RetireJapan

Isn’t it going to be book value or original purchase value?

If I buy 100,000 yen of a stock, which then goes bonkers and hits 200,000,000 yen, and I sell to buy a yacht or second home or something, I believe I would only get the original 100,000 yen tax free allocation back to invest with the next year.

Book value. So if you sold more than 18M in gains, you'd get the full lifetime allowance back the following year. At least that's my current understanding.

I don't understand this use of the term "book value". In accounting book value is, Assets - Liabilities and is the same as shareholders equity. I've never seen book value reported for a mutual fund and it really isn't connected to the market price of a security in any consistent way (most Japanese companies sell below book value, most US equities sell well above book value).

Yeah I suspect we may have different understanding of “book value”.

Using ChatGPT to check what I think I mean,
“Book Value of an Asset: For an individual asset, such as a piece of equipment or a property, the book value is calculated by subtracting the accumulated depreciation from the original cost or purchase price. It represents the asset's value after accounting for its wear and tear or reduction in value over time.
Book Value = Original Cost of Asset - Accumulated Depreciation”

For financial investments in nisa etc there is no depreciation, so book value is what was originally paid, in my use of the term.

I was thinking the nisa will work based on book value / original purchase amount, because iirc I saw it written somewhere, and also if you could get all your nisa balance back after having a home run investment, that would be really great for ultra rich folks. Whereas if you only get your original purchase amount back as tax free, it is much more modest.

Thanks. For an individual investor what you are calling "book value" is something I would call "basis". ChatGPT is not giving you a full description of GAAP book value because depreciation is only one of the many ways (e.g. amortization, impairment) an asset's book value can decrease and some assets (e.g. land) are not subject to depreciation but still have book values which can change. If you were describing the sale or purchase of an individual stock in the NISA account then that stock also has a "book value" which is unrelated to the price you paid for it or its current market price so I would just caution not to use the stock's book value when trying to determine your NISA contribution limits.

sutebayashi wrote: ↑Tue May 23, 2023 11:53 pm Yeah I suspect we may have different understanding of “book value”.

Using ChatGPT to check what I think I mean,
“Book Value of an Asset: For an individual asset, such as a piece of equipment or a property, the book value is calculated by subtracting the accumulated depreciation from the original cost or purchase price. It represents the asset's value after accounting for its wear and tear or reduction in value over time.
Book Value = Original Cost of Asset - Accumulated Depreciation”

For financial investments in nisa etc there is no depreciation, so book value is what was originally paid, in my use of the term.

I was thinking the nisa will work based on book value / original purchase amount, because iirc I saw it written somewhere, and also if you could get all your nisa balance back after having a home run investment, that would be really great for ultra rich folks. Whereas if you only get your original purchase amount back as tax free, it is much more modest.

Cost basis or "basis" is what you are looking for. Book value in a separate thingy entirely.

sutebayashi wrote: ↑Tue May 23, 2023 11:53 pm I was thinking the nisa will work based on book value / original purchase amount, because iirc I saw it written somewhere, and also if you could get all your nisa balance back after having a home run investment, that would be really great for ultra rich folks. Whereas if you only get your original purchase amount back as tax free, it is much more modest.

I think you may be right and I may have misunderstood. The FSA FAQ Q1 says this:

https://www.fsa.go.jp/policy/nisa2/qa/nisa2024/index.html wrote: 非課税保有限度額については、買付け残高（簿価残高）で管理されます。
このため、NISA口座内の商品を売却した場合には、当該商品の簿価分の非課税枠を再利用できることとなります。

DeepL wrote: The tax-free holding limit is managed by the purchase balance (book value balance).
Therefore, if an instrument in a NISA account is sold, the tax-free limit for the book value of the instrument in question can be reused.

I'd really like to see an official example though, because these two sentences leave a lot open to interpretation.

adamu wrote: ↑Wed May 24, 2023 12:58 am I think you may be right and I may have misunderstood. The FSA FAQ Q1 says this:

https://www.fsa.go.jp/policy/nisa2/qa/nisa2024/index.html wrote: 非課税保有限度額については、買付け残高（簿価残高）で管理されます。
このため、NISA口座内の商品を売却した場合には、当該商品の簿価分の非課税枠を再利用できることとなります。

DeepL wrote: The tax-free holding limit is managed by the purchase balance (book value balance).
Therefore, if an instrument in a NISA account is sold, the tax-free limit for the book value of the instrument in question can be reused.

