The law sees the proceeds as the “fair-value” of the asset. This is defined as the going market-rate between two unrelated parties, with the asset not subject to any restrictions or liens. In most cases, this is the same as the actual cost. The definition is designed to exclude situations whereby an artificially low price is set; the low price does not count for tax purposes.

The law delineates six different ways that you might have received an asset in your position, and sets rules for the cost basis in each case.

1. Purchase – the cost is the amount laid out for the purchase.

2. Barter – the value of what you gave away. For this, the proceed rules above apply.

3. Gift – there are special rules that apply if a gift was received before 1st April 1968. For gifts received after that date:

– received from family member (who took an exemption from CGT on their disposal – see here for more), the cost is the cost-basis of the last person in the chain who didn’t receive the asset as such a type of gift. It is important to note that the original purchase date is also the deemed purchase date for CGT calculations.

– received from anyone else, the cost is deemed to be the proceeds value for the giver of the gift (i.e. the value when gifted). This, seemingly, applies to gifts received from non-Israeli family members (who didn’t need – and are not included in – the aforementioned exemption)

4. Inheritance – until 31 March 1981, Israel levied Inheritance Tax on the estate of a deceased person, based on the value of the assets at the date of death. As such:

– if you received the inheritance before 31 March 1981, your cost is the value of the asset on which Inheritance Tax was paid.

– if you received the inheritance after that date, the cost (and deemed purchase date) is the original cost to the deceased.

5. Manufacture – the amount expended to manufacture the asset. As stated in an earlier post, business inventory is not included in the CGT rules.

6. All other cases – the amount you paid for the asset.

A few general comments:

– any depreciation claimed for income tax purposes is deducted from the cost. This also includes depreciation claimed by previous owners where relevant (gift or inheritance situations).

– any costs incurred in improving the asset can be claimed.

– any costs incurred in the purchase of the asset (eg lawyers, purchase tax) can be claimed.

– assets inherited from abroad are treated under the inheritance rules above. This may lead to double taxation when estate/inheritance taxes were paid; and advice should be taken in each case. The tax office have a system (over and above what the law says) that may be a solution – but it doesn’t work in all cases.