Can an Australian negatively gear an Israeli rental property?

An Australian who buys a Tel Aviv apartment to rent out often asks whether the familiar negative-gearing deduction, offsetting a rental loss against a salary back in Sydney, works across borders. It can, but only in the right circumstances, and the Israeli tax choices you make on the same rent can quietly undercut it.

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Detailed Explanation

Start with your Australian residency, because it decides everything. Australia taxes its residents on worldwide income, so an Australian resident includes the Israeli rent in an Australian return and can, in principle, deduct the costs of earning it, including loan interest, depreciation, and agent fees. Where those deductions exceed the rent, the net loss can reduce other Australian assessable income, which is the essence of negative gearing. If instead you have become a non-resident of Australia, for example by living in Israel, Australia generally taxes you only on Australian-source income, and an Israeli rental loss then has no Australian income to offset.

Israel taxes the same rent, and the track you pick there shapes the picture. A non-resident landlord can use the 10 percent flat track under Section 122 of the Income Tax Ordinance 1961, which is simple and low but allows no deduction for interest or expenses, or the full marginal track, which allows expenses but at ordinary rates. The two tracks are explained in the guide to Israeli rental income tax tracks for non-residents. Choosing the 10 percent track can leave you paying Israeli tax on gross rent while claiming a loss on the same property in Australia, an inconsistency the ATO may question.

The two systems meet through the foreign income tax offset. Australian tax residents credit the Israeli tax paid on the rent against the Australian tax on the same income, under the Australia-Israel tax treaty, which came into force at the end of 2019. But an offset only helps where Australia is taxing the income; if you geared the property into a loss in Australia, there may be little Australian tax to offset, and the Israeli tax paid under the 10 percent track becomes a real, unrelieved cost. Modelling the two tracks against your Australian position, rather than defaulting to the simplest Israeli option, is where the money is saved or lost.

The common error is treating the Israeli and Australian filings as separate worlds. A landlord who takes the Israeli 10 percent track for simplicity, then negatively gears the same property in Australia, can end up with mismatched figures that invite scrutiny on both sides and leave Israeli tax stranded with no offset. Align the two before the first rent is banked, not at tax time.

In Practice: Under Section 122 of the Income Tax Ordinance 1961 a non-resident landlord on the 10 percent track pays that tax on gross rent with no deduction, due within 30 days of the end of the tax year, to the Israel Tax Authority. On annual rent of NIS 90,000 the flat tax is NIS 9,000, and whether an Australian resident can offset it depends on there being Australian tax on the same rent after any negative-gearing deductions.

Key Considerations

• Negative gearing an Israeli rental works only if you are an Australian tax resident with other Australian income.
• A non-resident of Australia generally cannot offset an Israeli rental loss against Australian income.
• Israel's 10 percent track under Section 122 allows no expense deduction, unlike the full track.
• The foreign income tax offset relieves double tax only where Australia is actually taxing the rent.
• The Israeli track choice and the Australian gearing position must be modelled together.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You are choosing between the Israeli 10 percent track and the full track and want the Australian consequences modelled first.
• Your Australian residency status is unclear and it determines whether gearing is available at all.
• The ATO or the Israel Tax Authority has questioned mismatched rental figures across the two returns.

A qualified Israeli tax adviser, working with your Australian accountant, should align the two filings before you let the property.

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Speak With an Israeli Attorney

We model the Israeli rent tracks against your Australian position, coordinate with your Australian accountant, and document the treaty and offset so the same rent is taxed once, not twice.

Contact us for a confidential initial consultation.