Capital Gains Tax on Israeli Investments for Australians

An Australian engineer in Melbourne held a small stake in the Israeli startup he had joined years earlier, before returning home. When the company was acquired, the payout landed with an Israeli withholding slip attached, and his first assumption was the natural one: Israel had taxed him, and now Australia would tax him again on what was left. He had it almost exactly backwards. Israel, on the facts, was entitled to nothing, and the withholding was recoverable; Australia was the country with the real claim on the gain.

That surprise is common among Australian residents holding Israeli investments. Israel deliberately exempts most non-residents from capital gains tax on Israeli securities, to draw foreign money onto the Tel Aviv exchange and into its private companies. Australia taxes its residents on gains wherever in the world they arise. The skill is in seeing which gains Israel actually reaches, and where the bill genuinely lands, before an Israeli broker withholds tax you were never going to owe.

When Israel Taxes a Gain on Israeli Investments

Start with source. Section 89(b) of the Income Tax Ordinance 1961 treats a capital gain as Israeli-source when it comes from an asset located in Israel, and that includes shares or rights in an Israel-resident company. On that basis alone, a gain on Tel Aviv–listed shares or in a private Israeli company appears, at first glance, to sit inside Israel's tax net.

What lifts most Australian residents back out of it is a set of exemptions Israel wrote specifically to attract foreign capital. They are broad, but they are conditional, and the conditions are where investors come unstuck.

This article is about investments: shares, funds, options, bonds, securities. Israeli real estate follows a different regime entirely, with its own tax, mas shevach (betterment tax), and none of the exemptions below touch it. If you are selling an apartment rather than a share portfolio, the rules in our guide to capital gains tax on an Israeli property sale apply instead.

The Non-Resident Exemption That Covers Most Australian Investors

Two exemptions do the heavy lifting. Securities traded on the Tel Aviv Stock Exchange are generally exempt from Israeli capital gains tax in the hands of a non-resident, provided the gain is not tied to a permanent establishment in Israel. Unlisted shares in a private Israeli company carry their own exemption for non-residents where the shares were acquired on or after 1 January 2009, again subject to conditions.

One condition outweighs the rest: the company must not be, in substance, a real estate company. If most of its value comes from Israeli land, the exemption drops away and Israel taxes the gain. That is the same line the treaty draws, which is no accident.

In Practice: Under Section 97(b3) of the Income Tax Ordinance 1961, an Australian resident is exempt from Israeli capital gains tax on shares of an Israeli company purchased on or after 1 January 2009, unless the company's value derives principally from Israeli real estate. The Israel Tax Authority (Rashut HaMasim) administers the exemption, but Israeli brokers still apply a default withholding of 25% at the point of sale, and recovering wrongly withheld tax through a refund claim usually takes four to nine months from filing. Establish the exemption with the broker before you sell, not after.

The Rates and Surtax When the Exemption Does Not Reach

Sometimes it does not reach. A pre-2009 private holding, a company whose worth is mostly Israeli property, or a gain connected to Israeli business activity can each pull Israel back in.

Where Israel does tax an individual's gain, the rates are:

• 25% on the real, inflation-adjusted gain for an ordinary shareholder
• 30% where you held 10% or more of the company at the date of sale or during the preceding 12 months, the substantial-shareholder rate
• A surtax on top at high income levels

The surtax is worth a separate line, because it grew in 2025. Israel already charged a 3% surtax (mas yesef) on very high income. From 2025 it added a further 2% aimed specifically at capital income, so a large Israeli investment gain can now carry a combined surtax of up to 5%.

In Practice: Under Section 121B of the Income Tax Ordinance 1961, the surtax runs at 3% on total taxable income above NIS 721,560 (2025 threshold), and from 2025 an additional 2% applies to capital income, including capital gains, above the same threshold, for a combined 5%. The Israel Tax Authority assesses this through the annual return, which a non-resident with an Israeli taxable gain must file by 30 April following the tax year. A single large disposal that briefly lifts you over the threshold can add tens of thousands of shekels, so splitting a big sale across two tax years is worth modelling first.

How Australia Taxes the Same Gain

Here is the half the Melbourne engineer had not weighed. An Australian resident, unless a temporary resident, is assessed by the ATO on worldwide capital gains, whatever Israel does. An Israeli exemption does not erase the Australian tax; it simply means there is no Israeli tax to offset against it.

