Do Australian residents pay capital gains tax when selling Israeli property?

An Australian selling an apartment in Israel, often one inherited or bought years ago, faces tax authorities on two continents and assumes the worst, that the same profit will be taxed in full twice. It will not. Israel taxes the gain where the property sits, Australia taxes its residents on worldwide gains, and the system that connects them gives you credit in Australia for what you already paid in Israel. The trap is not double taxation. It is failing to sequence the two filings and losing the offset.

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Detailed Explanation

On the Israeli side, the sale of real estate triggers betterment tax, mas shevach, under the Real Estate Taxation Law 1963. For an individual, the tax is charged on the real (inflation-adjusted) gain, generally at a rate of 25 percent, with linear apportionment available for property acquired before 2014 that can reduce the effective rate on long-held assets. The Israel Tax Authority (Rashut HaMisim) administers this, and the buyer's side withholds tax at the sale unless the seller obtains a withholding certificate (ishur nikui mas) confirming the correct figure. As a non-resident seller, expect the gain to be reported and the Israeli tax settled at or shortly after closing. The mechanics of the Israeli charge are covered in our guide on capital gains tax on an Israeli property sale.

On the Australian side, a resident is taxed on worldwide capital gains under Australia's CGT rules. The Israeli apartment is a CGT asset, and the gain is brought into your Australian return. Where the asset has been held for at least 12 months, the CGT discount can apply to reduce the assessable gain, subject to the conditions in the Australian rules. So the same economic gain appears in both systems, which is exactly the situation a tax treaty exists to resolve.

The resolving mechanism is the Australia-Israel tax treaty, in force since 2020, read together with Australia's foreign income tax offset rules. Israel, as the country where the property is located, has the primary right to tax the gain. Australia, as the country of residence, taxes it too but allows a foreign income tax offset (FITO) for the Israeli betterment tax paid, up to the amount of Australian tax on that gain. The practical result is that you pay the Israeli tax, then reduce your Australian liability by that amount, so the combined burden is broadly the higher of the two rates rather than the sum. The general treaty framework is set out in our guide on the Australia-Israel tax treaty.

Timing and evidence are where Australians lose money they should keep. The foreign income tax offset depends on proving the Israeli tax was paid, so you need the Israel Tax Authority assessment and payment confirmation, and you need the Israeli and Australian gains computed on a consistent basis despite the two systems measuring cost and inflation differently. Currency conversion, the date the gain is recognised in each country, and the interaction with the CGT discount all affect the final number. Coordinate the two filings rather than treating them as unrelated events in separate years.

In Practice: Under the Real Estate Taxation Law 1963, an individual selling Israeli property pays betterment tax (mas shevach) of generally 25 percent on the real gain, assessed by the Israel Tax Authority, with a withholding certificate (ishur nikui mas) typically issued within a few weeks of a complete filing. On an NIS 1M real gain, that is roughly NIS 250,000 of Israeli tax, which an Australian resident then claims as a foreign income tax offset against the Australian CGT on the same gain under the Australia-Israel treaty.

Key Considerations

• Israel taxes the gain first under the Real Estate Taxation Law 1963, generally at 25 percent for individuals.
• Australia taxes the same gain as worldwide CGT, with the CGT discount potentially available.
• The Australia-Israel treaty and the foreign income tax offset prevent double taxation.
• You must obtain Israeli assessment and payment evidence to claim the Australian offset.
• The two systems measure cost, inflation, and timing differently, so the gains rarely match exactly.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• The property was acquired before 2014 and linear apportionment could cut the Israeli rate.
• You need a reduced withholding certificate so tax is not over-withheld at the Israeli sale.
• The Israeli and Australian gain computations diverge and the offset must be calculated carefully.

A qualified Israeli attorney working with your Australian accountant should align the Israeli sale and the Australian return so the offset is fully claimed.

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Speak With an Israeli Attorney

We handle the Israeli betterment tax side of a property sale for Australian residents, obtain reduced withholding certificates, and coordinate with your Australian adviser so the foreign income tax offset is preserved.

Contact us for a confidential initial consultation.