Max out a dependent's NISA, how to work out taxation?

[trajan]

I have opened a NISA account for my wife and plan on giving her 4 million yen per year to max out her NISA and put the rest in taxable investments.

There are several questions.

On her side

She has no income and has never filed taxes. I understand she will have to file starting next year and that there is some "gift tax" exemption at play.

What would her tax filing look like? How much of the 4 million will she have to keep to pay her taxes?

On my side

Every year I am asked by my company to submit my wife's tax returns when I declare her as a dependent. There have been none and that was that.

What should I submit from now on? Further, will she remain my dependent if she has an "income" of 4 million yen?

It is important to me for her status to remain the same (as a dependent) because her medical insurance and retirement pension are on me and I want to keep it that way.

Thank you all.

[RetireJapan]

Your wife can receive up to 1.1m a year in gifts before paying gift tax. If she receives more, she would have to declare it and pay tax.

Looks like that might be about 550,000 yen tax on 4m (20% with 250,000 deduction): https://nakamaaru.asahi.com/article/14788745

I don't think this would count as income with regards to her being a dependent etc.

Or you could just give her 1.1m a year to invest and fill the NISA more slowly.

Anyone else?

[trajan]

Your wife can receive up to 1.1m a year in gifts before paying gift tax. If she receives more, she would have to declare it and pay tax.

Looks like that might be about 550,000 yen tax on 4m (20% with 250,000 deduction): https://nakamaaru.asahi.com/article/14788745

I don't think this would count as income with regards to her being a dependent etc.

Or you could just give her 1.1m a year to invest and fill the NISA more slowly.

Anyone else?

Thank you for the quick reply.

Why is the deduction 250,000?

I thought the deduction would be 1.1 million so the tax would be applied to the remaining 2.9 million. Even then, I cannot figure out how this ends up being taxed at 20%. Apologies for my clumsiness.

[RetireJapan]

Your wife can receive up to 1.1m a year in gifts before paying gift tax. If she receives more, she would have to declare it and pay tax.

Looks like that might be about 550,000 yen tax on 4m (20% with 250,000 deduction): https://nakamaaru.asahi.com/article/14788745

I don't think this would count as income with regards to her being a dependent etc.

Or you could just give her 1.1m a year to invest and fill the NISA more slowly.

Anyone else?

Thank you for the quick reply.

Why is the deduction 250,000?

I thought the deduction would be 1.1 million so the tax would be applied to the remaining 2.9 million. Even then, I cannot figure out how this ends up being taxed at 20%. Apologies for my clumsiness.

Argh, no you are right. Only the 2.9m would be taxable, so it would be taxed at 15% with a 100,000 yen deduction (to account for the lower tax rates for the first 2m yen). This is why I usually leave tax explanations to other people

So 1.1m tax free, 2.9m taxable. Tax rate 15% with 100,000 yen deduction. Tax is something like 335,000 yen, unless I messed that up again

[trajan]

Argh, no you are right. Only the 2.9m would be taxable, so it would be taxed at 15% with a 100,000 yen deduction (to account for the lower tax rates for the first 2m yen). This is why I usually leave tax explanations to other people

So 1.1m tax free, 2.9m taxable. Tax rate 15% with 100,000 yen deduction. Tax is something like 335,000 yen, unless I messed that up again

Ok. I think I see that. It is 15% from 2 to 4 million, right?



The question now is what do I tell my employer? Do I give them her tax return?

[Tkydon]

Gifts are taxed separately than income.

Someone is entitled to receive Gifts in aggregate upto Y1.1M per year tax free.

Anything over Y1.1M is liable to Gift Tax.

Gift Tax
Annual Deduction of Y1,100,000

Gift Tax Rates after Deduction

Band - Marginal Tax rate (％) - Max Tax in Band Yen
Under 1,999,000 - 10% - Y200,000
2,000,000 to 2,999,000 - 15% - Y150,000
3,000,000 to 3,999,000 - 20% - Y200,000
4,000,000 to 5,999,000 - 30% - Y600,000
6,000,000 to 9,999,000 - 40% - Y1,600,000
10,000,000 to 14,999,000 - 45% - Y2,250,000
15,000,000 to 29,999,000 - 50% - Y7,500,000
Over 30,000,000 - 55% - No Limit...

