Disabled people in Israel, including many Parkinson's patients, can receive an exemption from income tax under certain circumstances. In this article I will detail the conditions that must be met and the procedure that must be followed in order to receive the exemption.
The law in Israel allows the disabled to receive a variety of allowances and benefits from the National Insurance Institute, including Exemption from income tax, which for many disabled people can be extremely significant. The legal source for this is Article 9(5) of the Income Tax Ordinance. This is not an "automatic" exemption for any National Insurance insured who has been recognized as disabled, but an appropriate application must be submitted to the assessor and as part of it a number of fixed criteria must be met, mainly the degree of medical disability determined for the applicant.
Who is entitled to exemption from income tax?
There are 4 cumulative conditions that qualifies for an exemption from income tax. That is, it is enough that the applicant does not meet one condition to deny his right to tax exemption.
First condition, and perhaps the obvious one, is the existence of taxable income, since it is not possible to get an exemption from income tax when the insured has no income.
Second condition, engaged during the period of medical disability established for the applicant. As long as the medical disability was determined for a period of time of at least 185 days, this condition is met. It follows that even applicants who suffer from a temporary medical disability, which exceeds the aforementioned period, will meet the conditions as part of the procedure for checking their eligibility for tax exemption.
Third condition, where one often encounters the essential difficulty on the way to tax exemption is the medical disability rate. According to the law, an applicant with a medical disability at a rate of 100% that originates from one impairment or an applicant with a weighted medical disability at a rate of at least 90% (temporary) or 89.1% (permanent) if it originates from several impairments - will meet the condition and may be entitled to an exemption from income tax It is important to clarify that this is only about the medical disability rate, regardless of the relevant functional disability to the general disability branch. Therefore, the damage to the applicant's earning capacity is not of any importance, but only to the set of medical deficiencies from which he suffers.
Fourth condition, is that the medical disability is determined according to one of the main laws regarding the determination of the rate of medical disability, which are detailed in section 9(5) and among them, the Law on the Disabled (Remunerations and Rehabilitation), the National Insurance Law, the Law on Compensation for Victims of Hostilities, the Law on the Disabled from the War with the Nazis and more.
In addition to the disabled who meet the criteria listed above, disabled people with visual impairments or those with a blind certificate will also be entitled to an exemption from income tax up to the same ceiling as other disabled people. Along with this, it is important to understand that the insured's age does not increase or decrease the eligibility for tax exemption, so that even insureds who have passed the retirement age will be entitled to submit the request for exemption to the assessor, assuming of course that they bear tax payments.
What types of income are included in the tax exemption?
A disabled person who meets the criteria listed above may be entitled to a tax exemption for income from personal income, i.e. income from work - as an employee or from a business, as well as income that is not from personal income, i.e. income received not directly from work, for example income from renting properties, interest from bank deposits or returns from investments in the capital market.
In addition, the tax exemption also applies to interest derived from compensation or insurance funds received as a result of a claim for personal injuries, and deposited in a deposit, in a savings plan in a provident fund.
Up to what income ceiling can you get a tax exemption?
Just as the tax exemption is not automatically given to every disabled person, it is also not given for any amount, but there is a certain ceiling that changes from year to year. It is important to note that the period of disability is important in determining the tax-exempt income, since if a temporary medical disability was determined in part of the tax year, then the amount of the exempt income will be proportional to the rate of the disability period in the current year.
The tax-exempt income ceiling, as of 2021, is NIS 614,400 per year, but only on personal income and in cases where disability has been established for a period of at least 365 days. As the disability was determined for a shorter period, between 185 and 364 days, the tax-exempt income ceiling decreases significantly, and stands at NIS 73,560. If a disability is established whose period extends over two tax years, then the full tax-exempt amount will not be higher than the ceiling established in the first tax year.
The tax exemption is also given for non-personal income up to a ceiling of NIS 73,560, provided that the personal income does not exceed this ceiling, regardless of the length of the established disability period. In other words, if the annual income of a disabled person, whether personal or non-personal, exceeds NIS 73,560, then the tax exemption will be granted up to this ceiling only. When we are dealing with income from interest paid for compensation or insurance money that was paid for personal injuries and deposited in a deposit, savings or provident fund, then the exemption will be granted up to a ceiling of 302,640 NIS per tax year, only in cases where the income from personal income does not exceed 73,560 NIS, all of this applies to the year 2021.
How can I get the exemption?
In order to receive the income tax exemption, a claim must be submitted to the assessor nearest to the disabled person's place of residence, using form 1516. The request must be accompanied by references regarding the established medical disability, that is, the minutes of the medical committee of the relevant body that established it, in accordance with one of the laws listed above.
A disabled person who has not submitted a similar claim in the past, and was not approved for such a tax exemption, may be entitled to a retroactive tax refund for up to 6 years.
Whenever the applicant meets the eligibility conditions set forth in the law and detailed above, the assessor will approve the application and grant him a tax exemption. At the same time, applicants who have not been assigned a medical disability percentage or who have been assigned an inappropriate percentage of disability can still obtain the exemption, but only by submitting an application to the assessor, along with the relevant medical documentation, which will be forwarded to the National Insurance Institute, and the latter will send Invitation to a medical board examination. Filing a claim in this way involves paying a fee of NIS 659.
As long as the insured was not diagnosed with a medical disability before submitting the application, in order to recognize his right to tax exemption, he must appear before a medical committee consisting of a specialist doctor and a secretary. As part of the committee, the applicant presents his full complaints to the doctor, and if necessary, an appropriate physical examination is performed. At the end of the examination, after the applicant leaves the room, the doctor summarizes his findings, makes his decision and forwards it to the income tax. After the doctor's decision is accepted by the income tax, the assessor sends the insured a notification letter about the medical committee's decision.
An appeal can be submitted to the above-mentioned medical committee to the medical committee for appeals within 45 days from the date of the decision.
In conclusion, it seems that on the face of it the eligibility conditions for income exemption are clear and do not leave the assessor a margin of discretion as to whether to grant the exemption or not. At the same time, reality shows that there are many disputes on the way to the long-awaited exemption, especially regarding the rate of medical disability, which is the most stringent condition. Therefore, if you have come to the decision to submit an application for tax exemption, it is recommended to receive advice and guidance from a lawyer dealing in the field so that you can fully exhaust your rights, and avoid difficulties during the procedure of obtaining the tax exemption.
