Help with taxes

[igzem]

Thank you Tkydon. BELOW IS A WORRY
1. If you do the White Return as an Individual:
For each property, the Rental Income minus Loan Interest, maintenance expenses, and property taxes (and any other legitimate expenses) is treated as Taxable Income, and you have to produce all receipts. The Taxable Income is taxed at your Marginal Income Tax Rate and Residents' Tax Rate.

Looks like double taxing, but in 3. you mention that offset is possible , so will search for accountants.

[Tkydon]

Thank you Tkydon. BELOW IS A WORRY
1. If you do the White Return as an Individual:
For each property, the Rental Income minus Loan Interest, maintenance expenses, and property taxes (and any other legitimate expenses) is treated as Taxable Income, and you have to produce all receipts. The Taxable Income is taxed at your Marginal Income Tax Rate and Residents' Tax Rate.

Looks like double taxing, but in 3. you mention that offset is possible , so will search for accountants.

You will have to check the Tax Treaty between Japan and the country where the property is located, here:

https://www.mof.go.jp/english/policy/ta ... st_en.html

Usually Article 6 applies but may vary by treaty.

e.g. The Treaty with the US States:

ARTICLE 6
1. Income derived by a resident of a Contracting State from real property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other Contracting State.

So, you would have to report the Income Gross in Japan in Japanese Yen and pay tax on that income, report the income in the US and pay tax, or if you are a Non-Resident Alien in the US, you may have had tax withheld at source, and then claim the Foreign Tax Credit in Japan for a tax refund.

[eyeswideshut]

Thank you Tkydon. BELOW IS A WORRY
1. If you do the White Return as an Individual:
For each property, the Rental Income minus Loan Interest, maintenance expenses, and property taxes (and any other legitimate expenses) is treated as Taxable Income, and you have to produce all receipts. The Taxable Income is taxed at your Marginal Income Tax Rate and Residents' Tax Rate.

Looks like double taxing, but in 3. you mention that offset is possible , so will search for accountants.

Depending on the tax treaty between Japan and Australia, any tax legitimately withheld by Australia can be used as a tax credit in Japan. In other words, that tax is counted as a credit against tax owing in Japan. There should be no double taxation. At least this is the way it works for Canada. Also, just to clarify, there is no possibility to use depreciation expenses any more for overseas properties which is unfortunate but, silver lining, simplifies the tax return. Honestly, if you are not sure, use an accountant, at least for the first year. It will cost a couple hundred thousand yen but will give you piece of mind that you are not making any mistakes.

[Tkydon]

there is no possibility to use depreciation expenses any more for overseas properties which is unfortunate but, silver lining, simplifies the tax return. Honestly, if you are not sure, use an accountant, at least for the first year. It will cost a couple hundred thousand yen but will give you piece of mind that you are not making any mistakes.

I still don’t think this statement is correct.
Yes, depreciation expenses for overseas investment properties are applicable against profit from these properties.
But, if the depreciation expenses lead to a loss, that loss can not be used to reduce taxes from other sources. So you can not use overseas losses to reduce your taxable income from domestic or other sources.

https://www2.deloitte.com/jp/en/pages/t ... -no68.html

[Tkydon]

Exactly.
It says exactly that you can deduct depreciation as an expense from the income of that property.
Just, if the depreciation leads to a “rental loss”, you cannot use that loss to reduce taxable income “aggregate income” from other sources.

The interpretation that one cannot charge depreciation against overseas properties is simply WRONG.

“ Japanese individuals who use the simplified method to calculate an overseas building’s useful life may no longer use an amount of depreciation expense giving rise to a rental loss to offset their aggregate income (i.e., Japan-source and foreign-source, or worldwide, income)”

I still don’t think this statement is correct.
Yes, depreciation expenses for overseas investment properties are applicable against profit from these properties.
But, if the depreciation expenses lead to a loss, that loss can not be used to reduce taxes from other sources. So you can not use overseas losses to reduce your taxable income from domestic or other sources.

https://www2.deloitte.com/jp/en/pages/t ... -no68.html

I take your point. It also says that you can't use the Japanese Useful Life as the basis for Overseas Property Depreciation, and that you should determine a 'reasonable' useful life for the overseas property...