What that means is 10% on the first Y2M, and then 15% on the next Y0.9M

Assuming no other gifts, if you limit your contribution to Y3.1M then the Gift Tax Rate will be 10% of the Y2M after deduction of the Y1.1M = Y200,000 Tax

The next band = Total Gift - Y3.1M up to Y1M in band taxable at 15%
The next band = Total Gift - Y4.1M up to Y1M in band taxable at 20%
and so on

However, gifts between persons who have a legal responsibility to support each other are Gift Tax exempt, unless the gift is for a purpose other than support or livelihood.

So, if your spouse is paying her money for living expenses, you can take over those expenses, and she can invest her money...

[Tkydon]

Argh, no you are right. Only the 2.9m would be taxable, so it would be taxed at 15% with a 100,000 yen deduction (to account for the lower tax rates for the first 2m yen). This is why I usually leave tax explanations to other people

So 1.1m tax free, 2.9m taxable. Tax rate 15% with 100,000 yen deduction. Tax is something like 335,000 yen, unless I messed that up again

Ok. I think I see that. It is 15% from 2 to 4 million, right?



The question now is what do I tell my employer? Do I give them her tax return?

This table is the Special Gift Tax Table between Filial Relatives - Parents or Grandparents to Children or Grandchildren, over 20 years of age... It does not apply to gifts between Spouses.

The correct numbers are

Less than 200万 - 10%
200万 to 300万 - 15%
300万 to 400万 - 20%
400万 to 600万 - 30%
600万 to 1000万 - 40%
1000万 to 1500万 - 45%
1500万 to 3000万 - 50%
Greater than 3000万 - 55%


Gift Tax is not Income Tax, so you do not have to report this to your employer for Nenmatsu Chosei. The recipient has to go to the Tax Office and report it as Gift Tax, completely seperately.

[trajan]

Thank you. This helps a lot.

Gifts are taxed separately than income.

Someone is entitled to receive Gifts in aggregate upto Y1.1M per year tax free.

Anything over Y1.1M is liable to Gift Tax.

Gift Tax
Annual Deduction of Y1,100,000

Gift Tax Rates after Deduction

Band - Marginal Tax rate (％) - Max Tax in Band Yen
Under 1,999,000 - 10% - Y200,000
2,000,000 to 2,999,000 - 15% - Y150,000
3,000,000 to 3,999,000 - 20% - Y200,000
4,000,000 to 5,999,000 - 30% - Y600,000
6,000,000 to 9,999,000 - 40% - Y1,600,000
10,000,000 to 14,999,000 - 45% - Y2,250,000
15,000,000 to 29,999,000 - 50% - Y7,500,000
Over 30,000,000 - 55% - No Limit...

What that means is 10% on the first Y2M, and then 15% on the next Y0.9M

Assuming no other gifts, if you limit your contribution to Y3.1M then the Gift Tax Rate will be 10% of the Y2M after deduction of the Y1.1M = Y200,000 Tax

The next band = Total Gift - Y3.1M up to Y1M in band taxable at 15%
The next band = Total Gift - Y4.1M up to Y1M in band taxable at 20%
and so on

However, gifts between persons who have a legal responsibility to support each other are Gift Tax exempt, unless the gift is for a purpose other than support or livelihood.

So, if your spouse is paying her money for living expenses, you can take over those expenses, and she can invest her money...

Yes, the money is for investing and nothing else.

If she maxes out her NISA, she will invest in taxable index funds. Of course, I say "she" but I will do all this for her.

Gift Tax is not Income Tax, so you do not have to report this to your employer for Nenmatsu Chosei. You have to go to the Tax Office and report it as Gift Tax, completely seprately.

This part is a little confusing.

I am going to give her money as I make it. I calculate it will be approximately 4 million yen each year.

Do I need to go to the Tax Office every time I make a transfer to her or can I go yearly?

[RetireJapan]

Do I need to go to the Tax Office every time I make a transfer to her or can I go yearly?

You don't have to do anything. Your wife will need to. Gift tax is the responsibility of the recipient.

[trajan]

Do I need to go to the Tax Office every time I make a transfer to her or can I go yearly?

You don't have to do anything. Your wife will need to. Gift tax is the responsibility of the recipient.

Well, I will go with her.

The question is if we have to go every time I transfer money to her account or once a year.

Like I said, I am going to give her money as I make it so there will be multiple transfers.