I'd really like to see an official example though, because these two sentences leave a lot open to interpretation.

I think what might be going on here (for my comment about "basis" vs "book value") is that the Japanese "簿価" can be used to mean "cost basis" or "book value" depending on context. If you put that quote from FSA into Google translate it wants to translate "簿価残高" as "book value balance" but the "買付け残高" is describing a remaining purchase balance.

According to Nomura "帳価" is short for "帳簿価額" and is described as company book value here:
https://www.nomura.co.jp/terms/japan/ho/boka.html

This semantic discussion doesn't address the real question of how to interpret that final sentence on how we will get to re-use the new NISA limits if something is sold but the discussion has been interesting to me to dive into the use of "簿価" and learn that a usage that seemed immediately wrong to me might actually be right in the original Japanese. Thanks again for the replies.

One of the translations at alc is 'recorded cost', which would seem to make most sense. But not really. If I buy a big machine and sell it, the original cost is easy to calculate (look at the invoice). If I buy hundreds of widgets over a number of years and then use a batch, what is the cost of those? Hence accounting conventions and my question about average/replacement/inflation-adjusted costs and FIFO/LIFO, etc.. Average cost is shown when I check the SBI 口座管理 tab and would seem to be the most obvious. Replacement cost (or what I would sell it for) would seem too much of a good thing. The other options would be impractical. The remaining option is some weird unfathomable Japan-specific thing which no one can understand so just quietly accepts Come to think of it, my SBI NISA tab is already like that.

TokyoWart wrote: ↑Wed May 24, 2023 3:06 am

adamu wrote: ↑Wed May 24, 2023 12:58 am I think you may be right and I may have misunderstood. The FSA FAQ Q1 says this:

https://www.fsa.go.jp/policy/nisa2/qa/nisa2024/index.html wrote: 非課税保有限度額については、買付け残高（簿価残高）で管理されます。
このため、NISA口座内の商品を売却した場合には、当該商品の簿価分の非課税枠を再利用できることとなります。

DeepL wrote: The tax-free holding limit is managed by the purchase balance (book value balance).
Therefore, if an instrument in a NISA account is sold, the tax-free limit for the book value of the instrument in question can be reused.

I'd really like to see an official example though, because these two sentences leave a lot open to interpretation.

I think what might be going on here (for my comment about "basis" vs "book value") is that the Japanese "簿価" can be used to mean "cost basis" or "book value" depending on context. If you put that quote from FSA into Google translate it wants to translate "簿価残高" as "book value balance" but the "買付け残高" is describing a remaining purchase balance.

(...)

This semantic discussion doesn't address the real question of how to interpret that final sentence on how we will get to re-use the new NISA limits if something is sold but the discussion has been interesting to me to dive into the use of "簿価" and learn that a usage that seemed immediately wrong to me might actually be right in the original Japanese. Thanks again for the replies.

I think this explanation of the ambiguity introduced by "残高" is the reason AI translations can seem off (at least for now), and agree that "(cost) basis" is probably what works best for English speakers. Japanese sites (except perhaps the FSA's, with its use of "残高") actually seem to be pretty clear in their explanations that when you sell an investment under New NISA, only the corresponding cost basis / purchase price can be used to top off your unused NISA limit.

Rakuten, for instance, simply says that under New NISA, "簿価（＝取得価格）で総枠を管理します." Diamond magazine also explains that if you make a NISA investment of 8 million yen and are able to sell the same funds later for 10 million yen, only the original 8 million yen of that amount can be added to your (remaining) NISA investment limit (=残高). By the same token, the new system allows you to cut your losses to an extent because at least the entire basis becomes available for you to apply toward other NISA investments, and Japanese sites also mention the benefit of being able to sell strategically (i.e., if you sell because you want to meet some immediate expense, you will have a correspondingly larger NISA 残高 on which to draw). And, of course, any gains inside the account continue to accumulate tax-free even if the account total exceeds the cost-basis limit of 18 million yen.