Four features of the Israeli system go a long way to explaining the case. None of them is self-evident from outside.

• There is no estate or inheritance tax in Israel. The estate tax was abolished in 1981 by the Estate Tax (Repeal) Law, 5741-1981. Israeli planning therefore turns on income and capital gains exposure, not on death duties, and a foreign adviser importing an estate-tax mindset will misread the incentives.
• Land is taxed under its own statute. Gains on Israeli real estate are governed by the Land Taxation (Appreciation and Acquisition) Law, 5723-1963, and not by the capital gains part of the Income Tax Ordinance [New Version], 5721-1961. Two taxes arise on a sale: Land Appreciation Tax, borne by the transferor, and Acquisition Tax (mas rechisha, often rendered Purchase Tax), borne by the transferee. A betterment levy under the planning legislation, and VAT where the transferor deals in land, can arise separately, and the betterment levy is a different charge from Land Appreciation Tax although English sources sometimes blur them. The statutory definition of a sale is deliberately wide, and reaches a grant, a transfer, a waiver, and even the grant of a power to direct a transfer.
• The Ordinance has a separate trusts chapter. Part Four-2 of the Income Tax Ordinance, sections 75C and following, was enacted by Amendment 147 in 2005 and came into force on 1 January 2006. It is a full trust taxation regime with its own classifications, reporting duties and attribution rules. It is the chapter a foreign trustee will be pointed to first, and it is the chapter that does not help here.
• The two regimes attribute trust property to different people. The Ordinance generally looks through to the settlor. The Land Taxation Law looks to the beneficiary. That divergence is not an accident of drafting, and the Court treated it as the substantive justification for the result.
• The position was published before it was litigated. Income Tax Circular 3/2016, issued in August 2016, already stated in terms that the carve-outs in the trusts chapter operate for the purposes of the Ordinance only and do not apply to a right in Israeli real estate. The Appeals Committee departed from that position in 2019; the Supreme Court restored it in 2022. An adviser looking at a structure put in place at any point since 2016 should not start from the assumption that the law changed in 2022.
• Two different officials. The Assessing Officer administers the Income Tax Ordinance, including the trusts chapter. The Director of Land Appreciation Tax administers the Land Taxation Law and was the appellant in this case. A classification obtained from one does not bind the other, and much of the practical significance of the judgment sits there.

On 13 January 2016 Samuel and Ciza Glis, residents of Canada, executed a trust deed with a corporate trustee. Under it the settlors were to transfer assets and funds to a company holding trust property within the meaning of section 75C of the Income Tax Ordinance. The creation of the trust was reported to the Assessing Officer, and classification as an Israeli Resident Beneficiary Trust was requested.

On the same day, agreements were signed transferring rights in four properties: two apartments in Tel Aviv, one property in Ashdod and one in Beit Shemesh. The appeal concerned the two Tel Aviv apartments.

Three agreed facts decided the case

Alongside those facts it was agreed that the settlors had separated themselves from the properties completely, that the trust was irrevocable, and that they retained no direct control over the assets. The structure was of a kind a foreign practitioner would recognise immediately.

• 16 March 2016. The settlors reported the transfer to the land taxation office, out of caution, arguing that under section 3 of the Land Taxation Law a settlement on a trustee is not a sale, so that neither Land Appreciation Tax nor Acquisition Tax arose.
• 10 August 2016. The office rejected the position and issued best-judgment assessments, reasoning that the granddaughter did not know the properties had been transferred for her, that the transaction did not fall within section 3, and that ownership of the property had changed. The objection was dismissed on 18 May 2017.
• 2019. In case 49026-07-17 the Land Taxation Appeals Committee sitting alongside the Tel Aviv District Court allowed the appeal unanimously and cancelled the assessments, but the members reasoned differently. Israeli appeals committees in land taxation include accountant members alongside a judge, and here the principal opinion came from one of them: it treated the two statutes as containing a gap to be filled by reference to the principles of the trusts chapter, in the name of legislative harmony. The presiding judge reached the same result on a different ground, that no sale had occurred at all because the rights remained with the transferors, and warned that without an express statutory regime the door would open to aggressive tax planning.
• 30 June 2022. The Supreme Court allowed the tax authority’s appeal in full, set aside the Committee’s decision, reinstated the assessments and awarded costs of NIS 70,000. The judgment was delivered by Justice A. Stein, with Deputy President (ret.) N. Hendel and Justice Y. Willner concurring. A petition for a further hearing, FH 5473/22, was dismissed on 3 January 2023.

The Court framed two questions. First, whether Part Four-2 of the Income Tax Ordinance removes the settlement of Israeli land by a settlor on a trustee from the charge to Land Appreciation Tax and Acquisition Tax. Second, if it does not, what the conditions for relief are within the Land Taxation Law, and whether they were met.

The starting point was not in dispute. The taxpayers accepted that the settlement amounted to a sale of a right in real estate as defined in section 1 of the Land Taxation Law. The argument was about which statute governs the consequence.

The reasoning is a short chain of statutory language ending in a substantive conclusion.

