RetireJapan

It is impossible to make decisions (such as making voluntary contributions to super, buying stocks such as lic's with fully franked returns etc..) without knowing this information and the correct tax implications

thurston1, it sounds like you understand the issues though. I was like you. I spent quite a while reading up and trying to work out the tax implications before making investment decisions. It’s better to know what you’re getting yourself into up front than to clean up the mess afterwards. And it’s less stressful too.

One thing I’ve decided is that investing directly in Australian shares through an Australian broker might not be the best way to go. That’s because, as a non-resident, Australian effectively taxes you at 30%, you’ve got to declare the income in Japan too, you probably can’t get any credit for franking credits in Japan, and the paperwork for your Japanese tax return is not going to be straightforward.

But, for example, if you buy Australian shares through your super fund, the maximum tax rate is 15%, you get the full benefit of franking credits (including refunds, at least until the next federal election), and the income generated by the fund doesn’t need to declared in your Japanese tax return. But there are downsides too. For example, you will be taxed at 15% on concessional contributions, the ongoing fees will be higher, you can’t contribute to a SMSF, you won’t get a tax deduction in Japan for your voluntary contributions, and any future superannuation income stream (e.g. a pension) will probably be taxable in Japan, even if it’s not in Australia. You’ve really got to weigh up the pros and cons.

… might trigger a whole new can of worms.

Take your pick. There are plenty of cans to choose from!

AustinJapan, it sounds like you’ve getting the idea. But there will be lots of messy details.

The income will need to be translated into JPY at the time of receipt (even if you don’t actually convert it). You’re supposed to use the TTM foreign exchange rate (which is the midpoint between the TT buy and TT sell rates), and you can use the daily rate, month average or month end rate, whatever you like as long as you do it consistently.

You will probably need to redo your depreciation schedules too. Your existing schedules will use the ATO’s depreciation rates and methodologies. I don’t know what the Japanese rules are, but I suspect they might let you depreciate assets over a shorter period of time (i.e. at a higher depreciation rate), which might end up being a good thing.

The timing issue can be complicated. If you have an obligation to pay tax, I think you will end up paying it in the country you lodge in first, and then claim the credit in the other country. So, for example, if you use a tax agent in Australia and don’t lodge until 31 March or 15 May (or whatever), you might need to pay tax in Japan first and then claim the credit back in Australia.

Doofus and Thurston1,

Thank you again.

Your contributions to this thread are like lime-juice for a scurvy ridden sailor. It gives me hope that I just possibly might stay the course and work my way through this and not just throw in the towel out of exasperation or fear, no matter how rational it might be.

The subjective stuff, thanks. Thurston honestly saying it is, quite pardon the pun, taxing on the spirit flying blind and burning up time. And Doofus, just mentioning that the tax authorities will probably be a little more sympathetic to people who are making a genuine attempt to get it right, both good for my optimistic side.

There are those around here who just make you feel worse for worrying or even asking out. Or who are just tired of it themselves, or think less said the better. Then there are those who have crossed the Rubicon years ago and will never look back with a Pirtate patch and ...well, I am over using and mixing up my nautical and biblical metaphors... i met someone with five houses back home a few years back, for years Aussies teaching here have property portfolios back home. How they are now managing, who knows?

I've read some other threads here and it seems that indeed, others have made progress so I was being childish for suggesting that nobady knows, nobody says anything..apologies. Obviously some are trying.

Super
I did ask about doing something with super on account of the 15% is better than 30% tax rule (I think I was talking to an advisor from Exfin or ATLAS at the time, and I can't remember the details - there seemed to be so many layers of information with interlocking variabkes that kicked in at different thresholds (and remember I was looking to preserve my prospects of keeping/getting an Aussie pension - it was overwhelming, but at the end of the conversation, we came to the conclusion that, super would be better to leave (and that included the idea of buying a property in Aus and wrapping it in the super) So for reasons I cannot remember, back in 2015/6 it seemed it would be better to keep it simple and not by super, but this might not apply of course for anyone else.

