Tax Refund for New Immigrants (Olim Chadashim)
It’s not easy to make aliyah. Even if you’ve always dreamed of living in Israel, obviously there are many hardships involved in leaving your home and moving to a new country. Leaving your familiar environment and your friends and moving to a new place where you perhaps don’t know anybody. There are problems integrating into society and the culture, problems managing daily affairs due to language difficulties and a lack of familiarity with various procedures. And above all else, there are financial problems.
To help you out, and encourage aliyah, the State of Israel awards certain benefits to new immigrants, which also include tax benefits. If you’re a new immigrant, and you haven’t taken advantage of your tax benefits, it’s possible that you are eligible for a tax refund. This is a case of better late than never: you can take advantage of this tax benefit by filing tax returns up to 6 years retroactively to request any tax refunds you are owed. This benefit is also available for returning Israeli citizens.
Which tax refund are olim chadashim entitled to?
Section 35 of the income tax ordinance describes this situation and allows a certain number of credit points for new immigrants. This section establishes that:
35(a) – In calculating the tax of an oleh (new immigrant), the following entitlements should be taken into account:
- 1/4 of a credit point for each of the first 18 months after aliyah to Israel
- 1/6 of a credit point for each of the following 12 months
- 1/12 of a credit point for each of the following 12 months
What this means is that a new oleh is entitled to benefits on income tax payments for a total period of 42 months from their aliyah to Israel, and this also includes periods in which the new oleh was not employed.
When the oleh was employed for only part of the period during which they were entitled to this benefit, they can take advantage of it for the period in which they were actually working. The fact that they were not working throughout the entire period does not harm their eligibility for this benefit.
As mentioned, this period of entitlement begins from the moment the immigration certificate (Teudat Oleh) is issued, but please note: in the event that you enlisted in the IDF or registered for studies in a post-secondary institution, you are entitled to request that the income tax officer defer the start of this entitlement period until you are either released from military service or complete your studies.
Because many employers don’t take into consideration the fact that the employee may be a new oleh and don’t allow provision for the credit points granted, an employee who hasn’t received this benefit and as a result paid excess tax is entitled to submit a request for a tax refund in order to receive the money they are owed.
Additionally, many olim chadashim (new Immigrants to Israel) aren’t aware of this benefit, which they’re entitled to, and therefore, don’t request the benefit. In that situation, the tax refund for a new oleh can add up to thousands of shekels.
It should be noted that a new oleh who is absent from Israel for a period of more than 6 months but fewer than 3 years can request from the income tax officer that this absence not be included in the 42 total months for which they are eligible for a tax reduction.
Example:
An individual made aliyah to Israel in July and began working in November. They are entitled to request that their calculation of annual income take into account 18 monthly credit points for the 6 months that they have lived in Israel, even though they only worked 2 months during that tax year. Their total credit points are calculated as follows: 6 months x 0.25 points per month = 1.5 tax credit points.
Additional benefits
In addition to these benefits, a new oleh is eligible for additional tax payment benefits. For instance, an oleh chadash may be exempt from paying capital gains tax earned as a result of sale of assets purchased from outside of Israel while living outside of Israel during the period prior to making aliyah.
This exemption may be given for 10 years from the date of aliyah to Israel. Profits earned following those 10 years are eligible for tax only on the profits earned between the end of this exemption period and the date of sale.
This benefit is provided to you as a new oleh, but it’s important that you realize that you may deserve additional credit points. For instance, as an Israeli resident, you’re already entitled to 2.5 credit points, and this is in addition to credit points you may receive as a new oleh, or other credit points that you may be entitled to.
The field of taxation for new olim in general, and tax refunds in specific, can be very confusing and often unclear – but don’t let that dissuade you from collecting the tax refunds you’re owed. Moving to Israel isn’t easy and can present significant financial difficulties; therefore, the tax refund for new olim can definitely help you and make things a lot easier. You can request tax refunds even for past years, up to 6 years from the end of the tax year. We can easily and quickly help you assess what your actual entitlement is and receive any tax refunds owing to you. When you made aliyah, you may have made mistakes in your tax reporting and not requested your full entitlement due to lack of awareness. But it’s not too late to correct those mistakes and receive everything you’re entitled to.