Couple Loses Tax Appeal Over 'Shell Apartment' Claim After $2.5 Million Purchase

An Israeli couple's attempt to classify their newly purchased apartment as a "shell apartment" to receive a reduced property acquisition tax was rejected by the Central District Court's Appeals Committee. The couple, Aryeh and Efrat Tusiya-Cohen, purchased a luxury apartment in Ramat Hasharon for approximately 9.5 million shekels (about $2.5 million USD). They argued that the apartment was not habitable upon purchase, requiring extensive renovations costing over 580,000 shekels, and thus should be classified as a "building" eligible for a lower 6% acquisition tax rate.

However, the Tax Authority classified the property as a "residential apartment." Since it was not their sole residence, they were subject to higher acquisition tax rates of 8% and 10%. The couple's appeal to the Tax Authority was denied, leading them to the Appeals Committee.

The couple claimed the apartment lacked essential facilities like connected toilets, flooring, tiling, interior doors, and a kitchen. They also stated they had to rent another apartment for eight months during the renovation period. The Tax Authority countered that the apartment was built according to a residential building permit, had received occupancy permits (Form 4 and Form 5), and was connected to permanent electricity and water. Evidence presented, including photos taken shortly after the sale, showed the apartment was plastered, painted, had parquet flooring, aluminum windows, electric shutters, and a modern kitchen.

Presiding Judge Shmuel Bornstein, along with committee members Gidi Gabai and Shabtai Biran, dismissed the appeal. They ruled that the apartment met both objective and subjective criteria for a residential unit, noting it was built for habitation, received final permits, and was connected to infrastructure. The judge stated that minor finishing work or renovations do not transform a residential apartment into a shell, calling the couple's claim that extensive renovations should qualify for a lower tax rate an "unreasonable outcome" that contradicts the law's intent.

This case highlights a legal gray area regarding the definition of a "shell apartment" versus a "residential apartment" for tax purposes, which can result in significant tax savings. The article notes a previous case where businessman Shlomo Nehama successfully argued a similar point, leading the Tax Authority to seek legislative changes. In 2023-2024, the definition of "residential apartment" was expanded in the Property Tax Law to include shell apartments intended for residence, effectively closing this perceived loophole.