My original comment was probably badly worded, but I meant you can't take depreciation losses against other sources of income such as earned income. It says you can only use Depreciation as an expense against Foreign Real Estate Income to the extent of that Foreign Real Estate Income.


"Used buildings located outside of Japan

The new rules ... apply to used buildings located outside of Japan that have been acquired by an individual for rental purposes and for which the individual uses one of the following methods to determine the property’s useful life:

Estimated useful life: An estimation may be used if either the rules of the jurisdiction where the property is located or an appraiser cannot provide the property’s useful life. However, if an official number can be obtained, proof must be attached to the taxpayer’s tax return. Additionally, any fees incurred in obtaining an official certificate may be included in the overall acquisition cost of the building.
Simplified method:
・Useful life, for tax purposes, of used property that has exhausted its legal useful life = 20% of legal useful life
・Useful life, for tax purposes, of used property that has exhausted a portion of its legal useful life = (legal useful life) - (number of years between original construction and acquisition) + (20% of years exhausted from legal useful life)


Offsetting losses with income from other sources

Rental income losses incurred on a used building located outside of Japan may be used to offset rental income from other properties located overseas. However, any excess losses resulting from depreciation expenses calculated using the simplified method will be disregarded for Japanese tax purposes. Consequently, these disregarded losses may not be used to offset income from other sources, such as income from properties located in Japan and employment income."

I stand corrected.

[Tkydon]

You should get an Accountant to help you with the accounting for your rented property, as it is a little complicated, and the documentation requirements are a little stringent.

If the rental property is in Japan, and you elect to take a Rental Loss due to Depreciation Expense against other Income from other properties or earned income, then that too can be a little complicated.

If the property is located overseas, then you can only elect to take the Depreciation Expense against rental income from overseas properties. You cannot take a Rental Loss due to Depreciation Expense against other Income from other properties in Japan or against earned income.

Once you have worked that out, you then need to find out if you can qualify to do the Blue Return, maybe not in Year 1, but in subsequent years...

Only qualified accountants, Kaikeishi or Zeirishi, or the people at the Tax Office can help you fill out your returns.

[Tkydon]

Many thanks to you, Tkydon. It's quite a relief to know I can re-visit the matter and perhaps stand a chance of proving to them that the taxes they're asking for represent over-payment.

I'd be very interested to read those other notes you started, should you be willing to share them one way or another. The validity of the JTO explanation is what I'd really like to test; it has a certain logic to it, but has the effect of making an average-salaried academic pay around 27万 in tax on the income from a very modest investment property for which the Taxable Income in Australia last year came to the equivalent of a mere 53万。A tax rate of about 54%! If I'm missing something fundamental, please point that out.

It's also good to know that the Residents' Taxes of 10% of the Taxable Value (yet to be paid, so adding them will likely push me up to around a 60% tax rate!!!) might be able to be refunded on the Oz side. However, for the last 7 years (since I became an Australian non-res for tax purposes) my Au accountant has been telling me I cannot claim a Foreign Tax Credit for what I'm taxed in Japan. Time to find a new accountant, perhaps?

You should check that you correctly filed a Notice of Non-Residence with the ATO - Aus Tax Authority, so that you can reduce the amount of Withholding in accordance with the Aus-Japan Tax Treaty.

https://www.ato.gov.au/Forms/Withholding-declaration/

https://www.mof.go.jp/tax_policy/summar ... n-AUEN.pdf

Article 6
INCOME FROM REAL PROPERTY
1. Income derived by a resident of a Contracting State from real property situated in the other Contracting State may be taxed in that other Contracting State.
2. The term “real property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include:
a) a lease of land and any other interest in or over land, whether improved or not;
b) property accessory to real property;
c) rights to which the provisions of general law respecting landed property apply;
d) usufruct of real property;
e) rights to explore for mineral, oil or gas deposits or other natural resources, and a right to work those deposits or resources; and
f) rights to receive variable or fixed payments either as consideration for or in respect of the exploitation of, or the right to explore for or exploit, mineral, oil or gas deposits, quarries or other places of extraction or exploitation of natural resources.
Ships and aircraft shall not be regarded as real property.
3. Any interest or right referred to in paragraph 2 shall be regarded as situated where the land, mineral, oil or gas deposits, quarries or natural resources, as the case may be, are situated or where the exploration may take place.
4. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of real property.
5. The provisions of paragraphs 1, 3 and 4 shall also apply to the income from real property of an enterprise.