• The operative words. Section 75G(d) of the Ordinance, the carve-out for an Israeli Residents Trust, provides that a settlement on a trustee without consideration shall not be treated as a sale for the purposes of the provisions of Part E. Those closing words confine the carve-out to Part E of the Ordinance.
• What Part E covers. Part E applies to an asset as defined in section 88, and paragraph (4) of that definition excludes rights in real estate, and rights in a land association, whose sale attracts Land Appreciation Tax or would attract it but for an exemption. The legislature removed both from Part E. The point matters in practice, because foreign structures frequently hold Israeli property through a company rather than directly.
• The conclusion. Section 75G(d) therefore does not apply to rights in Israeli real estate. There is no gap and no lacuna; the words of the statute are clear.

Three supporting points

• The historic separation is deliberate. The legislature has consistently kept land gains in a statute separate from the one taxing other capital gains, although the two could have been merged. The Land Taxation Law is the specific regime; the Ordinance is the general one.
• The drafting is not unique. The same limiting words appear in the parallel provisions for other trust types, sections 75J(e) and 75L(d). Where the legislature wished a carve-out to operate outside the Ordinance as well, it said so expressly, as in sections 104A, 104B and 104H(b)(1).
• There is a substantive justification. The Ordinance identifies trust property with the settlor and taxes accordingly. The Land Taxation Law identifies it with the beneficiary. That is why the land statute insists that the beneficiary be final, specific and aware: the tax consequences, including personal reliefs such as the single residential dwelling relief or the new immigrant relief, are attributed to that person individually.

The Land Taxation Law was the first Israeli statute to address the taxation of trusts, predating the Trust Law, 5739-1979. It provides two exceptions to the wide charging rule, each answering a different kind of trust.

The economic logic the Court gave for that allocation is worth repeating, because it is counter-intuitive to a common law reader. The trustee does not enjoy the appreciation, so there is no case for taxing the trustee on it. But the economic change in the property’s designated purpose occurs at the moment of settlement, so there is no case for deferring the tax to the date of distribution either. Deferred tax, in the language of the case law, is tax that has not been paid.

The two patterns, and why the order matters

This is a part that is easily misread from outside, and it is worth setting out as two distinct sequences.

• Pattern A, the trustee buys for a named beneficiary. This is the case section 69 is designed for. The trustee acquires the property in the trustee’s own name, for a beneficiary who is identified at the time of the acquisition, and the notice is filed. Acquisition Tax on that purchase is assessed by reference to the beneficiary and not to the trustee: the beneficiary’s residence and existing holdings set the rate, so a beneficiary buying a single Israeli home is charged on that footing and a beneficiary who is a foreign resident or already owns a home is charged on that footing. The later transfer from trustee to beneficiary is then exempt, provided the reporting conditions were met. And if the trustee sells to a third party instead, the position is examined as though the beneficiary had bought the property, using the beneficiary’s acquisition date and value and the beneficiary’s personal exemptions. One charge, at the point of purchase, on the beneficiary’s terms.
• Pattern B, an owner puts an existing property into trust. This was Glis. The transfer is itself a sale, Land Appreciation Tax and Acquisition Tax arise at that moment, and section 69 does not remove them. Only the onward transfer from trustee to beneficiary can be relieved, and only if the section 69 conditions are met. Two charges instead of one.

The two thresholds in section 69

• Substantive. The right must be held by the trustee for a beneficiary who is specific, final and aware, and who exists at the time of the settlement. Section 69(b) defines a trustee as a person holding in their own name for another, and a beneficiary as the person for whom the right is held.
• Procedural. Section 69(c) provides that a person will not be recognised as a trustee unless notice has been given under section 73(f), 74 or 119, and that the relief is available only in respect of a transfer to the beneficiary named in that notice. The notice is tied to the reporting of the transaction and carries a short statutory deadline, so it belongs in the diary at the point the transfer is agreed rather than afterwards.

The Court restated the principle from the Cohen case that there is no trust for a concealed beneficiary, and that a framework trust to be filled with content over time is not a trust for this purpose. The thresholds exist to narrow the information gap between the taxpayer and the tax authority, and to frustrate tax planning.

The Court was careful to say that there was no reason in principle why section 69 could not have applied to a trust of the kind the taxpayers created, had it met the thresholds. It did not.

• The beneficiary was not final. She could be removed and others added alongside her, and the protector held the power to do it.
• The beneficiary was not aware. She did not know she was a beneficiary at all, and the settlors wished to keep it so.

Section 3 did not apply either, because it is confined to office-holders appointed under one of the enactments it names.

• It does not hold that every settlement on a trustee is taxable. It holds that the governing regime for Israeli real estate is the Land Taxation Law. A structure that comes within section 69 obtains relief at the distribution stage. A structure that does not, bears the full charge at settlement.
• It does not condemn the structure as a whole. The Court expressly declined to examine the status of the protector, the degree of control retained by the settlors, or whether the trust was in truth revocable, because no party had argued the point. Deputy President Hendel added an observation that an arrangement permitting indirect control over the assets and changes to the identity of the beneficiary is closer to the absence of a trust than to a trust. That observation is not the ratio, but a foreign adviser should not ignore it.
• A taxpayer cannot recharacterise its own transaction. The Court confirmed that the recharacterisation doctrine runs one way and belongs to the revenue, and that only in the most exceptional cases will a taxpayer be permitted to argue for a substance different from the form it chose itself.