Folio of Fully Franked Shares in Aust
Advisor i spoke to recommended a fund similar but different to the Vanguard managed Fund. they were not index funds but something quite similar. Having just juiced up on the Hallam Millionaire Teacher book my defenses went up - i.e advisor is trying to sell me his mates' schemes warning lamp went on. Anyhow, what I do remember was that I thought I wouldn't face double taxation.

Pension/here, there anywhere
He didn't know other than that it is means tested. He didn't know how the side works in Japan...I need to ask myself about this.

Anyway, Doofus.
You have acquired some desperately needed "know-how and know-what" through your efforts so far, and THurston1, you too seem to be on the road.
I guess neither of you can tell me what the implications of just rocking up to the JTO this year and saying, "Hey! Guess what, I forgot to tell you guys about a small apartment in OZ", might mean, even if it is a negative geared loss and under the limit of declarable assets by dint of its value.

Even so, based on your intuition or experiences, do you think they will say, "Hey that's nice, show us your returns for the last 10 years..and while your are at it...."

I look forward to the, "How to Own Property in Australia and live Permanently in Japan Guide" or "Ten Reasons NOT to hold Ausssie Property if you are PR in Japan" both by Doofus wit forward by Thurston Howell the Fourth (Had Rufus the Red Kangaroo book as a kid)

Don’t hold your breath. Rufus the Doofus’s book isn’t coming out any time soon. I think I’ll leave it to Thurston Howell the Fourth, or perhaps Gilligan.

Superannuation—I personally wouldn’t use super as an investment vehicle unless either (a) you’ve got an existing account balance that you want to invest, or (b) you’re getting slugged with 32.5% tax or more on your Australian source income, so you can benefit from the tax deduction for voluntary contributions.

Shares—It’s hard to know how much faith to put in investment advisers. Some of them are good, but others are just trying to line their own pockets. If you want to invest in Australian shares, I think the tax issues are much cleaner if you use a Japanese broker to invest in a ETF that buys Australian shares, or to buy ADRs of Australian companies on the NYSE.

Pensions—This is a difficult issue. Australian government policy has for many years been to get people off the age pension and to fund their retirement through compulsory employer super contributions. The eligibility rules for pensions are only going to get tougher, and over recent years there’s been a trend towards restricting Centrelink benefits for people who spend a lot of time outside Australia. I don’t know if the Japanese pension is much better because the pension liabilities are unfunded and the aging population means an ever decreasing number of people are contributing. I think it’s good to think about whether you can at least partly fund your own retirement, and not rely too heavily on government pensions.

As far as how you deal with the JTO, I honestly don’t think you’ve got too much to worry about if you’ve been making a loss. I think they’re only really going to get excited if you owe them money.

If it were me, I wouldn’t do a full mea culpa. If you talk to them face-to-face, I would just tell them you’re not sure how to fill out your tax return—i.e. you’ve got overseas income and expenses, you’ve made a loss, and you’re not sure what to put in your Japanese tax return. You don’t need to offer information about previous years unless they ask. They might not. If they do, just tell them the truth—i.e. you didn’t think you needed to report it, but now you’re not so sure.

Another option is to just fill out the tax return for 2018 and sent it to them. This gives them less opportunity to ask awkward questions. Anyway, they might assume you only just bought the property, or only just started renting it out. I prepare my tax return using their website, then print it out and sent it to them. There’s an extra schedule for real estate income. It’s similar to what you put in your ATO return, although some of the boxes are different. It’s all in Japanese, of course, which makes it bit fiddlier, but from memory wasn’t too bad.

doofus wrote: ↑Sun Feb 24, 2019 4:18 am
(Aussie Stocks)
I think the tax issues are much cleaner if you use a Japanese broker to invest in a ETF that buys Australian shares, or to buy ADRs of Australian companies on the NYSE.

Pensions
I think it’s good to think about whether you can at least partly fund your own retirement, and not rely too heavily on government pensions.

..JTO,
If it were me, I wouldn’t do a full mea culpa.... just tell them you’re not sure
Another option...fill out ..return for 2018 and sent it.. I prepare my tax return..sent it to them. There’s an extra schedule for real estate income. It’s all in Japanese, of course, which makes it bit fiddlier, but from memory wasn’t too bad.

