The Declaration of Assets, also known as the Declaration of Capital, the statement of assets or atsarat on in Hebrew, is a list of documents that describe in detail everything a person possesses at a certain point in time. It is also a way for tax authorities to check and cross-check whether the taxpayer has paid taxes in full, or whether he has concealed any income.
Who must file a declaration of assets?
First of all, it is worth noting that the law does not prohibit the tax authorities from requiring a declaration from any Israeli citizen.
It is mandatory to submit an atsarat on in the first year after registration of their business to private entrepreneurs and company owners.
You may have to fill out a statement of personal property in case of large capital purchases, such as real estate, a share of the business, a yacht or an expensive car.
Owners of significant blocks of shares. In principle, a permanent investor is not required to file a statement of assets with any regularity. But in some cases it may be necessary to produce a statement of capital following an increase in the number of purchase and sale transactions, or if one investor accumulates a block of shares of 10% or more in a particular company.
All those who, for one reason or another, must submit annual reports on their incomes.
Important regarding the first declaration of assets.
The first declaration is the basis for any future checks. It is necessary to take into account absolutely everything and create the most complete capital base for comparison with future reporting.
Introduction of changes after filing the declaration is allowed only in exceptional cases and with proper argumentation.
What property is described in the Declaration of Assets?
All movable and immovable property should be described in as much detail as possible in the taxpayer’s statement of assets. Personal property and the equity in all business structures owned by the taxpayer are subject to accounting. This includes the amount of capital within a family unit. In other words, the income of spouses and children over 18 should also be shown in the declaration of assets.
The declaration form contains the following sections:
Business assets and liabilities: commercial real estate, production facilities, intellectual property, statement of accounts in your business (it is important not to forget clients’ debts). On the other hand, business loans, debts to suppliers and much more.
Personal property and liabilities: a family bank account, personal loans, mortgages, apartments, cars, other debts, pensions, savings, and more.
Investments (if any): stocks, bonds, securities, certificates of funds. Foreign currency, investments in other countries.
Separately, it is necessary to describe any deposits or receivables involving individuals. If a taxpayer, for example, lent money to a son / brother / friend to start a business or for some other purpose. Or he borrowed any amount from someone. Such monetary relations must be recorded in writing, signed by the participants, indicating the amounts and dates of loans.
Accounting rules in the declaration of capital for assets owned by the taxpayer.
According to the principle of control, if the taxpayer has control over an asset, then he must disclose the asset in the statement of assets. This principle applies even if the asset is not officially registered on the taxpayer. Each asset must be presented in accordance with the actual investment amount. In most cases, the value of the property is indicated in the prices at the time of purchase.
Let’s take securities as an example:
A man bought securities at a price of 100,000 shekels, and their value at the date of the capital declaration is 300,000 shekels. Since the report on capital is prepared on the basis of cost, it must represent securities in the amount of value, that is, the amount actually paid – 100,000 shekels.
Accounting rules in the declaration of capital applying to inheritance, large gifts, winnings.
An asset received as a gift or inheritance must be declared in the capital declaration at zero cost, because the property was not acquired with the taxpayer’s own money. However, if additional funds are invested in the property, it is necessary to add the corresponding costs, so it is important to keep documents related to gifts and inheritance.
General recommendations for the preparation of the equity report
The taxpayer has 120 days from the date of the request to prepare and submit the document. But do not leave this business for the last moment. Start collecting the necessary documents on the day you received the request. There are documents that need to be waited for, there are those that will take time and attention in filling out and re-checking.
All account statements and other documents must show the state of the capital on a specific date – as of December 31.
You have tried to fill out the declaration by yourselves and realized that there is no opportunity to do it yourself, outsource it right away to a professional.
If the statement is your second, third, and so on, compare it with previous declarations to avoid trouble. Be sure to keep a complete copy of the first declaration and all subsequent ones, as well as copies or originals of all related documents and references. This is not a requirement of the law, but a strong recommendation from experienced practitioners.
A few reminders are also relevant to the second and subsequent reports:
Do not forget about regular expenses, such as rent for something, payments for national insurance, deductions to saving accounts, etc.
Do not forget about charity, big gifts (both given and received), money borrowed from or lent to your relatives.
Do not forget the cost of vacation, especially overseas travel. This is one of the simplest things that are easily checked by tax officials, but for some reason taxpayers often forget about this.
Do not attempt to manipulate data in a statement. The tax authorities have many ways to verify the accuracy of a tax return. If you have found any inconsistencies, are entangled in incomes and expenses, or are simply not sure that you are doing everything right — engage a professional. In any case, the services of a tax consultant will be cheaper than fines and other sanctions from the tax authorities.
The declaration of assets is one of the important tools that allow tax authorities to determine the real level of income of the taxpayer. This is a kind of double-checking that the taxpayer shows all sources of income in his annual reports.
How exactly occurs a taxpayer re-check:
The taxpayer’s expenses are the result of any income. Here we summarize as income: inheritance, lotteries, valuable finds and other special cases. Everything that has increased financial capabilities of an entrepreneur should be revealed in the annual report. It is logical that between the money earned and spent by the entrepreneur there should be a reasonable conformity.
Yet, if a disproportionate discrepancy is found between income and expenses, then the tax authorities will first require an explanation.
When and how often is Atsarat On submitted?
For the first time, the entrepreneur fills in a declaration of assets in the first year after opening a business. Then every 3-5 years, the statement of assets must be updated at the request of the tax authorities. The date of submission of the declaration of assets is usually 120 days from the receipt date of the request from the tax authorities.
Is it possible to fill in a declaration on one’s own, without the assistance of a tax advisor?
The principles for presentation of information in the declaration are not clearly articulated and can be interpreted in different ways. Both by persons filling in and reading off. As you understand, this significantly increases the likelihood of questions to the taxpayer from the tax officials. Therefore, we recommend that you complete the process of filling out the declaration with an experienced tax specialist at hand.
What happens if you do not respond to the demand by the tax authority to produce the declaration?
For each overdue month, a fine of about 370 shekels is charged. In addition, not submitting a statement or incomplete fillout of the declaration is a serious crime in accordance with the Regulation on Income Tax.