PTF plans are tax efficient up to the salary tax threshold, currently 15,712 ILS/month. Company payments are free of tax to the employee and recognized as an expense for tax purposes. Assets derived from payments up to the tax threshold are free of capital gains tax. Company contributions related to salary above the tax threshold are assessable for tax to the employee as benefit in kind.
A typical PTF plan will cover basic salary up to the salary tax threshold with company payments at 7.50% and corresponding employee payments (by salary deduction) at 2.50%.
Market practice varies and it is relevant to clarify as follows:
1. Are deposits paid for salary above or below the tax ceiling?
2. If deposits are paid on salary only up to the tax ceiling, then does the company pay an addition to salary in lieu of deposits for salary above the tax ceiling?
3. If deposits, or payment in lieu, are paid on salary above the tax ceiling, then does the company pay a “gross-up” to compensate for related income tax paid by the employee?