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Be wary of your investments -- the TAXMAN is watching

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  • Originally posted by ctskelly View Post
    2) Foreign income....you can't get credit for any income tax you paid the other country.
    I think you are getting bad advice from someone. You can get credit for the tax you paid to the other country - this is the purpose of the tax treaties with the other countries. If you are getting taxed twice on the same income, you are getting dreadfully bad tax advice from someone. Note: sometimes the credit you receive for tax paid is not one-for-one, in other words: you may not receive 100% credit for what you paid to, say, the IRS, but to say that you receive no credit at all makes me think you have been getting disastrously bad advice from someone.

    Originally posted by ctskelly
    Contrary to what one person on this thread wrote, you cannot carry over a loss from one year to the next, unless you are using a specially licensed Japanese company to buy your stocks.
    As above, I think the advice you have been given has been terribly mistaken. I don't think there is any condition on the stock sales that would prohibit you from taking a loss and carrying it over. I would be very, very keen to have more info on this. The information I've read on the web, as well as my own experience, suggests that there is no requirement that stocks be purchased through a particular stock broker in order for you to take this loss. See more info here.

    Let me be the first to admit I don't know everything about this situation, but your post is the first I have ever seen that suggest you cannot deduct a loss from the sale of foreign stocks. If you are getting audited and not getting credit for your foreign taxes paid, and not taking the deduction for foreign stock losses, I'm thinking there is something lost in translation because these two items are pretty straightforward.

    Comment


    • Originally posted by ctskelly View Post
      if you have been here five years, Japan has first right to tax all your income
      This is what I was told. Even if I had paid UK tax I would still have to pay Japan the full amount due. I could then try to get a rebate from the UK. However there is a time-limit in which you can claim a rebate. So you shouldn't be taxed twice but you may end up with it happening. It also happened to me.

      I also lost money (offshore bond) in a year in which I earned quite a lot of interest. Theoretically I could use my bond loss against any capital gains but in reality I couldn't. The bond loss could only be used against a similar type of investment (ie another bond that I had made a profit from)

      Comment


      • Originally posted by ctskelly View Post
        Hi,

        I have read this thread with interest and I have a couple things to throw in:

        1) On being audited. As I understand it, transferring over a million yen in or out of Japan causes a red flag to go up and could lead to further checking. Another thing that might, according to a Japanese site, is buying land/house, since there is usually a big payment - money transfer, and they might be suspicious as to where it came from. These things start them looking.

        2) Foreign income. As mentioned, if you have been here five years, Japan has first right to tax all your income, and as I understand it, you can't get credit for any income tax you paid the other country. If like me, you thought that because of the tax treaty, with the US in my case, that by paying US income tax on income from US property and stock investments you wouldn't have to pay it in Japan, then you are wrong. I am being asked to pay it all here with no deduction of the taxes I paid the US, and no chance to refile in the US (for 2005-7 at least) and deduct what I'll have to pay Japan. It's vicious. Double taxed.

        3) Income from stocks. Worse. Contrary to what one person on this thread wrote, you cannot carry over a loss from one year to the next, unless you are using a specially licensed Japanese company to buy your stocks. As far as I can tell, those big on-line companies like Ameritrade, Scottrade etc don't have the license. This obscure fact is killing me. I am being audited for the last five years, in which I lost 2 million overall. I haven't been cashing out, but like most people, selling and buying back the same (or different) stocks quite often to try to prevent losses when the market dips. As a result, my yearly statements reflect fairly closely gain or loss my total value, even though all that money is still invested. Now here is the pinch. Over those five years, I showed three years of 3 million yen gain each, and two years of 5.5 m yen loss each.

        Ie, I lost about 2 million, but the NTA JUST COUNTS THE UP YEARS, AND CONSIDERS THE DOWN YEARS AS 0 INCOME. No carryover. They want about 4 million on money I did not make! (and had paid US taxes on as well) My total investment in the stock market is just 10 million, but every time it swings up, I get hit big, and after a fall and swing back up again, hit big again. Now the market is always swinging up and down, and they tax every upswing. It is close to being double-triple-quadruple taxed on the same money.

        4) things to do:
        - If you are sending back money to Mom (or not?), write her off as a dependent.
        - Ask if you can claim the trip fare back home as costs for some of your foreign income, such as royalties
        - Get a tax consultant.

        5) Questions
        - Does anyone know the exchange rates the NTA uses for 2005-2009, or how they calculate it?
        - Does anyone know how to report stock income? For example, can you line up buys and sells of one stock across years (long term) so that you can decrease the profits and losses over a five year period?

        -Does anyone else have and ideas like these?
        In my case (ongoing) I have been told about tax credits for income tax paid abroad. I was shown a formula (because I asked how the calculation would be done). It was suggested that I would get virtually a 100% "credit," and so I should considering the millions they are going to steal.

        I agree with Majestic, you are being given bad advice. It sounds like a competent accountant will get you back on track. As for fx calculations, I know the answer to this: there is no standard. They use a monthly average derived from Mitsubishi UFJ (they said), but if I want to find another reputable standard, they might accept it. You must choose either monthly average or the rate on the date you had the income credited to your account. You may not mix methods.

