Be wary of your investments -- the TAXMAN is watching

[skimpy]

I take it erice had second thoughts about posting and deleted his message. If so, I felt the same when I was posting last year. I hope he posts to let us know how it pans out.

His post was a very interesting read, and not so dis-similar to my experience so I also hope he returns.

One thing that has been a catalyst in my case is transfer of money between my account and my wife's. You can only transfer 1.1m/year to your wife's account, any more and you'll be penalized. This also applies to purchasing property if you plan to put it in joint names. It's got to be seen that money has come from both parties. I guess when considering big purchases or movement of money, it's best to seek advice it seems. We are all the more wiser, though it's been an expensive lesson.

[Super Grover]

Prepare to leave?

I find myself approaching the 5 year mark. Although I would like to continue staying on I really can't see it happening. I would be interested to know if you agree with my thinking.

I am 43, Australian non-resident status, staying in Japan on a spouse visa. Main purpose of stay in Japan is for the kids to attend regular J school and be raised as bi-cultural. I work as a business E instructor and do the weddings gig on the weekend. The problem comes with the investments in Aust, $1.3m in shares, $300k in term deposits, no property. At the moment I am only required to pay 10% withholding tax on the bank interest, the share income through dividends is not considered (probably wrong choice of words there), but also the imputation credits cannot be taken into account. I probably earn about 4m yen in Japan. I file 2 different tax returns which at the moment are independant of each other.

Now, I realise that from the 5 year mark, my worldwide income will need to be disclosed if I stay in Japan. Would this mean the income that I am required to declare on the Aust tax return, ie $18000 in interest earnt of which $1800 tax is paid, or would I also need to disclose all the income earned in Australia, ie include the dividends, with the imputation credits?

I realise that I will need to get professional advice on it, but just looking for others opinions first.

Thanks a lot.

Of course get GOOD professional advice. Here is my advice based on my bitter personal experience and that of an Aussie (there are others but you are an Aussie). I would leave Japan. Here is a scenario: If your account is held jointly with your wife, and it has earned enough interest so that it would push your wife above the threshold here (assuming she is not working), then she will be liable for tax and back payments in social security here (assuming you pay for the family). All in all, if I had known what was coming, we might have lived separately with me returning to Canada. Now we are fearful of disposing of some assets (bad time anyway) because it will attract ridiculous tax.

I am in Australia now. You could do a LOT worse than living in Gold Coast or Southport, but damn, it costs $4-$6 for a regular bus here -- plenty of inflation in this country since I lasted visited!

Added: With you 1.3 million in shares, the NTA will see you as a wonderful catch. Surely they have marked your visit on their calendar!

[Morton]

Like Super Grover I am fearful about cashing in my assets, although I also don't plan to at present. For better or worse I'm just going to leave them as they are until I am ready to retire then I will go back home and live for a while then cash them in when I no longer have any Japanese tax liability.


Does anyone know how Japan treats joint accounts (either or survivor scenario)?

[skimpy]

I am in Australia now. You could do a LOT worse than living in Gold Coast or Southport, but damn, it costs $4-$6 for a regular bus here -- plenty of inflation in this country since I lasted visited!

Inflation in Australia has been running at around 3.5% and the Aussie dollar has more than doubled its strength against the greenback in the past 10-11 years but the tide is turning. It's no longer the holiday place it used to be and tourism has suffered greatly as a result.

[minamon]

I find myself approaching the 5 year mark. Although I would like to continue staying on I really can't see it happening. I would be interested to know if you agree with my thinking.

I am 43, Australian non-resident status, staying in Japan on a spouse visa. .....

Now, I realise that from the 5 year mark, my worldwide income will need to be disclosed if I stay in Japan. Would this mean the income that I am required to declare on the Aust tax return, ie $18000 in interest earnt of which $1800 tax is paid, or would I also need to disclose all the income earned in Australia, ie include the dividends, with the imputation credits?

I realise that I will need to get professional advice on it, but just looking for others opinions first.

Re-reading your post, I think (in my non-professional opinion) that you need to be carefull to declare all worldwide income *that is related in any way to significant electronic transfers you have made, or will make, into or out of Japan*, i.e., if there is trail to a foreign bank account or similar, you can be asked to show the account details, which might show not only the transfers, but also other income (interest etc.).

If you have no electronic transfers in or out of Japan, then disclosing is up to you. (i.e. I dont think the J tax office can know anything about it.)

[jrp]

I take it erice had second thoughts about posting and deleted his message. If so, I felt the same when I was posting last year. I hope he posts to let us know how it pans out.

I make it a habit now of quoting the entire post if I'm replying, and it's interesting, and if no-one else has done it before me. It seems to happen a lot that people delete or edit their posts.

I'd like to hear the outcome for Erice too. Hopefully it turns out well for him (and all the other posters).

