How does NISA count dividends?

[HeavyMetal]

I know NISA has no tax on capital gains, means I buy stock - sell it - get profit w/o tax deducted.
But what if I do not sell stock, but get dividends? Do they get tax deducted too? And then this amount is cut off the allowed limit (1.2mil yen per year if I recall right)?

Also same question about iDeco, I think calculations would be same to NISA in this case (except allowed amount which is less for iDeco). Correct?

Thanks!!

[TokyoBoglehead]

Ideco only uses investment trusts, like Tsumitate Nisa. These reinvest dividends internally, so not payout or taxable event. (This is more tax-efficient)

A dividend in a regular nisa will be tax free, but flow out of the NIsa into your regular account (less tax-efficient, you "lose" tax-free space.)

[HeavyMetal]

Thanks for reply!

May I confirm about NISA - means the dividends I receive will be tax-deducted, but this amount will be also deducted from my max. annual tax-free allowance of 1.2 mln. yen per year. Correct?

[RetireJapan]

Thanks for reply!

May I confirm about NISA - means the dividends I receive will be tax-deducted, but this amount will be also deducted from my max. annual tax-free allowance of 1.2 mln. yen per year. Correct?

No, dividends are tax free, and are paid out.

You lose out compared to a mutual fund that doesn't pay them out but puts them back into the fund, which will grow more than a similar fund that pays out the dividend.

[TokyoBoglehead]

Thanks for reply!

May I confirm about NISA - means the dividends I receive will be tax-deducted, but this amount will be also deducted from my max. annual tax-free allowance of 1.2 mln. yen per year. Correct?

No, dividends are tax free, and are paid out.

You lose out compared to a mutual fund that doesn't pay them out but puts them back into the fund, which will grow more than a similar fund that pays out the dividend.

Funds are ever inflating balloons in a NISA. Dividend stocks leak a little air everytime the dividend is paid, you cannot put this air back.

[HeavyMetal]

Means after I get dividends tax-deducted, and get them paid out (transferred to my regular broker account) I can withdraw them, and also I do not have to include them in my yearly tax form as they were tax-deducted already. Hope I got it right...

Yeah and shall think about reinvesting funds then. If that shall be possible.

[styxomaniac]

Ideco only uses investment trusts, like Tsumitate Nisa. These reinvest dividends internally, so not payout or taxable event. (This is more tax-efficient)

A dividend in a regular nisa will be tax free, but flow out of the NIsa into your regular account (less tax-efficient, you "lose" tax-free space.)

Is this still true with the new 2024 Growth NISA? I decided to invest in the SBI Japan Dividend fund on the growth portion of my NISA and selected my dividends to be reinvested. Will these dividends use up my Growth NISA allowance even if reinvested since it is not under Tsumitate NISA?

[adamu]

Is this still true with the new 2024 Growth NISA? I decided to invest in the SBI Japan Dividend fund on the growth portion of my NISA and selected my dividends to be reinvested. Will these dividends use up my Growth NISA allowance even if reinvested since it is not under Tsumitate NISA?

You're going to have to do your own research in regards to specific funds. I would expect a product that has "dividend" in the name probably pays out the dividends. But to answer about the system:

There is no difference in treatment of dividends between the Tsumitate and Growth portions. If the product pays out a dividend, the dividend requires additional allowance to be reinvested. Where things differ is whether the product reinvests internally. If it does, it doesn't technically count as paying out a dividend, so will not affect your NISA allowance.

1) Reinvest internally: does not consume extra allowance.
2) Pays out dividend and is reinvested by broker's reinvest feature: consumes extra allowance.

[styxomaniac]

Thanks Adamu, that information really helped a lot!