        I do not see how you can buy a home overseas in your home country. You are supposed to cut all ties (for tax purposes). Certainly in Canada, home ownership is a huge tie that would attract taxation/trouble.
        One more important tip, make sure that you are ready to pay on time. They told me to be ready to pay. I have learned that by waiting (once I get the bill), it may cost several hundred thousands of yen! Also, expect to be audited in the following year.

        Comment


        • Originally posted by Super Grover View Post
          As for fx calculations, I know the answer to this: there is no standard. They use a monthly average derived from Mitsubishi UFJ (they said), but if I want to find another reputable standard, they might accept it. You must choose either monthly average or the rate on the date you had the income credited to your account. You may not mix methods.

          One more important tip, make sure that you are ready to pay on time. They told me to be ready to pay. I have learned that by waiting (once I get the bill), it may cost several hundred thousands of yen! Also, expect to be audited in the following year.
          Same country, same law, same NTA but a totally different experience to me. My accountant and the NTA reached an agreement over the exchange rate which was neither monthly, the actual date or a mixture. While I was told not to panic about paying it although the interest penalty would continue. In fact it was my accountant and not the NTA who recalculated my totals and sent me the bills after he and the NTA reached a verbal agreement.

          Comment


          • Originally posted by Morton View Post
            Even if I had paid UK tax I would still have to pay Japan the full amount due.
            The NTA definitely allows you to take a credit for foreign taxes paid. This is detailed on the NTA's own website at this link here, and the forms you use to take this credit are available here. As Grover pointed out there is a calculation involved to find out how much of the overseas tax you can claim as a credit here in Japan, so it has been my experience that it was more advantageous to pay the Japanese tax first and then claim the credit for Japanese tax paid on my home country tax, as my home home country allowed me to take credit for the entire amount paid to Japan. I don't know why you were told that you couldn't take the credit, but I suspect it was because the tax paid was viewed as dissimilar to the tax due here.

            The fact that the taxes paid have to be similar in nature to Japanese taxes in order for you to take a credit for them, seems to be what trips a lot of people up. In the past I found that income tax paid to US states is only creditable against the resident's tax paid here, which makes me think that the NTA considers state income tax to be similar in nature to residents tax. As always, your mileage may vary.

            Comment


            • Hello Everyone,

              I have been reading this thread with great interest..

              My situation:

              Here on a spousal visa from Jan2010
              Annual income is around 10,000,000yen (3,000,000 from Japan into an MUFJ account, residual is paid directly into a Canadian account from a US source).
              Minimal ($100000) retirement savings.
              Rental property in Canada.
              Home in wife's name here.
              I am paying taxes on the US to Canada $ in Canada.
              I am only declaring the 3,000,000 to the Japanese government.

              Is this going to come back to haunt me in 5 years if I am still here?

              Thanks
              Fred

              Comment


              • Originally posted by shonanfred View Post
                I have been reading this thread with great interest..

                My situation:

                Here on a spousal visa from Jan2010
                Annual income is around 10,000,000yen (3,000,000 from Japan into an MUFJ account, residual is paid directly into a Canadian account from a US source).
                Minimal ($100000) retirement savings.
                Rental property in Canada.
                Home in wife's name here.
                I am paying taxes on the US to Canada $ in Canada.
                I am only declaring the 3,000,000 to the Japanese government.

                Is this going to come back to haunt me in 5 years if I am still here?

                Thanks
                Fred

                It could haunt you sooner than that depending on the nature of the residual paid in Canada. If the NTA find out about it, they may look to see if it qualifies as "Japan sourced income", in which case they'll want to tax it. THe definition of Japan sourced income is not just if it is physically paid in Japan.

                One flag would be if you transfer any money into Japan that appears to be in excess of what you declare.

                Comment


                • Originally posted by iago View Post
                  It could haunt you sooner than that depending on the nature of the residual paid in Canada. If the NTA find out about it, they may look to see if it qualifies as "Japan sourced income", in which case they'll want to tax it. THe definition of Japan sourced income is not just if it is physically paid in Japan.

                  One flag would be if you transfer any money into Japan that appears to be in excess of what you declare.
                  It is a bit beyond me, seeing as I am only a lowly prof. Since you've been here since 2010 sometime, I guess you are not a NR (of Canada??) yet. The rental property is a large tie to Canada. You are paying your salary and taxes to Canada now though you are physically here. If you have lived in Japan here for over 6 months your deemed residence is here and you will be required to pay taxes. It looks like you are going to have residency issues, but as I not a specialist, I would recommend one. Definitely you are in the 33% bracket here. Good luck!

                  Comment


                  • Foreign Family Trusts

                    This is a very, very interesting thread. I'm not sure if I should start a new thread with this post as it about foreign Family Trusts and tax, but it is also directly related as well.

                    Does anyone know the Japanese view on foreign Family Trusts (New Zealand in my case)? Or do they even have Family Trusts in Japan?