This whole topic of tax on overseas income is rather important to a lot of people.

It certainly does look like the J tax office are targeting gaijin who are here for over 5 years.

[jrp]

Re-reading your post, I think (in my non-professional opinion) that you need to be carefull to declare all worldwide income *that is related in any way to significant electronic transfers you have made, or will make, into or out of Japan*, i.e., if there is trail to a foreign bank account or similar, you can be asked to show the account details, which might show not only the transfers, but also other income (interest etc.).

If you have no electronic transfers in or out of Japan, then disclosing is up to you. (i.e. I dont think the J tax office can know anything about it.)

Although the J tax office might do a routine request to the Aussie tax office for background if the J tax office decide to do an audit on his Japanese earnings for some reason.

Although an audit is unlikely if he is not running his own business and is just working for a company where they deduct his tax automatically from his wages (I'm thinking of the earlier post by 'erice' where it sounded like it was a regular business audit as opposed to money transfers that triggered the audit - but they had his home country tax details before the meeting).

[shamar]

Of course get GOOD professional advice. Here is my advice based on my bitter personal experience and that of an Aussie (there are others but you are an Aussie). I would leave Japan. Here is a scenario: If your account is held jointly with your wife, and it has earned enough interest so that it would push your wife above the threshold here (assuming she is not working), then she will be liable for tax and back payments in social security here (assuming you pay for the family). All in all, if I had known what was coming, we might have lived separately with me returning to Canada. Now we are fearful of disposing of some assets (bad time anyway) because it will attract ridiculous tax.

I am in Australia now. You could do a LOT worse than living in Gold Coast or Southport, but damn, it costs $4-$6 for a regular bus here -- plenty of inflation in this country since I lasted visited!

Added: With you 1.3 million in shares, the NTA will see you as a wonderful catch. Surely they have marked your visit on their calendar!

Yes, it seems like leaving Japan is inevitable. I have fought the ATO for 3 years to be classed as a non resident of Aust, finally succeeding, I don't really have the energy for another mob of beauraucrats just going by their books, and still getting it wrong.

I think Thailand might be an option, Australia is certainly not what it used to be, too many people wanting others to support them, not enough getting off ones own aXXes.

Thanks for your thoughts.

[shamar]

Re-reading your post, I think (in my non-professional opinion) that you need to be carefull to declare all worldwide income *that is related in any way to significant electronic transfers you have made, or will make, into or out of Japan*, i.e., if there is trail to a foreign bank account or similar, you can be asked to show the account details, which might show not only the transfers, but also other income (interest etc.).

If you have no electronic transfers in or out of Japan, then disclosing is up to you. (i.e. I dont think the J tax office can know anything about it.)

I am lucky in that I already had the investments when I came back to Japan, I am sure they will line me up once I pass 5 years though, regardless of any money transfers I have made.

[skimpy]

Although the J tax office might do a routine request to the Aussie tax office for background if the J tax office decide to do an audit on his Japanese earnings for some reason.

Although an audit is unlikely if he is not running his own business and is just working for a company where they deduct his tax automatically from his wages (I'm thinking of the earlier post by 'erice' where it sounded like it was a regular business audit as opposed to money transfers that triggered the audit - but they had his home country tax details before the meeting).

That's just wishful thinking. I don't have a business and have been a loyal employee for my local city bouncing from school to school entertaining kids. I also had a substantial amount of money prior to coming to Japan. The NTA have conveniently waited till now to rattle my cage as its approaching the 5 year mark since I bought a house in Japan, which was bought with money from my bank account but joint names are shown on the deed...so they are claiming I gifted my wife half of the house's value. If I had a business, I'd only be audited for 3 years but as I don't it's 5 years. The audit started out on foreign income and investments and now they are digging through every little transaction made.

[minamon]

Although the J tax office might do a routine request to the Aussie tax office for background if the J tax office decide to do an audit on his Japanese earnings for some reason.

I cant imagine "routine requests" to some country's tax office (Australia or elsewhere) to check private data of *their own citizens* to help the economy of a *foreign* country (e.g. Japan) for free (ie the cost of doing searches and collecting data would be borne by Australia; gains would go to Japan).
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

As I mentioned in another post, the only case I know of where this happened, was when the US (and UK/Ger) put the squeeze on Switzerland -- but this was to investigate NOT Swiss citizens, but US, UK, and German citizens with accounts in Suisse. And the countries involved had economic leverage on Swiss banks, who need to do business in the bigger countries.

If there was information sharing between tax offices, I'm sure we would hear about it from rights/privacy groups -- particularly since there is no illegal activity proved. Failure to pay complete Japanese tax on Australian interest gains or income, is surely not illegal in Australia? How Japan taxes it's residents is Japan's business, not Australia's.
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).

