On January 1, 2019 the use of cash to pay for things will become limited. The aim is to curtail the unofficial cash economy. The Israeli Tax Authority (ITA) has just published guidance on how this is meant to work (ITA Circular 17/2018 of December 4, 2018).

The basics:

The cash limitations are due to the enactment of the Law Limiting the Use of Cash, 2018. According to the new law, a business will not be able to give or receive payment in cash for a transaction if the price of the transaction exceeds NIS 11,000. A consumer will not be able to give or receive payment for a transaction in cash if the price of the transaction exceeds NIS 50,000. In a business-to-consumer (B2C) transaction, the NIS 11,000 limit applies. In a consumer-to-consumer (C2C) transaction, the NIS 50,000 limit applies. In a business-to-tourist (B2T) transaction, cash may not be paid if the transaction price exceeds NIS 55,000.

The cash limits may not apply to non-salary payments to a family member, namely: spouse, parent, son, daughter, brother or sister or their children, grandson, granddaughter, and spouse of all these, and other dependents “attached to their table.

A lawyer or accountant may not be used to circumvent these rules. They may not receive cash above the above amounts as part of their business service to their client .

As for blank checks (cheques), a business may not give or receive payment by check unless the name of the recipient is stated on a check.  A consumer may not accept payment by check exceeding NIS 5,000 without his name being stated.

Clarifications in the ITA Circular:

If a number of items are sold, the sales consideration need not be aggregated when reviewing these limits unless this was agreed between the parties themselves, for example when a cheaper price applies to a bulk purchase of items. A cash element of up to 10% (but no more than NIS 11,000 or NIS 50,000) may be disregarded.

If a lawyer receives a fixed monthly retainer for his services, each monthly payment counts as a separate transaction. But if there are several purchasers of goods (not services), the overall price counts. And an artificial splitting  of a transaction may land a person in jail according to the Circular….

Enforcement:

In the case of an infringement, the Tax Director is empowered to impose penalties ranging from 15% to 30% of the cash payment or endorsement to an unnamed person.

As a transitionary rule, no penalties will be imposed before October 2019 unless someone is caught out twice.

Moreover, the Circular reminds us that businesses in Israel are subject to bookkeeping regulations which require receipts to be issued to customers and others stating how payment was made. So if cash was received, this must be stated. If the ITA catches a business out twice for failure to observe these regulations, the ITA can disqualify the books of the business and issue “best judgement” estimated assessments of taxable income, which is never good for the taxpayer.

Furthermore, the Israeli banks are instructed not to accept no-name checks or no-name endorsed checks over NIS 10,000.

“Gemach” interest-free loan society transactionsare excluded from the rules for up to two years or until separate rules are legislated for Gemachim.

Israeli real estate transactions:

Purchasers of Israeli real estate will now be required to declare one of the following:

• Details of the means of payment of the consideration are known to me, or
• Details of the means of payment of the consideration are not known to me at the time of filing this declaration.

In the latter case, the purchaser has six months to report the details. In either case, the details must be supplied – cash, bank transfer, check, other – and supply supporting documents. A ITA special website is being opened to facilitate this. A mortgage counts as a bank transfer.

Comments:

Will the black economy wither away and will the treasury overflow with tax revenues? It is fair to assume that smaller cash transactions will continue legally. So may barter transactions. It is unclear whether gold, diamonds, bitcoins and other crypto currencies will count as cash. Laundering illicit cash in Israeli real estate investments will no longer escape detection….

As always, consult experienced tax advisors in each country at an early stage in specific cases.