Capital Declaration — Preparation & Filing

What it is, and where the power comes from

Section 135 of the Income Tax Ordinance empowers the assessing officer, by written notice, to demand a report on the taxpayer's capital and assets — and on those of their spouse and of the children for whom they are entitled to credit points, as well as assets they hold in trust for another.

In practice it is a snapshot at a single date: all assets less all liabilities, as at a given day. Not income, not expenses — an inventory of property and debts.

How much time you actually have

People say "you have 120 days". The precise wording differs, and is worth knowing: the report is filed on the date specified in the notice, provided that for a capital report no date earlier than the end of 120 days may be set — from the date to which the declaration must relate, or from the date of the demand, whichever is later.

In other words, the 120 days are a floor the law obliges the assessing officer to allow, not a ceiling allotted to you. The binding date is the one written in the notice — read it, do not assume. And if it is not enough, an extension is requested before it passes, not after.

What the declaration covers

The scope is wider than most people assume, and includes among other things:

• Real estate — apartments, plots and property rights, in Israel and abroad;
• Bank accounts, deposits and investment portfolios, including accounts abroad;
• Vehicles, as well as business equipment and property;
• Shares and holdings in companies, partnerships and businesses;
• Provident funds, study funds, policies and managers' insurance;
• Cash, foreign currency and digital assets (crypto);
• Loans you have given — not only those you received;
• Household contents, jewellery and valuables;
• and on the other side — all liabilities: mortgages, loans, credit and trade debts.

The heart of the matter: the capital comparison

The declaration itself is not the objective. The comparison is. When the next declaration arrives, the assessing officer will set the two side by side and ask one question: is the growth in capital explained by the income reported in the intervening period, net of taxes paid and living expenses?

Where unexplained capital growth exists — a difference with no reported source — the assessing officer may treat it as taxable income and assess it. The burden of explanation falls on you, sometimes years later, when the documents are already hard to locate.

Hence the guiding principle in working on a capital declaration: not "what do we fill in today" but "how will this look in five years".

What usually explains a gap — provided you documented it

• Gifts and inheritances — tax-exempt, but requiring documentation: who gave, when, and how much;
• Loans from family members — a written agreement beats a recollection;
• Exempt income, or income taxed by withholding at source;
• Capital gains from realising assets and investments;
• A spouse's income and an actual standard of living lower than the average the Authority assumes.

All of these are accepted — when there is supporting evidence. An oral explanation at a hearing, with no document behind it, is the point at which files fall apart.

The mistakes that turn a declaration into an assessment

1. Omitting an asset — usually unintentionally: an old account, a forgotten study fund, a property abroad. The omission surfaces in the next declaration and creates a gap;
2. Inconsistency with the previous declaration — an asset that appeared and vanished without explanation;
3. Arbitrary valuation of contents, jewellery or a vehicle;
4. Ignoring loans granted to relatives — they are assets in every respect;
5. Filing in haste close to the deadline, without gathering the evidence that will later be required;
6. Not filing at all — an offence in itself, which may lead to a best-judgment assessment.

How we work

Preparing a capital declaration with us is not form-filling. It is a process:

1. Reading the demand — which date the declaration relates to, and what deadline was actually set;
2. Structured gathering of the data and supporting evidence, against a checklist that leaves no category open;
3. Comparison with the previous declaration, where one exists — this is where gaps surface, and better that we find them before the assessing officer does;
4. Building the explanation and documentation for every source that is not reported current income;
5. Filing, and answering follow-up questions — including representation at a hearing if required.

Representation before the tax authorities is led at our firm by the founding partners, former senior assessment inspectors — the people who ran capital comparisons themselves, from the Authority's side.

CPA Hanoch Hager →  ·  CPA Tzvika Alperowitz →

The information on this page is general and does not constitute professional advice. The scope of reporting and the treatment required depend on personal circumstances and on the wording of the demand you received.