Children's Accounts - Deposits and Gift Tax

[RetireJapan]

"Transfers of funds between persons who have a legal responsibility to support each other do not constitute a gift, unless the Gift is for a purpose other than support or living expenses, etc.."

'legal responsibility to support each' means 'dependent'.

Whilst a student under about 25 might be considered a 'dependent' and you may even be claiming the Dependent Deduction on your taxes, an independent adult child Shakaijin would not be considered a 'dependent', and I doubt the 'legal responsibility to support each other' with 'support or living expenses" would fly...

Ah, but I was not talking about transferring funds, but rather paying the bills directly. I believe that avoids complications.

[Tkydon]

"Transfers of funds between persons who have a legal responsibility to support each other do not constitute a gift, unless the Gift is for a purpose other than support or living expenses, etc.."

'legal responsibility to support each' means 'dependent'.

Whilst a student under about 25 might be considered a 'dependent' and you may even be claiming the Dependent Deduction on your taxes, an independent adult child Shakaijin would not be considered a 'dependent', and I doubt the 'legal responsibility to support each other' with 'support or living expenses" would fly...

Ah, but I was not talking about transferring funds, but rather paying the bills directly. I believe that avoids complications.

No, unfortunately, even if you pay the bills directly, it is considered a transfer of funds or gift to the person.

[Tsumitate Wrestler]

"Transfers of funds between persons who have a legal responsibility to support each other do not constitute a gift, unless the Gift is for a purpose other than support or living expenses, etc.."

'legal responsibility to support each' means 'dependent'.

Whilst a student under about 25 might be considered a 'dependent' and you may even be claiming the Dependent Deduction on your taxes, an independent adult child Shakaijin would not be considered a 'dependent', and I doubt the 'legal responsibility to support each other' with 'support or living expenses" would fly...

Ah, but I was not talking about transferring funds, but rather paying the bills directly. I believe that avoids complications.

No, unfortunately, even if you pay the bills directly, it is considered a transfer of funds or gift to the person.

You can pay someones living expenses, and that is not covered by gift-tax. The same is true between spouses. Paper trails are always a good idea though. Do you see some of the nuance here? It seems that these payments cannot be annual and recurring....

Very treacherous.

前半で「扶養義務者から必要の都度もらう生活費・教育費は贈与税がかからない」と紹介しましたが、「名目さえ整っていれば何でも無税」というわけではありません。親から授業料としてお金をもらっておきながら、投資や趣味に充てたら贈与税がかかります。また「必要の都度」ではなく一括送金された教育費・生活費も課税対象で

4-1. taxable unless the money is used for educational and living expenses
Although we mentioned in the first half of this article that living and educational expenses received from a person obligated to support one's family as needed are not subject to gift tax, this does not mean that everything is tax-free as long as it is in the proper name. If you receive money from your parents as tuition but use it for investments or hobbies, you will be subject to gift tax. Also, educational and living expenses that are remitted in a lump sum rather than "as needed" are subject to taxation

https://souzoku.asahi.com/article/13755826

[Tkydon]

You can pay someones living expenses, and that is not covered by gift-tax. The same is true between spouses. Paper trails are always a good idea though. Do you see some of the nuance here? It seems that these payments cannot be annual and recurring....

Only if you have the Legal Obligation to do so..


Transfers of funds between persons who have a legal responsibility to support each other do not constitute a gift,
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
unless the Gift is for a purpose other than support or living expenses, etc..

There is no legal responsibility to support an independent Adult Child, for whom you cannot claim the Dependent Allowance in your Tax Return.

前半で「扶養義務者から必要の都度もらう生活費・教育費は贈与税がかからない」と紹介しましたが、「名目さえ整っていれば何でも無税」というわけではありません。親から授業料としてお金をもらっておきながら、投資や趣味に充てたら贈与税がかかります。また「必要の都度」ではなく一括送金された教育費・生活費も課税対象で

4-1. taxable unless the money is used for educational and living expenses
Although we mentioned in the first half of this article that living and educational expenses received from a person obligated to support one's family as needed are not subject to gift tax, this does not mean that everything is tax-free as long as it is in the proper name. If you receive money from your parents as tuition but use it for investments or hobbies, you will be subject to gift tax. Also, educational and living expenses that are remitted in a lump sum rather than "as needed" are subject to taxation

https://souzoku.asahi.com/article/13755826
[/quote]

Education for a Dependent up to University; Primary, Junior High, High School and Undergrad....

