Israel to Ban Cash Payments in Real Estate Sales as of January

Authorities are trying to crack down on the black market and tax evasion that has characterized much of the real estate market.

People buying and renovating homes in Israel will no longer be able to pay in cash starting January 1, as Israel cracks down on the black market and tax evasion that has characterized much of the real estate market.

The ban on cash payments is part of legislation passed last March by the Knesset to pare back the use of cash throughout the economy. It sets a ceiling of 11,000 shekels ($2,950 at the current exchange rate), or 10% of the total price in the case of real estate (which is lower), on transactions that can be paid in cash. Buyers will have to disclose the source of their funds.

“That meaning of the law is that cash can no longer be used in real estate transactions, even if you’re talking about a payment connected with a memorandum of understanding or a payment upon signing the contract,” said Shay Aharonovich, senior deputy director for land taxation at the Israel Tax Authority.

He warned the violators could be subject to fines, although not immediately after the law goes into effect in order to let people adjust to the new regime.

>> Only the wealthy can afford an apartment in Tel Aviv — but is that such a terrible thing? | Analysis

Speaking at a conference of land assessors in Eilat on Wednesday, Aharonovitch said the reporting requirement on source of funds would not have to be filed with the tax authority at the time of the purchase.

“We understand that many time at the time the sales contract is signed, home buyers don’t know how they will be paying for the property up to the last shekel. Therefore, we have set up an online reporting system and home buyers will only have to report within six months on their sources of financing. If they don’t report, we’ll impose a fine,” he said.

Regarding renovations, Aharonovitch said homeowners who cannot show a receipt for the work will be required to show where the money came from. Without such proof, the Tax Authority will deem the payment as having been made in cash and impose a fine.

“That is a violation not only for the contractor that got the money but also for the customer,” he warned.

The 11,000 shekel ceiling doesn’t apply to non-business transactions, for example money transferred between two friends, which will be limited to a much higher 50,000 shekels. Payments between family members or to government authorities will be exempt.

Unregulated free-loan societies (gemachim) that are widely used by ultra-Orthodox Jews will still be permitted to make loans in cash in the same way regulated financial institutions are permitted. Gemachim were exempted at the urging of MK Moshe Gafni (United Torah Judaism), chairman of the Knesset Finance Committee.

Source:Haaretz

Image Courtesy:Nomad Capitalist