prison.
According to her, sometimes even from a net economic point of view it is better to report. “Those who do not pay the tax hurt themselves with the praise tax at the time of sale. A lot of people do not know this. The praise tax is much higher than the tax on rent,” she says, adding that “there is a hatred of tax payments, mixing proper tax planning with deceit. “When you buy an apartment for investment, you need advice on what is worth it. There are many situations in which it is worth paying. By the way, paying tax is very easy – through the website, and only once a year.”
The area is full of loopholes, and enforcement has no teeth
The Tax Authority told Globes that “as part of the overall treatment of tax evasion, the Tax Authority has in recent years increased enforcement in the field of taxation of rental income, including a variety of actions including, reviews among tenants, conducting hundreds of criminal investigations and, as part of the ongoing expansion of the reporting network. “Through information crosses, tens of thousands of cases were opened for owners of apartments for rent who are liable to pay tax, from which tax has been collected to date in the total amount of about NIS 1.4 billion.”
But NIS 1.4 billion is just a drop in the ocean of sophisticated rents in rental income.
A senior Tax Authority official told Globes that “without the obligation to report apartment rentals, the authority must do ant work to catch tax evaders in the market. We are constantly checking real estate records and database regarding apartment ownership, but without a tenant database we will not reach for everyone”.
The Tax Authority and the Treasury tried to resolve the large anomaly of the rental market under the latest Arrangements Act, and sought to pass a law that would require investors to report the income they receive from rents. However, the initiative was torpedoed by Justice Minister Gideon Saar, who believed that the reporting obligation would deter people from renting apartments due to the “turmoil” of the report, and the stock of apartments in the rental market would decrease; And by Housing Minister Zeev Elkin and professionals in his office who believed that the new reporting requirement would cause damage to the rental market in the sense that it would lead to a rise in prices.
Tax evasion routes on rent
■ Full exemption up to NIS 5,196 per month This route stipulates a full exemption if the amount of the monthly income from the rent / apartments does not exceed NIS 5,196 each month
The 10% tax route applies to those who rent their apartment for more than NIS 5,196 per month. The tax rate is 10% and current expenses cannot be deducted
■ Marginal taxation less expenses and depreciation of income from the apartment will join the aggregate income of the landlord, and he may deduct current expenses from the taxable amount, such as attorney’s fees, expenses for repairs and more. 2%