Israeli Bank Accounts and Australian Tax Reporting to the ATO

An Australian who inherits an Israeli account, keeps savings in Israel after years of family connection, or parks the proceeds of a property sale in a Tel Aviv bank often assumes the account is an Israeli matter that stops at the Australian border. It does not. Since 2017, Israeli banks have reported the balances and income of their Australian-resident customers to the Australian Taxation Office automatically, through the same data-exchange network that feeds the ATO's pre-fill service.

So the practical question is not whether the ATO will learn about the account. It already has. The question is how to report the interest correctly, how to use the Australia-Israel tax treaty to keep the Israeli withholding low, and how to claim the Australian offset so the same shekels are not taxed on both sides of the world.

This guide assumes you live in Australia and cannot drop into your Israeli branch to sort paperwork in person. Every step below is written for someone managing the account by email, courier, and a power of attorney held by an Israeli lawyer.

Why the ATO Already Knows About Your Israeli Account

Israel joined the Common Reporting Standard (CRS), the OECD framework for automatic exchange of financial account data, and began exchanging information with partner jurisdictions in 2017. Australia receives data under the same system. Every Israeli bank, brokerage, and provident fund is a reporting institution under Israel's CRS regulations.

For each account held by an Australian tax resident, the Israeli bank reports:

• The account balance at the end of the calendar year
• Gross interest credited during the year
• Dividends and other investment income
• Gross proceeds from sales of securities held in the account
• The holder's name, address, and tax file number where it has been collected

The Israel Tax Authority (Rashut HaMasim) packages this and sends it to the ATO, usually by September of the year after the reporting year. An Australian who earned the equivalent of AUD 9,000 in interest on an Israeli pikkadon (term deposit) in calendar 2024 should expect that figure to be sitting in the ATO's systems well before the Australian return for the year ending 30 June 2025 is lodged.

That timing matters. The ATO's data-matching program cross-checks third-party information against lodged returns. An account that appears in CRS data but produces no matching entry on the return is exactly the kind of discrepancy the program is built to surface.

How Australia Taxes Israeli Bank Interest

An Australian tax resident is assessed on worldwide income under the Income Tax Assessment Act 1997. Interest from an Israeli account is foreign-source income, assessable in the financial year it is derived rather than the year it is remitted to Australia. Leaving the money in Israel does not defer the Australian tax.

The interest is declared at the foreign income section of the individual return (item 20 on the paper return). Two points trip people up:

Report the gross amount. Declare the interest before any Israeli withholding, not the net figure credited to the account. The Israeli tax withheld is claimed separately as an offset. Reporting only the net amount understates both the income and the offset.

Convert to Australian dollars. Interest paid in shekels must be translated to AUD. The ATO publishes average exchange rates for each income year, and for a deposit that pays interest periodically the annual average rate is the simplest accepted method. Keep the bank's annual statement so the conversion can be reconstructed if asked.

If you opened the account specifically to receive a lump sum, such as inheritance funds or proceeds from selling an Israeli property, only the interest is income. The capital itself is not taxed again on the Australian return, though large inbound transfers are separately reported to AUSTRAC by the Australian receiving bank.

The Israeli Side: Withholding and the Foreign-Currency Exemption

Israel taxes a non-resident's interest at source. The domestic rate is 25% under Section 170 of the Income Tax Ordinance 1961, applied by the bank as withholding before the interest reaches the account.

There is an important carve-out. Interest on a genuine foreign-currency deposit held by a non-resident is generally exempt under the Income Tax Ordinance's long-standing foreign-currency deposit exemption, provided the deposit is not connected to a business or activity carried on in Israel. An Australian who holds US dollars or Australian dollars on deposit in an Israeli bank, rather than shekels, often pays no Israeli tax on the interest at all. A shekel deposit does not qualify.

Where withholding does apply, the Australia-Israel treaty reduces it.

In Practice: Under Article 11 of the Convention between Australia and Israel for the Elimination of Double Taxation, which entered into force in 2020, Israel's tax on interest paid to an Australian resident is capped at 10% of the gross amount, falling to 5% for a recognised pension fund or an unrelated financial institution. This overrides the 25% domestic rate under Section 170 of the Income Tax Ordinance 1961. On a shekel pikkadon generating NIS 80,000 a year in interest, the treaty rate saves NIS 12,000 against the domestic rate. The Israel Tax Authority (Rashut HaMasim) processes reduced-rate and refund applications, and a non-resident relief certificate is typically issued within four to eight weeks of a complete filing. Securing the certificate before the deposit matures avoids the refund route entirely.

To activate the treaty rate, the bank's compliance department needs an Australian certificate of residency from the ATO together with the bank's non-resident declaration form. The ATO issues certificates of residency on request, usually within 28 days. Because you cannot present this at the branch yourself, the Israeli lawyer or accountant holding your power of attorney lodges it with the bank on your behalf.