However, when I read an article in the Japanese newspaper every now and then about some Japanese person who is about to be prosecuted for tax evasion by having accounts abroad, I wonder how they were caught out. (About 3 days ago there was an article about a Japanese mgr (retired now) who got stock options etc. when he was working in Credit Suisse (value over 1.3 oku yen in Swiss account) and who is now in Canada (resident?) but will return to Japan to face the music. I guess he must have made some transfer via Japan, because Switzerland would not divulge any information unless they were forced to.

[jrp]

I cant imagine "routine requests" to some country's tax office (Australia or elsewhere) to check private data of *their own citizens* to help the economy of a *foreign* country (e.g. Japan) for free (ie the cost of doing searches and collecting data would be borne by Australia; gains would go to Japan).

Actually information sharing requests on taxpayers are now quite common. When signing Double Tax Agreements there had to be a system of information sharing and both countries had to legislate that they could and would pass (the previously confidential) information of their taxpayers if requested.

The cost of doing the searches is actually very low as tax records are keep on databases and it only takes minutes to click a button that creates the report, then you just attach it to an email - really simple, fast and cheap.

The benefits to each country are are quid pro quo. What the tax departments like the most is the publicity and public mindset it creates in that taxpayers become too afraid to try and buck the system and not pay all the tax that the tax laws say they should. The J tax office love threads like this one.

If there was information sharing between tax offices, I'm sure we would hear about it from rights/privacy groups -- particularly since there is no illegal activity proved. Failure to pay complete Japanese tax on Australian interest gains or income, is surely not illegal in Australia? How Japan taxes it's residents is Japan's business, not Australia's.

You're probably correct in that it is probably not illegal in Australia to not pay Japanese tax on Australian interest gains or income - but I'm not sure on that - but that might change in the near future. However, if the J tax decides you owe them so much, and you cannot change their minds, then you owe that money to the J tax office.

What is starting to be worked out now between various countries is getting other countries tax offices to collect outstanding tax on behalf of other countries.

From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).

Tax evasion is a criminal activity.

As mentioned earlier - it is very easy for tax departments to share information if there is an agreement between them. It looks like the post by `erice' shows such an example (his original post is deleted, but I quoted it in a post 2011-09-06, 02:09 PM)

Your earlier example of the Swiss banks is not really applicable as the Swiss banks are banks - not tax offices. It is the tax departments who are sharing info, it's not the J tax office asking for info from Aussie banks. The Aussie tax office knows all your bank account details through the amounts of tax that are automatically deducted by the bank for tax on interest earned. If the figure is high enough to be of `interest', the J tax office will ask the Aussie tax office to get all the actual transaction details.

[minamon]

Actually information sharing requests on taxpayers are now quite common. When signing Double Tax Agreements there had to be a system of information sharing and both countries had to legislate that they could and would pass (the previously confidential) information of their taxpayers if requested.

jrp, thanks for correcting my assumptions. I guess the question is then:
-- whether your country has a Double Tax Agreement with Japan
-- whether you have paid tax in your home (or another) country

[Morton]

when I got done last year they had information about the interest I'd received. I can only assume it came from the tax authorities in my country. Curiously although they knew about the interest I'd received they knew nothing about balances or bank account numbers.

[Super Grover]

I cant imagine "routine requests" to some country's tax office (Australia or elsewhere) to check private data of *their own citizens* to help the economy of a *foreign* country (e.g. Japan) for free (ie the cost of doing searches and collecting data would be borne by Australia; gains would go to Japan).
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

As I mentioned in another post, the only case I know of where this happened, was when the US (and UK/Ger) put the squeeze on Switzerland -- but this was to investigate NOT Swiss citizens, but US, UK, and German citizens with accounts in Suisse. And the countries involved had economic leverage on Swiss banks, who need to do business in the bigger countries.

If there was information sharing between tax offices, I'm sure we would hear about it from rights/privacy groups -- particularly since there is no illegal activity proved. Failure to pay complete Japanese tax on Australian interest gains or income, is surely not illegal in Australia? How Japan taxes it's residents is Japan's business, not Australia's.
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).

However, when I read an article in the Japanese newspaper every now and then about some Japanese person who is about to be prosecuted for tax evasion by having accounts abroad, I wonder how they were caught out. (About 3 days ago there was an article about a Japanese mgr (retired now) who got stock options etc. when he was working in Credit Suisse (value over 1.3 oku yen in Swiss account) and who is now in Canada (resident?) but will return to Japan to face the music. I guess he must have made some transfer via Japan, because Switzerland would not divulge any information unless they were forced to.

Tax offices do share.
Second underlined part: I am a case in point that the Japanese NTA HAS indeed gotten information from outside Japan that, to this day, I do not know how it was found (not illegal, but certainly not at anyone's fingertips).