My family holds a Tel Aviv apartment through an old Israeli company. Can we take it out without paying tax twice?

Structures set up in the 1970s and 1980s to hold an Israeli flat inside a company are now mostly a nuisance to the grandchildren who inherited the shares. Section 71 of the Real Estate Taxation (Appreciation and Purchase) Law 5723-1963 is the route out. It exempts from appreciation tax the transfer of a right in real estate from a dissolving association to its shareholders in the course of liquidation, subject to the conditions the section imposes, and Regulation 27(b) of the Real Estate Taxation (Purchase Tax) Regulations 5735-1974 provides the corresponding purchase tax exemption where the transferee is an individual shareholder rather than another company.

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Detailed Answer

The conditions are what decide these cases, and they are not negotiable at the counter. The transfer must occur in the course of the association's liquidation, it must be to the shareholders and in proportion to their holdings without consideration passing, the entity must fall within the statutory definition of a real estate association, the property must not have been converted into trading stock, and the association must not have made earlier preferential allocations that disqualify it. The Israel Tax Authority also issued Real Estate Taxation Executive Instruction 4/2010 on the treatment of company debts transferred alongside the property under Section 71(a)(2), which is exactly where these liquidations tend to come unstuck, because a mortgage or shareholder loan moving with the apartment can be treated as consideration. And the relief has a tail. Section 72B(b) generally denies the shareholder the benefit of exemptions on future appreciation attributable to the period in which the company held the property, so the eventual sale is where the tax appears. That was the point of the Section 71 route all along: it removes a wasteful corporate layer, it does not manufacture a permanent exemption. A separate temporary relief for such liquidations, enacted alongside the non-distributed profits tax in the Economic Efficiency Law for the 2025 budget year, ran only to the end of tax year 2025 and is no longer available.

For shareholders in Toronto or Montreal the corporate layer is usually costing money every year rather than saving it, and the case for unwinding is often strong before any tax analysis. An Israeli company holding a single flat still files annual returns, pays the Companies Registrar fee and needs a director who can be reached, and the shares themselves are awkward assets to leave in a Canadian will. Against that, the Canadian side does not see a tax-free reorganisation. A liquidating distribution from a foreign corporation is a taxable event under Canadian rules with its own characterisation and adjusted cost base consequences, the CRA reporting obligations for foreign property and foreign affiliates continue to apply, and the Israeli exemption produces no Canadian credit precisely because no Israeli tax was paid. Take Canadian advice on the same facts before the Israeli liquidation is filed, because the sequence is not reversible. Where the plan is to reorganise rather than dissolve, the income tax rollover provisions are a different instrument, and our answer on transferring Israeli company shares into a holding company under Section 104 covers that route.

In Practice: Section 71 of the Real Estate Taxation (Appreciation and Purchase) Law 5723-1963 exempts the transfer of the property to shareholders on liquidation, and Regulation 27(b) of the Purchase Tax Regulations 5735-1974 exempts the purchase tax where the transferee is an individual; Section 72B(b) carries the historic acquisition date and cost forward. Executive Instruction 4/2010 of the Israel Tax Authority governs company debts moving with the property under Section 71(a)(2). Without the exemption, appreciation tax at 25% on a NIS 2,500,000 flat with a low historic cost can exceed NIS 500,000, plus purchase tax of 8%, about NIS 200,000, for a non-resident transferee. Allow 4 to 9 months from the liquidation resolution to registration in the Land Registry.

When to Consult a Lawyer

• The company carries a mortgage or shareholder loans against the apartment. Debt transferred with the property can be treated as consideration under Section 71(a)(2), which converts an exempt liquidation into a taxable sale.
• Shares changed hands within the family after the company acquired the property. Earlier allocations and share transfers are among the conditions that disqualify the exemption, and the history has to be reconstructed from the Companies Registrar file before anything is filed.
• You are Canadian resident. The Israeli exemption creates no Canadian credit, so the liquidation may generate a Canadian tax bill with nothing to set against it, and the timing of the distribution matters to the Canadian result.

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Speak With an Israeli Attorney

We check the company's history against the Section 71 conditions, structure the debts so the liquidation is not recharacterised as a sale, and run the liquidation and the Land Registry transfer while the shareholders stay abroad.

Contact us for a confidential initial consultation.