For an adviser outside Israel, the practical consequences are narrow and specific.

• The governing law of the trust deed is not the question. A Jersey, Cayman, Delaware or Ontario trust holding an Israeli property is assessed under Israeli land taxation law. The proper law of the deed does not change the analysis, and neither does the classification the trust receives from the Assessing Officer under the Ordinance.
• Discretion is the difficulty. The features that make a trust useful in most jurisdictions, namely a discretionary class and a power to add and remove beneficiaries, are the features that defeat the section 69 requirement of a beneficiary who is final and specific. The Court declined to rule on the protector’s status, but where the power to change beneficiaries sits with a protector the same difficulty appears on the face of the deed. This is a real conflict between ordinary cross-border planning and Israeli land relief, and it is better resolved deliberately than discovered afterwards.
• Keeping the beneficiary in the dark defeats the relief. A beneficiary who does not know of the trust is not a beneficiary for section 69, even if named in a schedule. Where the family motive is to keep a young or vulnerable beneficiary unaware, that motive and the relief cannot both be achieved.
• The notice is a condition and not an administrative step. Without it there is no recognised trustee and therefore no relief, however sound the substance.
• The analysis belongs before the transfer, not after. Putting an existing apartment into trust triggers Land Appreciation Tax and Acquisition Tax at that moment. Acquisition Tax is charged by reference to the acquirer’s circumstances, and for a non-resident or for an additional residential apartment the brackets begin at 8 per cent and rise to 10 per cent, with index-linked thresholds. Rates and thresholds are current to August 2026 and are worth confirming at the time of the transaction. The alternatives, such as a gift to a relative or a hekdesh created by will, each carry their own regime and should be priced before a deed is executed.
• A trust for the settlors themselves is treated differently. In August 2022, six weeks after the judgment, the Tax Authority published Tax Ruling 3399/22. A couple transferred Israeli apartments to a lawyer as trustee, holding for the couple themselves as the only beneficiaries. The trustee had no discretion and could act only on express written instruction, all responsibility remained with the couple, and the arrangement was revocable. The transfer was held not to be a taxable event, on the reasoning that a person does not deal with himself, and the later passing of the apartments to the couple’s heirs was accepted as succession rather than a sale. The ruling also states expressly that an arrangement permitting beneficiaries to be changed, added or replaced is a framework trust and not a trust for the purposes of the Land Taxation Law. The route is therefore narrow, and it sits some way from the flexibility a discretionary trust is usually built for.
• Where a purchase is still ahead, the structure can avoid the double charge. A trustee who acquires the Israeli property in the trustee’s own name from the outset, for a beneficiary who is final, specific and aware, with the notice filed on time, faces one charge rather than two, and that charge is computed on the beneficiary’s footing. This is among the most useful things to know before a family buys, and it is decided at the point of purchase rather than afterwards.
• Check what was done between 2019 and 2022. Structures put in place in reliance on the Appeals Committee decision are the group most likely to carry an unrecognised exposure, and the judgment did not decide how they are to be treated or whether they can be regularised retrospectively.

We are regularly instructed by lawyers, accountants and trustees abroad who act for the family and need the Israeli element handled. We act as Israeli counsel on Israeli law, and report to the instructing adviser. The client relationship stays where it is.

• Pre-settlement review. Whether a proposed structure comes within section 69, what it would cost if it does not, and what the alternatives are under Israeli law.
• Existing structures. Reviewing trusts that already hold Israeli property, and identifying settlements made in reliance on the position before June 2022.
• Reporting and filings. Land taxation filings, the section 69 notice, and the trust reporting obligations under the Ordinance, which arise in some cases even where no tax is payable.
• Succession into Israeli assets. Israeli succession orders and probate for estates with an Israeli connection, coordinating with the client’s own advisers on any ancillary process abroad.
• Transactions. Sale, purchase and registration of Israeli real estate held by non-residents or by a trustee.

Background

David Melnik has been a member of the Israel Bar since 1996 and is also admitted in the State of New York. He is licensed as an Israeli notary, a qualification restricted to advocates of long standing. Since 2008 he has served as a joint manager of the Maslovaty Fund. He holds an MBA and has completed master’s-level studies in business taxation (MBT). He is an Affiliate Member of STEP, the international body for practitioners in trusts, estates and family wealth. The practice is based in Tel Aviv and works in Hebrew and English.

A word on the New York admission, since it is the part most often misread. The practice is Israeli law only. The admission is not an offer to advise on United States law and is not held out as one, and on any question of US law the instructing adviser remains the adviser. What it means in practice is narrower and more useful: US instruments can be read as drafted, and the Israeli side of a matter can be discussed in the terms a US adviser already uses, without translation in either direction.