There is a separate Tax Provision for Education Expenses of an Adult Child or Grandchild, but relies on the Use of a Custodial Account, and any balance not used specifically for Education Expenses then becomes liable for Gift Tax.

[Tsumitate Wrestler]

Only if you have the Legal Obligation to do so..

I am not certain you definition, as stated here, is correct. It is definitely counter to popular practice. I would also refer you back to the cases in the Diet, as well as the rules on supporting dependants.

[Deep Blue]

How would buying a house (in your own name) and letting your adult children live in it rent free be considered from a gift tax perspective?

[Deep Blue]

Only if you have the Legal Obligation to do so..

I am not certain you definition, as stated here, is correct. It is definitely counter to popular practice. I would also refer you back to the cases in the Diet, as well as the rules on supporting dependants.

It would be a massive and easily exploitable loophole if he is not correct. For the same reason employers can’t arbitrarily
choose to pay employees rent, children’s school bills without the income being subject to Income Tax etc….

[TokyoWart]

Only if you have the Legal Obligation to do so..

I am not certain you definition, as stated here, is correct. It is definitely counter to popular practice. I would also refer you back to the cases in the Diet, as well as the rules on supporting dependants.

At least in the US paying someone else's expenses is equivalent to giving them a gift and potentially subject to gift tax reporting (almost no one would actually owe tax because the current lifetime exemption is close to $14 million). There is a specific carve out for direct payment of medical expenses or tuition which under US tax law are exempt from gift tax consideration but even for those two exceptions the payments must be direct (they can't go through the beneficiary).

[Tsumitate Wrestler]

Only if you have the Legal Obligation to do so..

I am not certain you definition, as stated here, is correct. It is definitely counter to popular practice. I would also refer you back to the cases in the Diet, as well as the rules on supporting dependants.

At least in the US paying someone else's expenses is equivalent to giving them a gift and potentially subject to gift tax reporting (almost no one would actually owe tax because the current lifetime exemption is close to $14 million). There is a specific carve out for direct payment of medical expenses or tuition which under US tax law are exempt from gift tax consideration but even for those two exceptions the payments must be direct (they can't go through the beneficiary).

Apples and oranges though... Every tax code is unique.

[Tkydon]

Only if you have the Legal Obligation to do so..

I am not certain you definition, as stated here, is correct. It is definitely counter to popular practice. I would also refer you back to the cases in the Diet, as well as the rules on supporting dependants.

It would be a massive and easily exploitable loophole if he is not correct. For the same reason employers can’t arbitrarily
choose to pay employees rent, children’s school bills without the income being subject to Income Tax etc….

This definition is straight out of my Tax Guide, but I don't have it to hand right now.

Straight from the Inheritance Tax Law:

https://elaws.e-gov.go.jp/document?lawi ... Mp-At_21_3

（贈与税の非課税財産）
第二十一条の三　次に掲げる財産の価額は、贈与税の課税価格に算入しない。
...
二　扶養義務者相互間において生活費又は教育費に充てるためにした贈与により取得した財産のうち通常必要と認められるもの

Article 21-3 The value of the following assets is not included in the taxable value for Gift Tax.

2) The Portion of All Assets acquired as a gift 贈与により取得した財産のうち
recognized as being normally necessary 通常必要と認められるもの
to cover living expenses or educational expenses 生活費又は教育費に充てるため
between those 相互間 with Dependent 扶養 responsibility 義務 for supporting each other.

Dependent 扶養者 is clearly defined in the Tax Code, for which you can claim Dependent Allowances.

One is not responsible for supporting Independent Adult Children or Grandchildren (normally).
If your adult child is disabled, and still dependent on the parent, then this would be included.

And fund transfers for other than necessary living and education expenses deemed to be other than normally necessary are specifically excluded.


This does not cover Gifts for Education to Adult Children or Grandchildren, which are addressed separately elsewhere.
https://elaws.e-gov.go.jp/document?lawi ... -At_70_2_2

Available until 2026 - 令和八年三月三十一日まで