You will pay tax on any rental income over your available allowances and deductions, which can then be offset by the Foreign Tax Credit in Japan against any tax paid in Aus.
As a non-resident in Aus, you cannot claim a Foreign Tax Credit in Aus against the taxes paid in Japan.

[Tkydon]

Having read the saga about Aus property taxation, I have two properties in Sydney, guess need to start looking for a good accountant to protect against possible double taxation …

You need to check that you have filed the Form for Reduced Withholding as a Non-Resident Australian

https://www.ato.gov.au/Forms/Withholding-declaration/

https://www.mof.go.jp/tax_policy/summar ... n-AUEN.pdf

Article 6
INCOME FROM REAL PROPERTY
1. Income derived by a resident of a Contracting State from real property situated in the other Contracting State may be taxed in that other Contracting State.
2. The term “real property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include:
a) a lease of land and any other interest in or over land, whether improved or not;
b) property accessory to real property;
c) rights to which the provisions of general law respecting landed property apply;
d) usufruct of real property;
e) rights to explore for mineral, oil or gas deposits or other natural resources, and a right to work those deposits or resources; and
f) rights to receive variable or fixed payments either as consideration for or in respect of the exploitation of, or the right to explore for or exploit, mineral, oil or gas deposits, quarries or other places of extraction or exploitation of natural resources.
Ships and aircraft shall not be regarded as real property.
3. Any interest or right referred to in paragraph 2 shall be regarded as situated where the land, mineral, oil or gas deposits, quarries or natural resources, as the case may be, are situated or where the exploration may take place.
4. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of real property.
5. The provisions of paragraphs 1, 3 and 4 shall also apply to the income from real property of an enterprise.


You will pay tax on any rental income over your available allowances and deductions, which can then be offset by the Foreign Tax Credit in Japan against any tax paid in Aus.
As a non-resident in Aus, you cannot claim a Foreign Tax Credit in Aus against the taxes paid in Japan.

[igzem]

Thank you Tkydon. BELOW IS A WORRY
1. If you do the White Return as an Individual:
For each property, the Rental Income minus Loan Interest, maintenance expenses, and property taxes (and any other legitimate expenses) is treated as Taxable Income, and you have to produce all receipts. The Taxable Income is taxed at your Marginal Income Tax Rate and Residents' Tax Rate.

Looks like double taxing, but in 3. you mention that offset is possible , so will search for accountants.

Depending on the tax treaty between Japan and Australia, any tax legitimately withheld by Australia can be used as a tax credit in Japan. In other words, that tax is counted as a credit against tax owing in Japan. There should be no double taxation. At least this is the way it works for Canada. Also, just to clarify, there is no possibility to use depreciation expenses any more for overseas properties which is unfortunate but, silver lining, simplifies the tax return. Honestly, if you are not sure, use an accountant, at least for the first year. It will cost a couple hundred thousand yen but will give you piece of mind that you are not making any mistakes.

THANK you all. This is the plan to hire professional for the first shot. I have been speaking to many people who don’t bother at all, but better to sleep well…

[sakana]

I am 77, retired, originally from England with semi permanent residence in Fujiyoshida.
I am looking for a tax specialist who is familiar with UK pension and investment income and can help with filing my Japanese Tax Return and although I am a Chartered accountant who understands UK taxation I am lost when it comes to filing in Japan.
My wife who is Japanese has spoken with various accountants but they are too busy to take on more clients or are very expensive.
Please may I have any recommendations.
Thanks