Page 1 of 1
Offsetting capital gains in a tokutei account?
Posted: Sat Apr 03, 2021 7:19 am
by Andy.
Hi everyone,
After filling up my NISA for this year, I have started using my tokutei account with Rakuten. Reading through the forum, I noticed that people have mentioned about the Securities company calculating the taxes at the end of the year, and potentially reimbursing some money for capital gains offset against losses.
I have bought and sold a couple of stocks in my tokutei account for around ¥15,000 profit recently, and capital gains tax (I think it's 20.315%) was automatically taken out. So my question is this: If I owned a stock in my tokutei account that had lost value since I bought it, would it then make financial sense to sell it at a loss at the end of the year to benefit from the capital gains offset, and then buy it back in January the next year if I wanted to? Not necessarily going to do it, but just wanted to get my head around how it worked and thought this example might help.
As my annual profit in my tokutei account is almost definitely going to be well below ¥200,000, I wonder if it is a mistake using my tokutei account, and I should just be using the general account. However, on the forum, I read a few posts where people mentioned how troublesome it was filing a tax return, and it was easier just to have it done for you in the tokutei account.
Really appreciate any input on this, and I apologise for all the basic terminology!
Re: Offsetting capital gains in a tokutei account?
Posted: Sat Apr 03, 2021 9:01 am
by Kanto
Andy. wrote: ↑Sat Apr 03, 2021 7:19 am
Hi everyone,
After filling up my NISA for this year, I have started using my tokutei account with Rakuten. Reading through the forum, I noticed that people have mentioned about the Securities company calculating the taxes at the end of the year, and potentially reimbursing some money for capital gains offset against losses.
I have bought and sold a couple of stocks in my tokutei account for around ¥15,000 profit recently, and capital gains tax (I think it's 20.315%) was automatically taken out. So my question is this: If I owned a stock in my tokutei account that had lost value since I bought it, would it then make financial sense to sell it at a loss at the end of the year to benefit from the capital gains offset, and then buy it back in January the next year if I wanted to? Not necessarily going to do it, but just wanted to get my head around how it worked and thought this example might help.
As my annual profit in my tokutei account is almost definitely going to be well below ¥200,000, I wonder if it is a mistake using my tokutei account, and I should just be using the general account. However, on the forum, I read a few posts where people mentioned how troublesome it was filing a tax return, and it was easier just to have it done for you in the tokutei account.
Really appreciate any input on this, and I apologise for all the basic terminology!
Amateur Speaking
As Japan has a flat-capital gains tax, I am unsure what good tax-loss harvesting would be?
Aren`t these strategies used by Americans whose capital gains tax depends on income level and the length securities are held? Or in Countries where Dividends, capital gains, and interest are taxed differently?
Let's say you Sold X at a loss to offset a tax on Y. Then rebuy X at the new lower price. You will have to (eventually) pay capital gains tax on the ground needed for X to recover to the original purchase price. This is the phenomenon that creates the one single downside risk associated with NISA accounts. However, if you did not sell X, and it recovers to the original purchase price, you would not accrue any tax on that rebound.
Do any Americans want to shed light on this?
Re: Offsetting capital gains in a tokutei account?
Posted: Sat Apr 03, 2021 9:41 am
by TBS
Hi Andy,
By my reckoning (back of the envelope calcs), there would be some marginal benefits to harvesting the tax loss and re-buying over the year end. This is especially true if you reinvest the tax money paid so far (circa ¥4,000?) that should come as a refund via the tokutei account. You could benefit from the deferred tax payment, the opportunity to re-balance, or if you end up selling the shares you re-purchase before they have recovered to the price you originally bought them for. Ideally stay out of the market for as short a time as possible when harvesting. And hope that nothing goes the wrong way during that time. With the amounts you are talking about, the hassle probably isn't worth it.
For the second question, yes if you qualify for not having to submit an income tax return (employer submitted an end of year income tax adjustment, additional income below ¥200,000, + some other reqs), holding in a general account would mean not having to pay the national portion of the capital gains tax (15.315%). You would still, however, have to file a residents tax return and pay the remaining 5% tax, I believe.
Whichever way, the extra tax you are paying by using a tokutei in this case is small, and easily worth it to save the hassle of submitting tax returns.
Re: Offsetting capital gains in a tokutei account?
Posted: Sat Apr 03, 2021 11:20 am
by Andy.
Kanto and TBS, thank you very much for the replies. I really appreciate it.
As TBS said, the tax money paid so far is about ¥4000, so the hassle does seem to outweigh the benefit. However, if this amount is higher at the end of the year, and I randomly have an underperforming stock in my Tokutei account (say down ¥10,000 or so from when I bought it, for example), then I might be tempted to sell and rebuy quickly (or buy something better). Thanks for making it clear.
I'll stick with the Tokutei account too, instead of messing about with the General one. Thanks again for your help.
Re: Offsetting capital gains in a tokutei account?
Posted: Sun Apr 04, 2021 8:01 am
by TBS
Because my school math teacher always taught me to show working, here is a write up of the calculations I did:
https://github.com/TBS-github/tax-loss- ... ting.ipynb
Kanto: your underlying intuitions and comments are right, however the finer details mean there can be benefits to tax-loss harvesting in Japan. Hopefully the github notebook explains more comprehensively than my earlier post.
Obviously the yen amounts Andy. is talking about and those featuring in the notebook are quite small. But things scale, so if someone has much larger investments, tax-loss harvesting becomes increasingly worthwhile.
Re: Offsetting capital gains in a tokutei account?
Posted: Sun Apr 04, 2021 10:23 am
by TokyoWart
As Japan has a flat-capital gains tax, I am unsure what good tax-loss harvesting would be?
...
Do any Americans want to shed light on this?
Perpetually double-taxed American here
. I try to do tax loss harvesting whenever I can but I think the benefit is playing out on my US tax liability because the US portion of my capital gains tax is much higher now (24%) than I expect it to be in retirement and/or I can donate appreciated shares or use them as gifts without tax consequences to me if done within certain limits. Also for US taxes we can deduct up to $3000 in ordinary income using capital losses and that benefit comes at my current high marginal earned income tax rate. In my case the main benefits come from the US tax consequences.
Re: Offsetting capital gains in a tokutei account?
Posted: Sun Apr 04, 2021 11:30 am
by Andy.
TBS wrote: ↑Sun Apr 04, 2021 8:01 am
Because my school math teacher always taught me to show working, here is a write up of the calculations I did:
https://github.com/TBS-github/tax-loss- ... ting.ipynb
Kanto: your underlying intuitions and comments are right, however the finer details mean there can be benefits to tax-loss harvesting in Japan. Hopefully the github notebook explains more comprehensively than my earlier post.
Obviously the yen amounts Andy. is talking about and those featuring in the notebook are quite small. But things scale, so if someone has much larger investments, tax-loss harvesting becomes increasingly worthwhile.
Thanks TBS (and your maths teacher)! That was really interesting to read. I'll definitely keep a close eye on my Tokutei account, and hopefully will get the chance to apply it!