Thanks again Doofus.

1) The only reason I would do Aussie Stocks is because I thought the fully-franked bit would help, but perhaps it just adds complexity.

2) I know about the Pension being a sick animal the Aussie government is deliberately starving, (respect to NZ for keeping their system) ..however it is significantly better than the Japanese pension and people can survive on it in SE Asia. At my age now, 10 years from retirement Japanese law, 12 Australia, every year spent in one of these countries might have major implications vis-a-vis eligibility. I know too well that we shouldn't rely on it and if I were 30 or 40 now, I wouldn't. Too late, she cried.

3)JTO: You DIY! Good for you, I mean , I would feel sorry for you, but I figure it's working so cudos... I dread to think of the hell awaiting attempting to fill it out myself, especially in Japanese. Just to hear people on this site say navigation through the Rakuten Shoten interface is easy , 'because there are only three buttons you need to know" ...lol...these people would make good bomb disposal experts.

doofus wrote: ↑Fri Feb 22, 2019 3:25 am But, for example, if you buy Australian shares through your super fund, the maximum tax rate is 15%, you get the full benefit of franking credits (including refunds, at least until the next federal election), and the income generated by the fund doesn’t need to declared in your Japanese tax return.

I've been searching high and low for this information online; ie., should I be declaring investment returns made on my super in my Japanese tax return? I'm a Japanese resident for tax purposes, but have a good amount in my super. Can you point me in the direction of where to find further information on this matter?

Spritz wrote: ↑Sat Oct 17, 2020 2:33 am

doofus wrote: ↑Fri Feb 22, 2019 3:25 am But, for example, if you buy Australian shares through your super fund, the maximum tax rate is 15%, you get the full benefit of franking credits (including refunds, at least until the next federal election), and the income generated by the fund doesn’t need to declared in your Japanese tax return.

I've been searching high and low for this information online; ie., should I be declaring investment returns made on my super in my Japanese tax return? I'm a Japanese resident for tax purposes, but have a good amount in my super. Can you point me in the direction of where to find further information on this matter?

Spritrz,

How did you go?
Any luck finding out anything?

Re: Negative gearing and whether it exists in Japan, I went to here: https://housekey.jp/choose-investment-m ... oan-japan/

and found this..


Loan Term / Duration – This is another consideration that will be determined by your objectives. For those looking to take advantage of negative gearing- i.e creating a deficit in free cash flow so as to create an operating loss and enable them to get a tax refund (i.e the people with high annual incomes who are higher tax-rate payers), a shorter loan term would be preferable because the repayment schedule will be condensed and the monthly repayments higher- so more easy to eclipse the monthly free cash flow from the property and create the “operating loss”. For those who wish to produce free cash flow (i.e passive income) the longer the loan period the better as this will mean that the loan repayments are smaller and the remaining money each month can be used to invest in other assets, buy more property, or pay for a lifestyle without having a day-job.

Whether or not the JTO considers properties overseas for this might be another matter. They might just ask to see your rental flow and tax that regardless of your losses. Depreciation, for instance, my not be treated the same way, or they might not consider that fire alarm you had to install a 'loss' in Japan.

AustinJapan wrote: ↑Thu Jun 03, 2021 12:30 pm

Spritz wrote: ↑Sat Oct 17, 2020 2:33 am

doofus wrote: ↑Fri Feb 22, 2019 3:25 am But, for example, if you buy Australian shares through your super fund, the maximum tax rate is 15%, you get the full benefit of franking credits (including refunds, at least until the next federal election), and the income generated by the fund doesn’t need to declared in your Japanese tax return.

I've been searching high and low for this information online; ie., should I be declaring investment returns made on my super in my Japanese tax return? I'm a Japanese resident for tax purposes, but have a good amount in my super. Can you point me in the direction of where to find further information on this matter?

Spritrz,

How did you go?
Any luck finding out anything?

