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Lawsuit: Tax Authority Rules Favor Gays

A class-action lawsuit against the Tax Authority seeks damages over 'heterosexual discrimination,' providing gays with extra tax benefits.
By Moshe Cohen
First Publish: 4/28/2014, 12:13 AM

Tax Authority office
Tax Authority office
Flash90

A class-action lawsuit against the Tax Authority seeks damages of NIS 300 million over a case of discrimination in Israeli tax law. The suit is being brought by Yaakov and Ofra Schatz, representing a coalition representing families – who claim that the Tax Authority is discriminating against them, in favor of same-sex couples, by giving the latter a choice as to which member of the pair is eligible for an additional tax credit point, while heterosexual families do not get to choose.

Under Israeli tax law, each individual is awarded a half point tax credit, while mothers are granted an extra half point for each child. The points are applied as deductions to gross incomes, so the higher an individual's income, the more valuable the points. As mothers generally earn less than fathers in most Israeli families, the impact of the tax credit is somewhat muted. Only mothers are eligible to receive the credits on behalf of their children.

Same-sex couples who adopt children, however, have the luxury of applying the tax credits to either of the working “spouses.” As a result, the lawsuit contends, they enjoy a much greater tax break than families with male and female partners. The policy was instituted last December, the Tax Authority said, and was designed to end the previous discrimination against same-sex couples, who were not eligible for tax credit points at all.

The suit was filed for certification Sunday morning at the Tel Aviv District Court. The suit seeks damages of NIS 300 million, and a change in the Tax Authority's policies. In a letter accompanying the lawsuit, attorneys for the Schatz family said that the situation was unfair and unreasonable. “Families who have the same number of children and the same income level end up paying far different tax rates, only because in families with a female member, the tax credit points apply only to her even if her income is lower, while in single-sex partnerships, the couple is free to apply points to the working spouse with the higher income.”

Yaakov Schatz is an independent patent attorney, and his wife is a salaried employee. Her income is far lower than his, and often her income was not sufficient to take advantage of the tax credits at all, falling below the taxable level altogether – while Yaakov paid full taxes, with the point credits “lost.”

The Schatz's appealed to the Tax Authority to apply the credit points to Yaakov's income, and were flatly turned down, with the Authority saying that the rule which gave an option to couples to choose which partner could take advantage of the points was superseded by the rule that if a female is one of the couple, the credit could only apply to her. The Schatz's are suing over discrimination, and have gathered other families to join in as part of the class action suit.