top of page
  • Writer's pictureשוהם שאוליאן, רו״ח (עו״ד)

Key Points in Wealth Declaration Statements

A neatly organized workspace on a round table with tax-related items including a calculator, tax forms, glasses, a smartphone, a wooden coffee cup, a watch, and various office supplies like pens and a clipboard, all in a coordinated beige and gray color scheme.

Business owners and significant shareholders are required to submit two important reports - the annual report and the wealth declaration. These reports, while serving different purposes, are vital for compliance with tax authority requirements, and are used by income tax inspectors for various purposes.


The annual report is a yearly document detailing the income for the tax year in question. Business owners and significant shareholders must submit this report annually, declare their profits, and pay the tax arising from the report. It reflects the business results over the tax year, including detailed information on income, expenses, and profits or losses.


In contrast, the wealth declaration is a report required only upon request by the tax authorities (usually every few years). This report details the assets and liabilities of the individual as of a specific date. Unlike the annual report, it does not deal with income but covers a broader range of financial status, including property, investments, and other assets.


Wealth comparison is a critical aspect of the wealth declaration process. In wealth comparison, the change in an individual's wealth between two wealth declarations submitted for different periods is examined. If the declared income is less than the increase in wealth plus expenses, it indicates unexplained wealth gaps, suggesting undeclared income to the tax authorities.


This comparison is a vital tool for tax authorities to identify potential tax evasion. Undeclared income can lead to significant tax liabilities, fines, and other legal consequences. Therefore, accurate and thorough reporting is essential.


Key Points to Consider in Wealth Declarations:

  • Shareholder balnaces: Report shareholder balances in the wealth declaration according to the balances in the books. However, for wealth comparison, adjustments should be made for transactions that did not involve cash.

  • Securities: Securities should be listed at cost or market value, as detailed. For wealth comparison, they are usually valued at cost, representing cash flow.

  • Pension Funds: Pension funds should include only the employee's portion, not the employer's contribution.

  • Household Contents: A good measure for valuing household contents is the home contents insurance policy.

  • Gifts and Inheritances: Report these at stated value as they do not constitute income.


Expenses in Wealth Comparison:

  • Financing Expenses: Expenses related to mortgages and loans can significantly affect wealth comparison.

  • Taxes and Social Security: Actual tax payments, including fines and interest, are taken into account in wealth comparison.

  • Overseas Travel: Estimate expenses for international travel based on destination and duration.


Explanation in Wealth Comparison

  • Gross Income: This forms the basis for wealth comparison.

  • Business Losses: Business losses reduce income explanation in wealth comparison.

  • Exempt Income: Report all income, including exempt income. Keep supporting documentation for such income.

  • Non-deductible Expenses: Document non-deductible expenses for tax purposes as they can affect income explanation.

  • Cash Basis Accounting: For those reporting on a cash basis, consider changes in customer and supplier balances between wealth declarations.


Comments


Commenting has been turned off.

We strive to ensure that each article is informative and relevant, but remember that every situation is unique and that the articles are accurate as of their date of writing. Therefore, the contents of these articles should not be seen as recommendations or advice.

bottom of page