Every element in tax ruling is obligated to comply with the "real tax" principle. The "real tax" principle is the tax calculated in good faith according to the rules fixed in the different tax laws – not as a result of tax avoidance or tax deduction.(1) A recent Supreme Court ruling concerned the transfer of real estate property to a trust without anything in exchange.(2) This judgment shows the Court's approach in such cases and changes the current thinking on tax planning.

This article reviews the Galis ruling and offers a comparison between the applicable laws and regular practice regarding trust taxation.


The Israeli Tax Ordinance defines "trust" as an arrangement in or outside of Israel in which the trustee holds the trust assets for the beneficiary.(3) The trust law defines "trust" as "a linkage to a property, according to it, the trustee must follow for the benefit of the beneficiary".(5) The taxation of trusts is regulated by:

  • the Israeli Tax ordinance;
  • the Land Tax Law;(6)
  • the Value-Add Tax Law;(7)
  • international tax agreement orders; and
  • other regulations.

Since the ordinance (specifically, the chapter on trusts) excludes the transfer of real estate, Galis offers insight into the liability of trustees in relation to land tax, receiving an exemption and the conditions to fulfil.


On 13 January 2016, Canadian residents and individuals signed an escrow agreement with Yaron Eldar (trusts) ltd (the appellees). According to this agreement, the Canadians would transfer to a trust company (in an irrevocable trust and without payment) four real estate properties in Israel and a considerable sum. This company was created shortly before signing the agreement with the purpose of serving as a company to hold trust assets. The trust included standard rules concerning family trusts. Among other things, it was determined that the granddaughter of one of the appellees, an Israeli resident, was a beneficiary of the trust.

The trust letter allowed the addition or subtraction of beneficiaries from the trust under certain conditions. Managing the trust assets was up to the trustee. The goal of the trust was defined as saving the company's shares until the distribution of the trust assets or of the income arising from the assets to the beneficiary (a distribution event).

According to chapter 2 of the Income Tax Ordinance, the tax event arises in trusts only when the asset distributes to the beneficiary. Since the asset in that case was regarded as transferred directly from the trust creators to the trust beneficiary, the essence of their relationship was what set the taxation route of the asset.


The Supreme Court declined the appellees' request to apply the regulation in the Income Tax Ordinance instead of the regulation under the land tax on transferring rights in the land to a trustee. The court differenciated between a "trust in the sense of mission" (in which the trustee holds the property on behalf and for the only benefit of the trust creators and acts according to their instructions) and the "voluntary trust" (in which assets are assigned for the benefit of the beneficiaries while giving discretion to the trustee regarding their management and distribution).

The court insisted on the importance of trusts and even defined them as a set of legal relationships created by law, contract or endowment. The trustee's duty to act in good faith is crucial, and the purpose of the trust will ensure the interests of the beneficiary. As a result, the trustee is not entitled to the enjoyment of the trust assets or their fruits except for the payment of wages and expenses.

Unlike the provisions in the Income Tax Ordinance (chapter on trusts), the court states that different legal provisions and certain regimes apply. As a result, the taxable event is determined when the property is transferred to the trustee. The definition of "sale" in the Israeli Land Tax Law (Land Tax Law) is defined broadly. Hence, it includes the purchase without consideration of real property for the children of a trustee, as well as the distribution of the property from the trustee to the beneficiary. Considering the above, generally, every transfer of property and/or distributions is subject to appreciation and purchase tax. Nevertheless, according to the Land Tax Law, there are two exceptions and two types of trusts for which there is a different tax arrangement.

Exemption when granting by Land Tax Law pursuant to section 3
The cession of a right in real estate or a right in an association pursuant to the provisions of the section will not be considered a "sale" or "union action" for the purpose of the Land Tax Law. In this situation, the day of the sale will be postponed to the date of the sale by the trustee or to the date of transfer to the beneficiary, and the property will be considered as having been purchased or sold by the transferor. In addition, the court noted that in previous rulings it was determined that the section only discusses a "closed list" of status holders who were appointed by virtue of specific legislation and subscribed in this section.

Exemption in distribution from trustee to beneficiary
In accordance with the provisions of sections 69 and 74 of the Land Tax Law, the exemption will be granted only when it is a specific trust for the benefit of a specific beneficiary. As long as the trust complies with the procedural conditions and the essential terms of the trustees, the transfer to the trust will be subject to capital gain and purchase tax. However, at the time of distribution to the beneficiary, an exemption from capital gain and acquisition tax will apply. This arrangement also requires that the beneficiary is informed about the creation of the trust and its benefits.

In this case, the court decided that the exemption should not be applied at the time of the transfer, since it is not a trust that is included in the "closed list" in accordance with what is stated in section 3 of the Land Tax Law. Moreover, it was decided that an exemption should not be granted according to section 69 of the Land Tax Law, since no specific beneficiary was determined. The court specified that the beneficiary, the granddaughter of the creators, was not a "final and specific beneficiary" due to her unawareness of being a beneficiary in the first place and due to her authority to add or remove beneficiaries from the trust.


Finally, it seems that the Supreme Court's judgment requires an in-depth examination of existing trusts and even requires a rethinking of tax planning for new arrangements, such as examining a separate arrangement for real estate in Israel compared to other assets.

For further information on this topic please contact Anat Shavit at Fischer Behar Chen Well Orion & Co by telephone (+972 3 694 4111) or email ([email protected]). The Fischer Behar Chen Well Orion & Co website can be accessed at


(1) Itzik Rofe "The shutter has not yet closed on the purchases of real estate for the trust following the Galis ruling" Taxes Lu/3 A-27, September 2022.

(2) See:

  • AA 7610/19 Shobah Tax Administrator Tel Aviv 1 v Galis Taxes Lu/3, September 2022;
  • DNA 5473/22 Galis v Shobah Tax Administrator Tel Aviv 1, March 2023.

(3) The Israeli Tax Ordinance [New Version] 1968.

(4) The Israeli Trust Law 1979 (the Israeli Trust Law).

(5) Section 1 of the Israeli Trust Law.

(6) The Land Tax Law (purchase and appreciation) 1963.

(7) The Value-Add Tax Law 1975.