Inheritance Question

[Manifesto7]

Hello RetireJapan,

I'd like some quick advice about an inheritance situation I find myself in. I've read the two articles on the site, as well as some of the JapanFinance subreddit, but I am not confident I have the full picture. Additional resources or past experiences are greatly appreciated!

I'm a Canadian citizen who has resided in Japan since 2005 and am currently on a spousal visa. My grandmother in Canada passed away, leaving her estate to my mother (60%) and myself (40%). The main asset is a condominium which we will sell, and a few cash assets.

As a tax resident of Japan, I need to pay tax on anything over the 30 million yen + 6 million yen (per person) threshold, correct? And that only applies to my 40% stake? I was going to let the money sit in Canada for a while, but will there be any further taxation if I bring the money into Japan from Canada?

Thanks so much for your time and help in filling in the blanks.

[captainspoke]

...
As a tax resident of Japan, I need to pay tax on anything over the 30 million yen + 6 million yen (per person) threshold, correct? And that only applies to my 40% stake? I was going to let the money sit in Canada for a while, but will there be any further taxation if I bring the money into Japan from Canada?

Thanks so much for your time and help in filling in the blanks.

I think you've got it right (given my understanding of it). If the other inheritors are outside japan, which is the case here, I think you can use the entire excluded/tax-free amount on the funds that you receive. But I'm not sure if that would be 30+6, or 30+6+6.

Once it's done, I would not expect any further taxation for moving the funds here. I guess I'd sort of wait until the dust settled, so to speak. Get that year's tax return done here, and also the foreign asset report if your funds in canada then exceed ¥50M. And, with that paper trail set (and taxes paid, or established that you don't owe), then transfer it.

[Tkydon]

30M+6M against just your portion of the Inheritance, as this is the only amount being inherited by a Japan Resident.

Anything above this Allowance will be taxed at

Inheritance Tax
Taxable Inheritance after Allowances and Deductions

Band Marginal Tax rate (％) - Max Tax in Band Yen
Under 9,999,000 10% Y1,000,000
10,000,000 29,999,000 15% Y3,000,000
30,000,000 49,999,000 20% Y4,000,000
50,000,000 99,999,000 30% Y15,000,000
100,000,000 199,999,000 40% Y40,000,000
200,000,000 299,999,000 45% Y45,000,000
300,000,000 599,999,000 50% Y150,000,000
Over 600,000,000 55% No Limit...

The After-Tax amount will then be the Tax Basis against which future taxes will be calculated.

If you leave the money in Canada, you should file for Reduced Withholding in Canada as a Resident of Japan for Tax Purposes.

A non-resident of Canada who receives pension or similar payments and intends to file an Income Tax and Benefit Return in Canada can apply to the CRA for a reduction in the non-resident withholding tax. To do this, the non-resident must use Form NR5, Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to Be Withheld. When the request is processed, the CRA will send a letter to the non-resident and the payer(s) stating any payments to which a tax reduction applies. the Tax Withholding Agent may not apply a tax reduction unless they receive written authorization from the CRA. If they do receive an authorization, they must report the amounts paid or credited on an NR4 slip and use exemption code “J.”

If you leave the money in Canada, in the bank or in Bonds, and it accumulates interest, the interest will be taxable in Canada and Japan in your Aggregate Income, and you can take the Foreign Tax Deduction against the taxes paid in Canada.

If you leave the money in Canada, and invest it is dividend yielding stock , the dividend income will be taxable in Canada and Japan. You can select to include it in your Aggregate Income or assess it as Separate Method Dividend Income, and take the Foreign Tax Deduction against the taxes paid in Canada.

If you then sell the assets in Canada, the Capital Gain over the Tax Basis above, with be taxable only in Japan as Separate Method Capital Gain Income.

Provided you have paid the taxes above, transferring the money to Japan does not in itself constitute an income event and is therefore not subject to additional taxation.

[Manifesto7]

Thanks for the help. I am not sure that I will cross the 50M threshold, it depends on how hot the market stays.

When it comes to property, which again, will be sold once the will gets through probate, do you think I am paying tax on the assessed value or the sale price? I am a little unclear of the timing. That may be a better question for the tax office I guess.

[Tkydon]

Thanks for the help. I am not sure that I will cross the 50M threshold, it depends on how hot the market stays.

When it comes to property, which again, will be sold once the will gets through probate, do you think I am paying tax on the assessed value or the sale price? I am a little unclear of the timing. That may be a better question for the tax office I guess.

If the property is sold on administration of the estate, you will pay tax on the amount received after your portion of all expenses of the sale and administration.

If the property is not sold immediately, you will pay tax on the assessed value, which will be the Tax Basis, and then when you sell at later date, you will pay Capital Gains Tax on any gain over the Tax Basis.