Your taxes: Trust deadline extended yet again


Your taxes: Trust deadline extended yet again

Leon Harris



This week saw a mystery of sorts. Why did the Israeli Tax Authority extend the deadline for reporting Relatives Trusts on December 25 (Christmas Day!), just six days before the present deadline was due to expire at the end of 2014?

How many overseas trustees actually read the ITA announcement?

Did the ITA think we forgot the previous deadline of June 30, 2014 was extended in a similar fashion with only 5 days to go, on June 25?


The announcement says that professional bodies and trustees requested the extension. The fact is the ITA is not yet ready.



The Israeli taxation of trusts changed on January 1, 2014. Foreign Residents’ Trusts with a foreign resident settlor is now taxable in Israel if there are one more Israeli resident beneficiaries (see relevant attachment).


A “Relatives’ Trust” will usually exist for Israeli tax purposes if the beneficiaries reside in Israel and the settlor (=grantor) is a living non-Israeli resident.


In the case of a Relative’s Trust, the Trustees will need to:  (a) notify the Israeli Tax Authority (ITA) that the trust exists on Israeli Tax Form 154; (b) choose between 25% tax on trust income annually or 30% tax on trust income if and when it is distributed.


As for the years 2006-2013, the ITA announced on March 9 an amnesty procedure (“transitional procedure”) that enables trusts to elect by the end of 2014: (1) a cost step-up to market value as of the end of 2013, and/or (2) to resolve doubts about beneficiary control or influence. The cost is a tax payment now of: (a) up to 6% of the trust asset value at the end of 2013, or (b)  up to 2/3 of the income tax allegedly due in 2006-2013.

This trust amnesty is different to the amnesty also recently announced for individuals.


New Deadlines:

On December 15, the ITA extended the deadline for electing the trust amnesty from December 31, 2014 to June 30, 2015.


And on December 25, the ITA announced it was extending the deadline for filing Form 154 to June 30, 2015 or the date of signature on any trust amnesty, whichever is sooner.

And if an extension is obtained from the Assessing Officer for filing the annual tax return (for 2014), the resulting due date may apply to Form 154 too, but not beyond the end of 2015.




In practice, many trustees already prepared Form 154 but are likely to hold back from filing them. Moreover, some trustees also filled out other overlapping forms (141, 147, etc) but the announcement tacitly implies these forms are not even on the ITA’s agenda.


These are only reporting extensions and only for Relatives Trusts. An Israeli tax liability will still apply to income of a Relatives’ Trust that accrues from January 1, 2014.


However, many issues regarding still need to be resolved before the new 2014 tax regime for trusts will be a workable proposition.


These issues have been heavily criticized and include the following “Dirty Dozen”:

  • Uncertain foreign tax credit rules – especially regarding American grantor trusts;
  • Tax generally on foreign resident beneficiaries’ share if there is even one Israeli resident beneficiary;
  • Uncertainty regarding discretionary trusts;
  • Tax on the pre-2014 element of capital gains;
  • Tax on the pre-2014 element of income and capital gains when a trust adds its first Israeli resident beneficiary;
  • Unclear tax and reportingrules for immigrants;
  • If a trust has no Israeli resident beneficiaries now, but had one in the past, the ITA think it is taxable;
  • Strange definition of capital – only income is taxable, not capital;
  • No definition of “beneficiary control or influence” – which could trigger tax in 2006-13;
  • Uncertainty regarding foreign charities;
  • The impact of tax treaties;
  • Poor English on Form 154 – for example, there is a crucial mix-up between settlors and beneficiaries, which means a lot of wrong information may be recorded.


What’s next?

The ITA has indicated it will ponder the issues and issue a circular giving guidance and clarification on the new 2014 trust regime.  It was also assumed additional regulations would be needed from the Knesset, but they may be less forthcoming now due to the dissolution of the Knesset ahead of the Israeli election on March 17, 2015. Taxation without representation?


As always, consult experienced tax advisors in each country at an early stage in specific cases.

[email protected]

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.


Join Our Newsletter

Your name Email address: