RetireJapan

Dear all,

I am now finalizing my tax filling with EY.
One question to you all as I was surprised by the tax level on capital gain.

I have been living in Japan for more than 5 years.
Sold a property abroad last year and used the monney to buy a property in Japan.
Property I sold: Built in 1995, inheritated in 2015. Difference between official value in 2015 and price I sold is 130K€.

Now EY tells me I will have to pay 15% (national) and 5% (local) on 24MJPY.

24MJPY considered as taxable value. But it is much more than 130K€ capital gain I did. They tell me it is due to depreciation calculation.
As they are serious tax consultants from EY I believe they are making right calculation...

Any comments on this?
Much appreciated.

japanlife wrote: ↑Tue Mar 14, 2023 11:57 pm 24MJPY considered as taxable value. But it is much more than 130K€ capital gain I did. They tell me it is due to depreciation calculation.

Did you claim the depreciation against your taxes in Japan?

japanlife wrote: ↑Tue Mar 14, 2023 11:57 pm Dear all,

I am now finalizing my tax filling with EY.
One question to you all as I was surprised by the tax level on capital gain.

I have been living in Japan for more than 5 years.
Sold a property abroad last year and used the money to buy a property in Japan.
Property I sold: Built in 1995, inherited in 2015. Difference between official value in 2015 and price I sold is 130K€.

Now EY tells me I will have to pay 15% (national) and 5% (local) on 24MJPY.

24MJPY considered as taxable value. But it is much more than 130K€ capital gain I did. They tell me it is due to depreciation calculation.
As they are serious tax consultants from EY I believe they are making right calculation...

Any comments on this?
Much appreciated.

Were you in Japan when you inherited the property? I assume not.

The value on inheritance in 2015, assuming all Estate and Inheritance taxes were paid, becomes the Tax Basis, converted to Yen at the 2015 rate.

If you rented the property out and claimed Depreciation against the property structure and fixtures and fittings in Japan over the years, then you have to deduct the Depreciation in Yen from the Tax Basis in Yen, so your taxable gain increases by the Depreciation claimed.
You may have saved Tax at you higher Marginal Tax rates (Marginal Tax Rate, 0.21% of that for Reconstruction / Self Defense, and 10% Residents' Taxes, maybe 33% + 0.693% + 10% total 43.693%) than the Capital Gains Tax Rate of 20.315% (15% National, 0.315% Reconstruction / Self Defense, and 5% Residents' Taxes). Net Tax Saving = 43.693% - 20.315% = 23.378%.
That is Tax Arbitrage.

However, in Yen Terms, In 2015, the Euro would have been calculated in Yen at around Y130 to the Euro
You can check the actual rate here
http://www.murc-kawasesouba.jp/fx/past_3month.php
Select 2015 in the bottom Drop Down...

Depreciation would have been calculated at annual year-end rates...

The yen has weakened considerably over the last year, so was trading at as much as Y146 to the Euro in 2022.
You can check the actual rate on sale. Select 2022 in the bottom Drop Down...

So potentially, you made Y15 per Euro just in Foreign Exchange Gain, and that is all taxable.

The Taxable Amount is the difference in Yen Terms, so will differ considerably from the Euro denominated gain. It is not just the Euro Gain converted to Yen in 2022.

HTH.

RetireJapan wrote: ↑Wed Mar 15, 2023 2:14 am

japanlife wrote: ↑Tue Mar 14, 2023 11:57 pm 24MJPY considered as taxable value. But it is much more than 130K€ capital gain I did. They tell me it is due to depreciation calculation.

Did you claim the depreciation against your taxes in Japan?

I don't know how this works in Japan but, for instance, in the US you are required to pay the tax for recapturing depreciation even if you never claimed depreciation on the investment property.

Thank you all.
Understood calculation from EY seems fine.
Point is I never claimed depreciation in JP before...
Just had to now declare this sale in Japan as I used the cash made from this sale to buy a property in Japan.

I wanted to make things clean, which was not the case before...somehow I got penalized.

If you have never claimed the depreciation, then the Tax Basis is the value of the property when you inherited it in 2015 converted to JPY at the then current exchange rate.

You do not have to account for the depreciation if you did not claim it...

Tkydon wrote: ↑Wed Mar 15, 2023 4:20 am
The Taxable Amount is the difference in Yen Terms, so will differ considerably from the Euro denominated gain. It is not just the Euro Gain converted to Yen in 2022.

HTH.

I am quite sure this is correct, but I didn't know it about 6 years ago when I sold a property in the UK. I simply calculated the sterling gain and converted that gain to Yen and reported it here. I gave the info to my accountant who dealt with it and nobody said anything. The exchange rate could certainly make a big difference, though.

My gain was within my UK taxable allowance so I didn't owe CGT in UK, just here in Japan, but what would have happened had I had to pay some CGT in the UK? Would that have been taken into account in assessing the Japanese CGT under a double taxation treaty or something, or can you end up paying twice?

goodandbadjapan wrote: ↑Thu Mar 16, 2023 11:02 am [My gain was within my UK taxable allowance so I didn't owe CGT in UK, just here in Japan, but what would have happened had I had to pay some CGT in the UK? Would that have been taken into account in assessing the Japanese CGT under a double taxation treaty or something, or can you end up paying twice?

Yes, you would have been able to claim the amount as a Foreign Tax Credit against the Japan taxes.