                    My situation is: I am a Trustee of the Trust, and one the Beneficiaries of the Trust, that I set up long before coming to Japan (Trust set up 2008, I arrived in Japan 2010). I plan on staying long term so I do not want to get a tax surprise in the future.

                    I have transfered (gifted) money from the Trust to myself personally, but never to the Trust (cannot earn enough in Japan to do that). But I may like to in the future. Does the J-taxman have a gifting limit where no tax applied (NZ is $27,000 at present)?

                    Comment


                    • re these comments

                      "a) The NTA definitely allows you to take a credit for foreign taxes paid." and ...
                      "I think you are getting bad advice from someone. You can get credit for the tax you paid to the other country - "

                      Yes, that's right, but you can only take credit on some income. The tax I paid on my stock income is not deductible.

                      and

                      "b) As above, I think the advice you have been given has been terribly mistaken. I don't think there is any condition on the stock sales that would prohibit you from taking a loss and carrying it over. I would be very, very keen to have more info on this. The information I've read on the web, as well as my own experience, suggests that there is no requirement that stocks be purchased through a particular stock broker in order for you to take this loss. See more info here. "

                      Both the tax office and my tax consultant said there is no carryover, but I think you might be defining it differently than I am. I mean carrying a loss from one year over to another year in which there was a gain, to offset that gain. Stock losses can certainly be subtracted from stock gains in that same year.

                      Anyway, I'm screwed. I'll get hit for 6 million or so for the five year period in which I lost 2 million overall. It's just not fair.
                      Last edited by ctskelly; 2010-12-27, 01:46 PM.

                      Comment


                      • One other thing guys....

                        Originally posted by shonanfred View Post
                        I have been reading this thread with great interest..

                        My situation:

                        Here on a spousal visa from Jan2010
                        Annual income is around 10,000,000yen (3,000,000 from Japan into an MUFJ account, residual is paid directly into a Canadian account from a US source).
                        Minimal ($100000) retirement savings.
                        Rental property in Canada.
                        Home in wife's name here.
                        I am paying taxes on the US to Canada $ in Canada.
                        I am only declaring the 3,000,000 to the Japanese government.

                        Is this going to come back to haunt me in 5 years if I am still here?

                        Thanks
                        Fred
                        Would the Japanese government want a chunk of the gross residual or net?
                        And what would happen if I lower my tax payable in Canada by maxing my RRSP? - would the Japanese government then want me to pay more tax here?

                        Sorry if this is getting off-topic.
                        Fred
                        Last edited by shonanfred; 2010-12-27, 03:15 PM.

                        Comment


                        • trusts

                          Originally posted by jrp View Post
                          Does anyone know the Japanese view on foreign Family Trusts (New Zealand in my case)? Or do they even have Family Trusts in Japan??
                          I checked out about trusts a few years ago (since I have a few different Europe and Oz - based funds, and it would be easier for kids etc to inherit a trust than a pile of mixed up funds). Seems that Japan doesnt recognise trusts!

                          Comment


                          • @ctskelly

                            Interesting. Either I'm an ignoramus about US tax law, or the US has different rules than Canada, but I wasn't aware there was a way to carry stock losses over to other years. In the US, I thought capital gains and losses were calculated for the single fiscal year in which they took place. Therefore I'm a little surprised that you expect this to be a possibility in Japan.

                            If it's ignorance, it's likely because of my personal strategy - long term on everything, and tax implications are one reason why I do very little selling and buying to "lock in" gains. If I like a stock, I let it ride. I have no interest in trying to time the markets, so I might buy 5-10 stocks in a year, but I probably sell as few as 1 or 2. (This year I bought 8 or so, and sold only 1, for a loss).

                            Comment


                            • @ctskelly,

                              Mate I stand humbled and corrected - you and the advice you received regarding foreign stocks was correct: you cannot carry over the loss from the sale of foreign stocks purchased through an overseas broker.

                              I was searching the web and found the following info (in Japanese) here.

                              My apologies on this. I agree though, it doesn't sound very fair.
                              Last edited by Majestic; 2010-12-28, 06:24 AM.

                              Comment


                              • Originally posted by minamon View Post
                                I checked out about trusts a few years ago (since I have a few different Europe and Oz - based funds, and it would be easier for kids etc to inherit a trust than a pile of mixed up funds). Seems that Japan doesnt recognise trusts!
                                That would be my thoughts too re the inheritance aspect. Likewise, it is more simple from a tax perspective while I am in Japan, although the rate for the tax of trusts in NZ is 33% p.a. at the moment, which is a bit steep.

                                But the advantage of Trusts are that it also protects the Trust funds from any personal lawsuit (paying out that is), breakup, and death duty (if they have death duty in Japan that is) for any inheritance to any offspring I may beget.

                                What I am interested in is what the J-taxman will think of someone either lending or gifting money to another tax entity (the Trust) in a foreign country. So it would be nice to hear from someone who has lent or gifted money to a Trust while they were a Japanese Tax Resident - and what the J-taxman thought of it.

                                Comment

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