Receiving money from overseas grandparents

[seijaibow]

My parents live in Canada. They have quite a large amount of assets that they would pass down to me eventually. As I’m a PR and Japan will be my home indefinitely, I’m thinking of ways to get that money into JP with the least amount or no tax.
I’ve heard grandparents can gift up to 15 mil yen total or 1.1 mil per year to their grandkids tax free. As my parents are still quite healthy I was thinking of asking them to start sending money into my kid’s bank accounts on a yearly basis so that this will reduce the total amount of assets that I would eventually inherit.

Does anyone know if gifting money to grandkids tax free applies to grandparents that live overseas?

[captainspoke]

I think it's a straight ¥1.1M/yr. That's the total that a recipient can receive before tax begins (from a single or multiple sources).

(I'm not sure about the 15M total that you mention.)

[Haystack]

I think it's a straight ¥1.1M/yr. That's the total that a recipient can receive before tax begins (from a single or multiple sources).

(I'm not sure about the 15M total that you mention.)

Grandparents can also pay for schooling fees tax-free I believe. But in needs to be done in a transparent way. there are limitations. The must be at least 18 I believe.

Here is the law* https://www.nta.go.jp/taxes/shiraberu/t ... /4510.htm

It was extended for two more year recently. https://www.fp-soken.or.jp/fpnews/assets-fpnews/no745/

[ClearAsMud]

OP may be referring to a maximum 15M tax-free lump-sum gift that can be given by grandparents to grandchildren under the age of 30 for educational purposes (教育資金の贈与の特例). As a practical matter, I doubt that this can be accomplished internationally, because the grandparent must sign a management contract with a domestic bank and open a special account in the grandchild's name that will release funds upon the presentation of invoices or receipts. If the grandchild is a minor, the legal guardian must also be involved. The scope of applicable activities is quite broad, apparently including study overseas, although that scope is narrowed from the age of 23. The grandchild cannot have an independent income of over 10M for the year preceding the year of the gift.

This tax-free gift allowance is currently set to expire on March 31, 2023 (it has already been extended once). Any funds that are gifted but remain unspent when the grandchild turns 30 become subject to gift tax, and if the grandparent dies before the grandchild reaches that age, any unspent funds are subject to inheritance tax (minus a special 5M deduction).

There are quite a few other details involved, so you would have to do some research. The NTA's Japanese page on the allowance is here (it includes the official pamphlet and other documents):
https://www.nta.go.jp/publication/pamph ... 304/01.htm

A couple of other methods of gifting money tax-free to grandchildren exist (involving gifts for marriage or child-rearing, buying a house, and inheritance), but I am not familiar enough with the details -- especially in cross-national cases -- to be able to explain them with confidence. But see this short Japanese introduction to everything but the house allowance, relevant to in-Japan cases:
https://news.yahoo.co.jp/articles/37118 ... ab2430eddd

The gift allowance for buying a house is also currently time-limited to December 31, 2023. The grandchild must in principle actually take possession of the house by March 15 of the year after the gift is received; the maximum gift is also relatively low, 5M or 10M depending on how energy-efficient the house is. Numerous other conditions apply (see https://www.nta.go.jp/taxes/shiraberu/t ... u/4508.htm).

[seijaibow]

Thanks for the replies.
Having a deeper search, as Clearasmud says the 15mil gift for educational purposes does not work for grandparents that are overseas. For this scheme, the grandparent needs to be the one opening the account at a local bank, securities or trust company. I believe the reason for this is because there would be a way for the tax office to know if the grandparent dies before all the funds are spent. If the grandparent dies then any money in excess of 5 mil in the account will be subject to tax.

Having a think a bit more. Both my kids go to international school. All international schools allow the tuition to be paid from an overseas account. If my parents directly pays for both my kids tuition then that would a good 6 mil yen per year. If they wire the money for tuition on a yearly basis from their overseas bank account directly into the school’s account, it seems that possibly the local tax authorities may not be able to know or would be difficult for them to track.
Anyone have any insights on this method?

[captainspoke]

I wouldn't want to condoning shady/illegal activity, but I think I would agree with your assessment.

Separately, I've read that paying for someone's living expenses--such as utility bills (gas for a car?)--is separate from the ¥1.1M gift allowance. Formally, I'm not sure how education expenses would be classified.

[ClearAsMud]

I've read that paying for someone's living expenses--such as utility bills (gas for a car?)--is separate from the ¥1.1M gift allowance.

As long the person is a household dependent, educational expenses count as living expenses. The key point is that the household must be functioning as a single economic unit. This is not impossible in the case of overseas dependents, but funds received from financially independent grandparents living overseas would likely be a red flag (i.e., the money would probably be considered a gift). Japanese parents paying, say, for a dependent daughter's school transportation costs overseas certainly seems justifiable, but the NTA could presumably ask for proof that the gas was used only for transportation to school (not that they would necessarily take the trouble to do so).

Addendum: On the other hand, everyday activities are also living expenses, so there may be no need to worry about breaking down transportation costs for a dependent student overseas.

[Tkydon]

Thanks for the replies.
Having a deeper search, as Clearasmud says the 15mil gift for educational purposes does not work for grandparents that are overseas. For this scheme, the grandparent needs to be the one opening the account at a local bank, securities or trust company. I believe the reason for this is because there would be a way for the tax office to know if the grandparent dies before all the funds are spent. If the grandparent dies then any money in excess of 5 mil in the account will be subject to tax.

Having a think a bit more. Both my kids go to international school. All international schools allow the tuition to be paid from an overseas account. If my parents directly pays for both my kids tuition then that would a good 6 mil yen per year. If they wire the money for tuition on a yearly basis from their overseas bank account directly into the school’s account, it seems that possibly the local tax authorities may not be able to know or would be difficult for them to track.
Anyone have any insights on this method?

Many international schools will (still, I think) take a Charitable Donation in lieu of Tuition. It was a way that Ex-Pats would get a tax break on the education expenses. The company would make a Tax Deductable Charitable Donation to the school, and the employee would only pay tax on a fraction of the economic benefit, instead of paying the school fees out of post-tax income...

[ClearAsMud]

Revising what I said earlier, I have found sites that say if grandparents pay educational expenses directly to the school as the expenses arise, no gift tax is assessed regardless of other considerations. These sites usually assume that the grandparents are based in Japan, so it's not absolutely clear that it would work from overseas, but it does seem to be an option worth looking into.

Yahoo Finance (see https://finance.yahoo.co.jp/money/exper ... 1043573155) explains that for educational expenses to be considered ordinary living expenses, they have to be borne by closely related individuals with an obligation to support the receiver (fuyougimusha 扶養義務者). Grandparents are included here, so because the obligation can be said to exist, necessary educational expenses are not taxable (again, receipts should be kept for actual payments so that no possibility exists for thinking the money was spent for other purposes).

This is the NTA page that defines educational expenses as not taxable, cautioning that "贈与税がかからない財産は、生活費や教育費として必要な都度直接これらに充てるためのものに限られます":
https://www.nta.go.jp/taxes/shiraberu/t ... o/4405.htm

This page (by a tax-accounting firm) does a pretty good job of explaining things:
https://osd-souzoku.jp/education/

Also see:
https://chester-tax.com/encyclopedia/17631.html
https://money-bu-jpx.com/news/article026106/

Be sure to confirm with a qualified professional whether or not this is really feasible in a case like yours, but as long as a paper (or electronic) trail exists, there may be reason to think it is.

[seijaibow]

Thanks for the links @clearasmud. It looks very promising that I can have my parents directly pay for my kids tuition tax free. I’ll run this pass my accountant just to confirm.