As an Australian resident, how is capital gains tax calculated when I sell an Israeli property I received as a gift?

An Australian who was gifted a Haifa apartment by a parent years ago decides to sell it. She assumes her Israeli gain is measured from the day the flat became hers. It is not. Israel looks back to the day her parent bought it, and that single rule can turn a modest-looking sale into a large tax bill.

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Detailed Explanation

Israel treats gifts of real estate between relatives gently at the front end and firmly at the back end. When a parent gives a child an Israeli apartment, the transfer qualifies for relief under Section 62 of the Real Estate Taxation Law 1963, so it is not taxed as a full sale at the time of the gift. The trade-off is that there is no step-up in cost. The "original value" and the "day of acquisition" carry over from the donor to you. If your parent bought the flat in 1999 for NIS 700,000, your betterment tax (mas shevach) on a later sale is computed from that 1999 price and date, even though you have owned it only recently. Where the property was held since before 2014, the linear apportionment rules apply a lower historic rate to the pre-2014 slice of the gain, which softens the result but does not remove it.

Australia works from a different starting point, and that mismatch is the heart of the problem. When you receive an asset as a gift, Australian tax generally deems you to have acquired it at its market value on the date of the gift, under the market-value substitution rule. So your Australian cost base is high and your Australian gain is comparatively small, while your Israeli gain, measured from the donor's original cost, is comparatively large. You still report the sale to the ATO, the 50% CGT discount may apply if you held the asset for at least twelve months (subject to the rules that restrict the discount for periods of non-residency), and you claim a Foreign Income Tax Offset for the Israeli mas shevach paid. Because Israel taxes a bigger gain, the Israeli tax is often the larger figure, and part of your foreign tax offset may go unused against the smaller Australian liability.

Selling from Sydney adds the usual friction. You appoint an Israeli lawyer under an apostilled power of attorney, and the buyer must withhold Israeli tax from the price unless the Tax Authority issues a reduced-withholding certificate. Our guide to selling Israeli property as a non-resident walks through that certificate and the release of funds. Add currency movement between shekels and Australian dollars, which Israel ignores but which changes what actually lands in your account, and the case for modelling both tax systems together before you list becomes hard to argue with.

In Practice: Under Section 62 and the carried-over "original value" rules of the Real Estate Taxation Law 1963, a non-resident selling a gifted Israeli residential flat pays mas shevach at up to 25% on the real gain measured from the donor's purchase, reported to the Israel Tax Authority within 30 days. On a NIS 3M sale of a flat the parent bought for NIS 700,000, the taxable gain can exceed NIS 2M before deductions, and the ishur nikui reduced-withholding certificate that unlocks the proceeds at the Land Registry generally takes 4 to 8 weeks.

Key Considerations

• A gifted Israeli property carries the donor's original cost and purchase date, so there is no step-up on the gift.
• Mas shevach is calculated from the donor's purchase, and pre-2014 holding gets a lower rate under linear apportionment.
• Australia usually gives a market-value cost base at the gift date, so the ATO measures a smaller gain than Israel.
• The Foreign Income Tax Offset relieves double tax, but a large Israeli bill can exceed the offset you can use.
• The buyer withholds Israeli tax unless the Tax Authority issues a reduced-withholding certificate.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• The donor bought the property decades ago, making the carried-over cost and pre-2014 apportionment central to the tax.
• You are selling from Australia and need the power of attorney, withholding certificate, and fund transfer coordinated.
• The Israeli and Australian gains diverge sharply, and you want the foreign tax offset modelled before you sell.

A qualified Israeli attorney working with your Australian accountant should calculate the mas shevach and align it with the ATO position before you list the property.

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Speak With an Israeli Attorney

We advise Australian owners of gifted Israeli property on the mas shevach calculation, secure the reduced-withholding certificate, and coordinate with your Australian adviser so the Foreign Income Tax Offset works as intended.

Contact us for a confidential initial consultation.