The mechanics are the ones you already know from Australian assets. The Israeli gain goes into your net capital gain for the year, and if you are an individual who held the asset for more than 12 months, the general 50% CGT discount halves the assessable gain before your marginal rate applies. The top marginal rate reaches 45%, plus the 2% Medicare levy, so a discounted long-held gain is effectively taxed at up to roughly 23.5% in Australian hands. You calculate the gain in Australian dollars, translating the shekel cost and proceeds at the relevant exchange rates, which means the AUD/ILS movement between purchase and sale can shift the result as much as the share price itself.

Temporary residents are the exception to watch. Someone in Australia on a temporary visa is generally not assessed on foreign-source capital gains at all, so an Israeli gain may fall outside the Australian net while that status holds. Most Australian citizens and permanent residents are not temporary residents and are taxed on the arising basis, but the distinction is worth confirming before you assume the gain is assessable.

What the Australia–Israel Treaty Changed

The Australia–Israel tax treaty, signed in March 2019, sits over all of this. It entered into force for Israel from 1 January 2020 and applies for Australian income tax purposes from 1 July 2020, so it governs any sale you make today. Before it, there was no comprehensive treaty between the two countries at all, which is a large part of why older advice on this subject is unreliable.

Its capital gains article generally assigns the right to tax a gain on shares to the country where the seller resides. For an Australian resident selling Israeli securities, that reinforces what Israeli domestic law already grants: the gain is primarily an Australian matter. The carve-out is the land-rich rule. Israel may tax a gain on shares or comparable interests that derive more than half their value from immovable property situated in Israel. That is exactly the case where the domestic exemption also disappears, so the two rules move together. Where Israel does tax such a gain and Australia taxes it too, the foreign income tax offset is what stops the same gain being taxed twice. You claim a FITO for the Israeli tax genuinely paid, capped at the Australian tax attributable to that foreign amount.

Withholding, Refunds, and Running It From Australia

Because you are handling this from the other side of the world, the mechanics deserve as much care as the law.

On the Israeli side, the broker or bank generally withholds at source when you sell. Establishing your non-resident exemption means filing the correct declaration with the institution, backed by evidence of Australian residency, ideally before the trade settles. If tax is over-withheld, you reclaim it from the Israel Tax Authority, a process conducted in Hebrew that usually requires an Israeli representative to act under a power of attorney, because you cannot present yourself at a Tax Authority office in Jerusalem from Sydney.

On the Australian side, you declare the gain in your return, apply the CGT discount if it qualifies, claim the FITO for any Israeli tax actually due, and keep both your shekel records and the exchange rates used. Where the Israeli account itself is involved, separate reporting can arise under the Common Reporting Standard, which is a disclosure question independent of the capital gains one.

The coordination gap is the real danger. An Israeli accountant working your Israeli position and an Australian accountant working your Australian one will not, unprompted, talk to each other, and the non-resident exemption in particular is invisible from the Australian side. Someone has to hold both halves of the picture at once.

Where It Goes Wrong

Common Mistake: An Australian resident sells Tel Aviv–listed shares, lets the Israeli broker apply the default 25% withholding "to be safe," and never reclaims it, treating it as tax that was owed. In most cases it was not: the Section 97(b2) or 97(b3) exemption applied and nothing should have been withheld. Recovering it afterward means a Hebrew-language refund claim to the Israel Tax Authority, an Israeli representative under power of attorney, and a four-to-nine-month wait, during which the ATO still expects the full Australian gain declared and the tax paid. On a NIS 400,000 gain, that is roughly NIS 100,000 sitting idle in the Israeli treasury that one declaration beforehand would have kept in your account.

Practical Checklist

• Confirm whether your Israeli shares qualify for the non-resident exemption before selling
• Check whether the underlying company is real estate–heavy, which removes the exemption and revives Israeli tax
• File your non-resident declaration with the Israeli broker to prevent the default 25% withholding
• Keep shekel purchase records and the exchange rates for both Israeli indexing and the Australian dollar calculation
• Work out whether the 50% CGT discount applies before estimating your Australian tax
• Declare every disposal to the ATO, even where Israel taxed nothing, and claim a FITO only where Israeli tax was genuinely due
• Use an Israeli representative under power of attorney for any refund claim with the Tax Authority

Speak With an Israeli Attorney

Whether Israel taxes your Israeli investment gain, and how to stop an Israeli broker withholding tax you do not owe, turns on details most Australian advisers never see: the company's asset mix, your acquisition date, and your non-resident status. An Israeli attorney can confirm your exemption, file the declarations that prevent or recover Israeli withholding, and coordinate with your Australian accountant so the treaty and the offset line up.

Contact us for a confidential initial consultation.