Inheriting Israeli Property as an Australian Resident

When an Australian inherits an apartment in Tel Aviv or a plot in Jerusalem, the first instinct is usually relief that Israel has no inheritance tax. That relief is justified, but it hides a trap that has cost Australian families hundreds of thousands of dollars: Israel does not reset the value of the property on death. The gain you will eventually be taxed on is measured from the day your grandparent bought the property in 1974, not the day they died.

Understanding that one rule, and the process that surrounds it, is the difference between a clean inheritance and a tax bill that ambushes you years later when you sell. This guide is written for an heir sitting in Sydney, Melbourne or Perth, dealing with an Israeli asset across a seven-hour time difference and two legal systems that do not talk to each other.

The Good News First: No Israeli Inheritance Tax

Israel abolished estate and inheritance tax in 1981. The transfer of property from a deceased person to an heir is not a taxable event. You can read the wider position in our Q&A on whether non-residents pay inheritance tax in Israel, but the short answer holds for Australians: inheriting an Israeli apartment costs you nothing in Israeli tax at the moment of inheritance.

Australia is the same. There is no Commonwealth or state inheritance or estate duty. So neither side taxes the inheritance as such. The exposure on both sides is deferred to the day you sell. That deferral is where the planning lives.

Getting Title: The Succession Order

Before anything can be sold, transferred or even properly registered in your name, you need legal authority over the estate. For an Israeli asset that authority is an Israeli document, not an Australian one.

If the deceased died without a will, you apply for a succession order (tzav yerusha). If there is a will, you apply for a will execution order (tzav kiyum tzava'a). Both are issued by the Inheritance Registrar (Rasham HaYerushot) at the Ministry of Justice. The full mechanics are set out in our complete guide to Israeli probate, but the Australian-specific points are these.

Your Australian documents must be apostilled. An Australian death certificate, and any power of attorney you sign, must carry an apostille from the Department of Foreign Affairs and Trade (DFAT) before an Israeli authority will accept them. Documents not already in Hebrew need certified translation. You do not need to travel: a power of attorney signed before an Australian notary public, apostilled by DFAT, lets your Israeli lawyer act for you throughout.

In Practice: A succession order application to the Inheritance Registrar (Rasham HaYerushot) carries a filing fee of about NIS 532 plus a publication fee of roughly NIS 130. An uncontested application typically takes 3–5 months from filing, longer where heirs are spread across several countries and documents must be apostilled in each. Once issued, the order is lodged with the Land Registry (Tabu) to register the property in the heirs' names, a step that adds a further 4–8 weeks.

The No Step-Up Trap

Here is the rule every Australian heir needs engraved somewhere visible. When you later sell the inherited Israeli property, the gain is calculated from the deceased's original purchase, not from the value on the date of death.

Inheritance is not treated as a sale under Section 4 of the Real Estate Taxation Law 1963, so no tax is charged on death. But Section 26 of the same law makes the heir step into the deceased's shoes for the next sale: you inherit the deceased's acquisition date and acquisition value. If your father bought a Haifa flat for the shekel equivalent of NIS 200,000 in 1985 and it is worth NIS 2.4 million (roughly AUD 1 million) when you sell, the taxable gain is computed across the entire forty-year rise, not the modest movement since he died.

In Practice: Under Section 26 of the Real Estate Taxation Law 1963, the heir's acquisition value and date are those of the deceased. Betterment tax (mas shevach) on the real gain is charged at up to 25% under Section 48a. On a Tel Aviv apartment bought decades ago for a low figure and sold today for NIS 3 million (about AUD 1.25 million), the betterment can exceed NIS 600,000–700,000. The Israel Tax Authority (Rashut HaMasim) requires the sale to be declared within 30 days, and a withholding certificate (ishur nikui) must be obtained before the Land Registry will register the buyer.

There is relief in some cases. Section 49b(5) provides an exemption on the sale of an inherited apartment where the heir is the spouse, descendant or descendant's spouse of the deceased, the deceased held only one apartment, and the deceased would have qualified for the residential exemption had they sold while alive. This exemption can reach a non-resident heir, which makes it one of the most valuable provisions to check before you list the property. Whether the deceased counted as the holder of a single apartment is a factual question worth getting an Israeli lawyer to confirm early.

The Australian Side: CGT When You Sell

Australia taxes its residents on worldwide capital gains, so the sale of your inherited Israeli property is reportable to the ATO whatever Israel does. Two features of Australian law interact with the Israeli position.

First, the cost base. For property the deceased acquired on or after 20 September 1985, you inherit the deceased's cost base, which mirrors the Israeli no step-up logic and means a large Australian gain too. For property the deceased acquired before that date, your cost base is the market value on the date of death. The main residence exemption is generally unavailable where the deceased was a foreign resident, which an Israeli relative usually was.

Second, relief from double tax. The gain is taxed by both countries, but you are not meant to pay twice. The Australia–Israel double tax treaty allocates taxing rights, and Australia grants a foreign income tax offset for the Israeli betterment tax you paid. Our Q&A on the Australia–Israel tax treaty explains how the offset works in practice. Hold the property, counting the deceased's ownership period, for more than twelve months and you also qualify for the 50% CGT discount on the Australian side.

One quiet complication is currency. The ATO requires you to convert the cost base to Australian dollars at the exchange rate on the acquisition date and the proceeds at the rate on the sale date. A shekel that strengthened against the dollar over the holding period can create an Australian gain even where the shekel gain looks modest. Build that into any sale projection.

Doing It All From Australia

Distance is the practical obstacle, not the law. Everything an heir needs to do can be done remotely if it is set up correctly.

You will sign a power of attorney before an Australian notary, have DFAT apostille it, and courier the original to your Israeli lawyer. Israeli banks holding the deceased's funds will want the succession order, the apostilled death certificate and your identification before releasing anything, and they frequently ask for documents to be re-certified if they are more than a few months old. Coordinate the bank release and the property registration together, so you are not apostilling the same death certificate twice. Our case study on an Australian executor administering an Israeli estate shows how the pieces fit together when several heirs are involved.

What Often Goes Wrong

Common Mistake: Australian heirs sell the inherited Israeli apartment assuming the gain is measured from the date of death, and budget for tax on a small uplift. Because Section 26 of the Real Estate Taxation Law 1963 measures the gain from the deceased's original purchase, the actual betterment tax can be ten times their estimate. On a long-held property the surprise routinely runs to NIS 400,000–700,000 (roughly AUD 165,000–290,000), assessed by the Israel Tax Authority and payable before the sale can complete.

A second error is selling before checking the Section 49b(5) inherited-apartment exemption. Heirs sometimes pay full betterment tax on a property that qualified for relief, simply because nobody asked whether the deceased held a single apartment. That question should be answered before the apartment is even listed.

Practical Checklist

• Confirm whether the deceased left a will, which determines whether you seek a succession order or a will execution order
• Have all Australian documents apostilled by DFAT and certified-translated into Hebrew
• Sign a power of attorney before an Australian notary so your Israeli lawyer can act without you travelling
• Establish the deceased's original acquisition date and value early, since these drive the eventual tax
• Check the Section 49b(5) inherited-apartment exemption before listing the property for sale
• Keep records for the ATO, including exchange rates at acquisition and sale, and the Israeli tax paid for your foreign income tax offset

Speak With an Israeli Attorney

Inheriting Israeli property as an Australian resident is straightforward to start and expensive to get wrong at the end. The succession order, the registration in Tabu, and above all the betterment tax position reward careful handling from the outset. We act for Australian heirs throughout, from the first apostille to the final sale and the figures your accountant needs for the ATO.

Contact us for a confidential initial consultation.