Furusato Nozei: Worth It?

[adamu]

I've been looking a bit into Furusato Nozei as I've never really taken it seriously before.

There are already a couple of great threads here about how the system works.

But I wondering, aside from the philanthropic aspect of supporting a specific municipality, is it a good system on a purely personal finance level?

In general with taxes, in my understanding it's better to delay payment as long as possible, and use the money to generate returns in the mean time. But with Furusato Nozei, it's effectively paying the tax in advance.

For example, if you make a 100,000 yen donation in January, you won't start to get the tax deduction until July the following year (except for the income tax part, if you do the tax return method), 18 months later. That's 18 months that that 100,000 yen could have been invested, earning interest. If we assume it earns 5%, then that's about 7,500 yen loss. So for it to be worth it, you'd need to be getting benefits that are both more worth more than 9,500 yen (including the 2000 yen fee) and something you would have bought anyway. If the return was 10%, you'd need a benefit of over 17,000 yen for it to be worth it. If you were to donate in December, then you only have 6-ish months of lost interest to think about.

The benefits I found for donations of around that amount were worth over 20,000 yen if bought directly, so it does seem to be worth it at the moment. But there's not much in it and it's probably worth doing the calculation each time to make sure you're not being lured into a poor financial decision under the guise of doing some good / lowering taxes / getting free stuff. It looks like it's always beneficial to keep the donations toward the end of the year, to minimise the pre-payment period.

There is also the risk that your donation limit is not known before the fact, since your taxable income for the year is only confirmed after the tax year has finished. You can only donate up to 20% of your due residence tax amount, so if you end up over-donating, the amount you over-donated by becomes a pure loss. It seems like it's prudent to be conservative in your estimate for how much your maximum donation limit is; any overspend will be an order of magnitude higher than the savings you would have made, so making this mistake is likely to completely negate the benefit of using the system - or make it an expense.

[RetireJapan]

I just did it once, and decided it was too much hassle for me. It's probably a way to get cheap produce or goods, but for me it is like carrying points cards: I value my time and mental clutter more than the potential benefit.

[adamu]

It's probably a way to get cheap produce or goods

Not even sure about that. Trying it out for the first time this month. This time it'll be worth it for knowledge of the system. Subsequent times, we'll see.

[fools_gold]

It used to be a good deal. I could get a crate of beer if I donated 10,000 yen. Now that the government have capped the level of gifts I'm not sure if it's worth the hassle. I'm not too bothered though because I always thought that it unfairly benefitted wealthier people.

[adamu]

Looks like the going rate for 24 cans of a standard beer is about 15,000 now. But again, that costs around 4000 yen in interest and fees...

Seems like it's only really worth it if you generally want to donate, or as a way to pay some tax now for a feeling of higher income / lower taxation later.

[Yokohama]

We are heavy users of the system. We "buy" mostly fruit, rice, meat and beer. We usually also purchase hotel coupons to go snowboarding and have free stays at a nice hotel. We spread the purchases out over the year. Adam's way of considering the opportunity cost is interesting.

I do want to point out that if you "buy" the furusato nozei items on Rakuten, you also get Rakuten points in addition. If you make most of your purchases during a Rakuten Marathon and are using other Rakuten services (e.g Rakuten mobile, Securities, bank, credit card, etc) it can add up to a lot. I have often been able to get over 10% of the purchased item's price in Rakuten points for many items on top of receiving the goods.

[N00bster]

We are heavy users of the system. We "buy" mostly fruit, rice, meat and beer. We usually also purchase hotel coupons to go snowboarding and have free stays at a nice hotel. We spread the purchases out over the year. Adam's way of considering the opportunity cost is interesting.

I do want to point out that if you "buy" the furusato nozei items on Rakuten, you also get Rakuten points in addition. If you make most of your purchases during a Rakuten Marathon and are using other Rakuten services (e.g Rakuten mobile, Securities, bank, credit card, etc) it can add up to a lot. I have often been able to get over 10% of the purchased item's price in Rakuten points for many items on top of receiving the goods.

This. I always hit the upper boundary on several Rakuten point campaigns when doing Furusato Nozei.

Some of the food items are really good, but if you are only interested in the financial aspect, some prefectures propose audio equipment produced locally (e.g. Sony professional studio headphones) that is very easy to sell at the 30,000Y retail price on Mercari. Since that covers roughly 25% of the donation, it is a way to recover a bit from your local taxes, if you don't mind going through the (small) trouble.

[adamu]

Interesting. I didn't know Rakuten also do Furusato Nozei. I used https://www.furusato-tax.jp/, but if you're collecting Rakuten points, Rakuten seems a no-brainer.

To add points to the example above using the 100,000 donation in January with a 10% opportunity cost over 18 months, assuming you'd get 10% points means you can divide the required benefit by 1.1. So when you previously needed 17,000 yen of benefit value for it to be worth it, with 10% Rakuten points you'd need 15,500 yen instead.

I can see the point of getting perceptibly "free" stuff, including trips away, points etc. is fun, and it could be worth doing it for that alone if you enjoy it. But on a purely financial level, if you are using money that would otherwise have been invested to pay the tax advance, it doesn't seem much more beneficial than just buying the stuff directly. Although, investment returns are not guaranteed, but tax savings are*, so there's that, too.

*or not. I remember that a bunch of people didn't get their osechi ryouri delivery this year because too many people ordered and they couldn't fulfil the orders. Hopefully their taxes will be put to good use though

[Yokohama]

To add points to the example above using the 100,000 donation in January with a 10% opportunity cost over 18 months, assuming you'd get 10% points means you can divide the required benefit by 1.1. So when you previously needed 17,000 yen of benefit value for it to be worth it, with 10% Rakuten points you'd need 15,500 yen instead.

Is that correct? If we get 10% in points, then the 100,000 yen donation results in 10,000 points. So then the benefit value of the goods would only need to cover 17,000 - 10,000 = 7,000 yen. The example assumes making 10% in the market, while you can also get about 10% in points. If you delay your purchases to reduce the opportunity cost period, the points can offset the opportunity cost. You can even come out ahead if you would make the donations in December (10,000 in points vs 6 months with 10% market gains 6000 and 2000 furusato nozei cost). And then you still get the goods on top of that.

[adamu]

Is that correct? If we get 10% in points, then the 100,000 yen donation results in 10,000 points. So then the benefit value of the goods would only need to cover 17,000 - 10,000 = 7,000 yen.

Ah, you're right. I took the 10% off the value of the benefits rather than the total donation amount. Whoops!

Just checked Rakuten - they have the item I ordered from furusato-tax, and I'm currently eligible for 5.5% points. Gah. Wish I had waited for a bit more discussion here before pulling the trigger . Will consider it the price of the learning experience