AustinJapan, looks like hbd addressed this in the "How is Australian Super treated" forum. I copy and paste the info below:

Ubear-sama, I have potentially good news for you and others with Australian superannuation. This may or may not apply to your particular super fund, but with respect to mine, I have been told the following: Our yearly investment earnings are not 'our' earnings, but the earnings of the company (the super fund), subject to Australian company tax laws, but irrelevant to us personally. The earnings only become our money when we claim the super, as a lump sum or pension. They were actually very clear on that point, that no tax office anywhere is allowed to take an interest, regarding an individual's tax, in the earnings of super, because it's not the individual's money until s/he takes it out of the fund. Then (and only then) it becomes subject to the tax rules of whatever country one is residing in. If that country is Australia, of course, the money is tax free for over-60s.

Now that seems to be a crystal clear statement, on the basis of which we can say that no, you are not obliged to declare earnings on your Australian super to the J tax office, because they are not your earnings until you take money out of the fund.

I understand that this applies to my case. So, basically, if the money is transferred to Japan in retirement, then Japanese tax would apply. I suppose if one could prove that tax has already been applied to the contributions, then the tax would apply to only the earnings portion...A competent tax lawyer or accountant really would help!

In Aus, as a non-resident for tax purposes, you can claim reduced rate of Withholding on various types of income in Australia under the Japan Australia Tax Treaty.

The Text of the Japan - Australia Tax Treaty is here
https://www.mof.go.jp/tax_policy/summar ... 00131b.pdf

These are probably the most relevant sections as an individual:
Article 10 - Dividends
According to Article 10, Paragraph 2(b), as a Resident of Japan for Tax Purposes, you (Aus Citizen Resident In Japan) should be able to claim a reduced amount of Withholding Tax on Dividend Income in Australia of 10%, instead of the standard 30%.

Article 11 - Interest
According to Article 11, Paragraph 4, as a Resident of Japan for Tax Purposes, you (Aus Citizen Resident In Japan) should be able to claim a reduced amount of Withholding Tax on Dividend Income in Australia of 10%

Article 17 - Pensions and Annuities.
According to Article 17, Paragraph 2, pensions and other similar remuneration paid periodically to an individual who is a resident of Japan shall be taxable only in Japan.
According to Article 17, Paragraph 3, Lump sums in lieu of the right to receive a pension or other similar remuneration may also be taxed in the other Contracting State (Aus) if they arise in that other Contracting State, i.e. Australia.

(Contracting State = Signatory to the Tax Treaty = Japan and Australia)

https://www.ato.gov.au/business/payg-wi ... ts/?page=5

https://www.ato.gov.au/individuals/work ... variations

https://www.ato.gov.au/Forms/PAYG-withh ... plication/

You need to submit PAYG Withholding Variation Application (Online or Paper NAT 2036) to reduce the amount of pay as you go (PAYG) tax withheld from income paid to you in the application year, and the payer (Aus Broker) can't vary the withholding rate until they receive an official variation notice from the ATO. You can submit the application in April for the following Tax Year starting in July.

You should be able to go back and reduce the tax for previous years you were resident In Japan for Tax Purposes if you have overpaid.

According to Article 10, Paragraph 2(b), as a Resident of Japan for Tax Purposes, you are only required to pay 10% Withholding Tax on Dividend or Interest Income in Australia, instead of the standard 30%.


As a Permanent Resident of Japan for Tax Purposes (resident in Japan for longer than 5 years), you (Aus Citizen Resident In Japan) have to declare the actual dividend amounts gross in Japan on the Kakutei Shinkoku before March 14th. for Dividends received in the previous Japanese tax year Jan-Dec.
Form B, pages 1&2 AND Page 3
They will then charge you National 15%, Reconstruction 0.315%, and Residential Taxes 10%.
When you receive your notification of Taxes withheld in Aus, probably in June, then you can go back and revise your Kakutei Shinkoku by adding the Foreign Tax Credit information to claim back the credit for the 10% tax paid in Aus. Form B, Page 2, Item 146 - Foreign Tax Credit.
The total amount of tax you will end up paying is 20.315% (10% in Aus and a total of 10.315% in Japan - 5% National, 0.315% Reconstruction and 5% Residential Taxes).