Recognition Of Family Unit Split - The Proposed ITA's Legislation Contradicts Not Only Existing Israeli Case Law But Also The Worldwide Case Law

Author:Mr Yoad Frenkel
Profession:Ziv Sharon & Co

Recently, the Israeli Tax Authority noted it is considering making legislative changes in the area of residency rules for individuals, in particular and in the field of international taxation, in general. In this regard, it is interesting to note Australian judgment Hardening v. Federal Commissioner of Taxation (issued in February 2019). Recently, the Australian Tax Authority announced that it would not appeal to the Australian Supreme Court after the taxpayer's position was approved.

Under the ITA's new proposal in circumstances where the spouse is a resident of Israel and the husband is in Israel for 90 days or more each year, the family unit split will not be recognized for fiscal purposes, i.e. the husband will be classified as an Israeli resident. In our opinion, this constitutes a violation of the Sapir case issued by the Israeli Supreme court in May 2014, which recognized even in circumstances where the husband stayed longer periods in Israel (reaching 185 days in one year and staying an average of 160 days in Israel). The ITA, through legislation, wants to overturn a Supreme court judgment stating that business interests override personal interests similar to other judgments also given worldwide (most recently in Australia).

The Harding judgment dealt with an Australian citizen, married with children who received a job offer from a British company stating that he will be stationed in the Middle East. The husband left Australia in 2009, with his personal belongings intending to work and live in the Middle East permanently or alternatively, indefinitely. According to the couple's original plan, the wife and children should have joined him, after graduation of the son and the family planned living together in Bahrain in a large house they would have purchased upon their arrival. In practice, at first the husband lived in a furnished apartment he rented in Bahrain while the wife and children continued to live in the family's home in Australia, a home built by the couple. Later on, despite their plans, the wife refused to join her husband in the Middle East and this led to a breakup in their marriage and later on to a divorce.

The husband later on replaced the rented apartment in a smaller one, in the same complex in Bahrain and even knew another woman. During that time he continued to stay in Bahrain and hold half of the rights in the family's home in Australia. The issue of the husband's fiscal residence was discussed in the year 2011...

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