The Law for Reducing the Use of Cash, which is scheduled to come into effect on January 1, 2019, will have a significant impact on the real-estate sector.

Besides the direct impact on the ability to pay in cash for a transaction itself, the law also affects the property betterment expenses a seller wants to recognize during the sale of a property.

Up until now, the Israel Tax Authority (ITA) recognized expenses incurred for the purpose of improving a property, such as those in respect of construction and/or renovation costs, etc., even without being presented with receipts for payments actually paid.

However, the ITA clarified that as of January 1, 2019, anyone who sells a property and does not issue receipts for payments in respect of the renovation and/or construction that he performed, will be exposed to the sanctions prescribed in the law.

The outcome is that property-sellers who want to recognize property betterment expenses, but who do not submit receipts in respect of their payments, will be deemed as having paid the payments in cash and, insofar as they do not prove otherwise, will be exposed to fines by virtue of the Law for Reducing the Use of Cash. These fines range between 15% for a payment of up to NIS 25,000 and 30% for a payment exceeding NIS 50,000.

The ITA will still be obligated to recognize the expenses themselves, even if they were paid in cash, but the seller (the property owner) will be concurrently exposed to the fines liable to him in respect of these payments.