Claiming the Foreign Income Tax Offset

Once Israeli tax has been withheld, Australia prevents double taxation through the foreign income tax offset (FITO). You declare the gross Israeli interest as assessable foreign income, then claim the Israeli tax paid as an offset against the Australian tax on that income.

The mechanics depend on the amount:

• If your total foreign income tax paid for the year is AUD 1,000 or less, you simply claim the actual amount of foreign tax paid. No further calculation is required.
• If it exceeds AUD 1,000, you must work through the offset limit calculation, which compares your actual Australian tax with the tax you would pay if the foreign income and related deductions were excluded. The offset is capped at that difference.

A practical consequence: where the treaty rate of 10% has been applied in Israel, an Australian on a 32.5% or higher marginal rate will usually absorb the full Israeli credit, because the Australian tax on the same interest exceeds the Israeli tax. Where the Israeli rate was left at the domestic 25% because the treaty certificate was never lodged, the offset may not fully absorb the Israeli tax, and the excess is not refundable in Australia. That is the cost of skipping the certificate.

In Practice: The foreign income tax offset is governed by Division 770 of the Income Tax Assessment Act 1997. An Australian on the 37% marginal bracket who derives AUD 12,000 of Israeli interest taxed at the treaty rate of 10% pays AUD 4,440 of Australian tax on that interest and claims a AUD 1,200 offset, leaving AUD 3,240 payable in Australia. The ATO requires that the foreign tax actually have been paid before the offset is claimed, so the Israeli bank's annual withholding certificate (teudat nikui mas) should be obtained each year and kept. Individual returns are due by 31 October following the 30 June year-end, or later where a registered tax agent lodges on your behalf.

Joint Accounts, Inherited Accounts, and Provident Funds

Three situations recur for Australians and each carries its own wrinkle.

Joint accounts. Where an Israeli account is held jointly, say between an Australian resident and a sibling still living in Israel, CRS reports the Australian holder's share. The ATO expects the Australian to declare their proportionate share of the interest, not the whole. Document the ownership split, because the bank's CRS report may attribute the full balance to each holder by default.

Inherited accounts. An account inherited from a deceased Israeli relative only becomes yours once the Israeli succession process is complete and the bank has acted on the tzav yerusha (succession order) or tzav kiyum tzavaa (probate order). Interest credited before the account is legally transferred belongs to the estate, not to you. From the date the bank registers you as the holder, the interest is yours and is assessable in Australia.

Provident and pension funds. Israeli provident funds (kupot gemel) and pension arrangements are not ordinary bank accounts, and their Australian treatment is genuinely complex. They may interact with the foreign superannuation fund rules and can produce assessable amounts on withdrawal even where no money has reached Australia. Do not assume a kupat gemel is simply a savings account; have it reviewed before you draw on it.

What Frequently Goes Wrong

Common Mistake: Australians who close an Israeli account and bring the balance home often assume that ends the matter. It does not. CRS data for the year of closure still reports the closing balance and the interest credited that year, and the AUD transfer into Australia is reported to AUSTRAC by the receiving bank. The ATO sees an account that existed, generated income, and then vanished, and expects the income on that year's return. Undeclared foreign income exposes the taxpayer to shortfall penalties under the Taxation Administration Act 1953, ranging from 25% of the tax shortfall for a failure to take reasonable care up to 75% for intentional disregard, plus the general interest charge running from the original due date. On several years of undeclared interest, the penalties and interest can exceed the original tax.

Practical Checklist

• Obtain an ATO certificate of residency and have your Israeli lawyer or accountant lodge it with the bank to activate the 10% treaty withholding rate under Article 11 of the Australia-Israel treaty
• Check whether your deposit is in foreign currency rather than shekels, which may qualify the interest for the Israeli non-resident exemption entirely
• Collect the Israeli bank's annual withholding certificate (teudat nikui mas) each year as evidence for the offset
• Declare the gross Israeli interest, converted to AUD at the ATO annual average rate, at the foreign income item of your return
• Claim the foreign income tax offset for Israeli tax paid, and work through the offset limit if total foreign tax exceeds AUD 1,000
• For a joint account, declare only your proportionate share and keep evidence of the ownership split
• For an inherited account, treat interest as yours only from the date the bank registers the transfer under the succession order
• Have any Israeli provident or pension fund reviewed separately, as it is not taxed like a bank deposit
• Keep Israeli statements and certificates for at least five years, the standard ATO record-retention period for individuals

Speak With an Israeli Attorney

Israeli bank accounts held by Australians sit between Israeli banking and withholding rules, the Australia-Israel treaty, and an ATO that already receives the account data automatically. Activating the treaty rate early through your Israeli representative, and reporting the interest correctly from the first year, prevents the slow accumulation of undeclared income that the ATO's data-matching is designed to find.

Contact us for a confidential initial consultation.