Treasury again takes aim at advanced training funds

The Ministry of Finance is seeking to prepare the ground for reducing one of the most lucrative tax breaks enjoyed by Israeli savers. “It is recommended to reduce substantially the tax benefit on advanced training funds, with a preference for lowering the income ceiling for entitlement to the benefit,” a new policy analysis on advanced training funds, released today by chief economist Shmuel Abramzon, concludes.

Advanced training funds are a fiction of the Israel pay and taxation system. Theoretically, as their name implies, these funds are a way of financing in-job training. In practice, they are a tax-free perk. An employee with an advanced training fund is exempt from income tax and National Insurance payments on the amounts deposited into the fund by the employer on his or her behalf, and is also exempt from capital gains tax (25%) on money withdrawn from the fund at least six years from the date on which it was deposited. The employee can also transfer money between funds run by the same or different financial institutions without this constituting a tax event. There is no obligation to spend the money on training of any kind.

The employer makes a contribution amounting to 7.5% of the employee’s gross salary to the fund, while the employee contributes 2.5% of his or her gross salary. The tax benefit applies to an annual deposit into the fund of up to NIS 18,854 (up to NIS 14,141 by the employer and NIS 4,713 by the employee).

Self-employed people can make deposits into an advanced training fund out of pre-tax income, up to the NIS 18,854 ceiling, and enjoy the same tax benefit on withdrawals.

The tax benefits given by the state to savers in advanced training funds are a “red rag” to the Ministry of Finance. Time after time, the ministry tries to reduce them, unsuccessfully, because of opposition by the Histadrut (General Federation of Labor in Israel) and a lack of political will. In the last budget, for example, a cut in benefits was removed from the Economic Arrangements Bill against agreement by the Histadrut to other austerity measures.

The Ministry of Finance’s latest document quantifies the fiscal cost of the tax benefits associated with the advanced training funds. In 2024, this amounted to NIS 10.7 billion, of which NIS 8.5 billion was from the exemption from tax and National Insurance payments on deposits into the funds, and NIS 2.2 billion was from the exemption from capital gains tax on withdrawals. This makes the exemptions from tax on advanced training funds the third largest tax benefit in the country, after the benefits on pension savings and the tax credit points for parents of children under eighteen.

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The Ministry of Finance tries to make the case that cutting the benefits on advanced training funds (which not all employers offer) is morally justified, aside from the fiscal saving. “The benefit is regressive and carries a structural advantage for those with high incomes, since it is set according to the marginal tax rate of the person with an advanced training fund,” the document states. That is to say, the higher a person’s income, the greater the value of the tax benefit he or she receives.

The data presented by the chief economist indicate large gaps in benefits from the tax break. Only 9% of employees in the bottom 10% of income earners have deposits into advanced training funds, versus 83% of employees in the top 10%. The average annual benefit for the top 10% is NIS 6,200, more than five times that for the bottom 20%, which is just NIS 1,100.

The result: “71% of the benefit on deposits into the funds goes the top 30% of income earners, while the bottom 50% receive less than 10% of the benefit,” according to the analysis. Over a period of 36 years, a worker in the top 10% receives a cumulative capitalized benefit of NIS 173,000, 150 times the benefit received by a worker in the bottom 10%.

The Ministry of Finance also emphasizes the gaps between different groups in the population. While 63% of workers with academic degrees make deposits into advanced training funds, only 33% of workers without higher education do so. 56% of non-haredi Jews make deposits into the funds, versus 26% of haredi workers, and 18% of Arab workers.

As mentioned, at present the ceiling for the amount deposited into an advanced training fund is NIS 14,141 annually for the employer and NIS 4,713 for the employee. Lowering the ceiling will make any amount deposited above the new level liable to tax.

The Ministry of Finance is also considering the inclusion of the advanced training funds in the reform for equalizing taxation on savings instruments, the reform known as “the arbitrage reform.” This reform will create uniformity in the capital gains tax benefit on the various savings instruments, which will cut the generous capital gains tax benefit that currently applies to the advanced training funds.

In other words, the Ministry of Finance seeks to reduce the tax benefit at both the deposit and the withdrawal stages, thereby substantially cutting the public subsidy of the advanced training funds.

The Ministry of Finance estimates that just lowering the income ceiling recognized for the benefit by 25% will yield a saving of NIS 1.7 billion annually, while complete abolition of the exemption from capital gains tax on withdrawals could yield a further NIS 2.2 billion. As ever, though, the Ministry of Finance will have to tackle fierce opposition from the Histadrut and from the public at large (those with advanced training funds at least), and as history has proved the road to cutting the tax benefits on the advanced training funds is strewn with political obstacles.

Published by Globes, Israel business news – en.globes.co.il – on October 16, 2025.

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