Capital gains on USD investments are paid in JPY

[adamu]

I had an interesting discovery on SBI today.

I sold a US Bond ETF that in USD had made a loss, but due to the exchange rate had made a gain in JPY.

Selling this caused capital gains tax to be due, which was deducted from my JPY balance.

I was surprised that the tax was charged in JPY, considering the transaction was completely in USD, and that tax on dividends are deducted in USD. I can imagine some people might find themselves having to convert USD or deposit JPY to cover the tax.

I was also amused that I paid a tax on a "gain" that would have performed better if I'd just let it sit as USD cash.

[captainspoke]

For a person with investments there, this is like the air we breathe... Imagine selling something now that was purchased when it was 80 to a dollar. Sometimes referred to as 'phantom gains'.

It can work the other way, too. I went thru a phase gathering some collectibles well before the peak of yen strength, but then (by chance) selling into that on consignment here some years later I effectively broke even on a number of pieces, even after fees for the sales.

[sutebayashi]

I was surprised by this too when I first learned of it, I remember someone correcting me here when I stated my wrong understanding.

With interest on savings and dividends, the fx rate of the day the money is received is applied, but if it is a sell of something previously bought, they don’t calculate it as profit received in original currency converted by the fx rate, as I had assumed…

It seems like a strange way to design the tax system, as the tax revenues will be effected by the trend in fx rate. (Maybe part of why the government likes a weak yen.)

Also, that tax withholding from the tokutei account balance is a reason I switched to the non-withholding. I want to hold on to my money as long as possible and delay payment of taxes, but the tokutei withholding option precludes that.

I just did my tax return preparations yesterday, and reporting the tokutei account yen profits was not bothersome, compared with other things (albeit simple for me as I have no complicated loss carryovers to deal with right now). One can keep the tax due invested until around the tax payment date, which can be an extra year in possession. Some of that tax might be not even due, after considering income deductions and tax deductions.

I think the withholding option is good for anyone who doesn’t want to do a tax return and as an initial option, but for anyone who already does tax returns, the non-withholding option is worth considering, I feel.

[adamu]

phantom gains

Thanks for the term I can search for and learn more Since I'm accumulating, I rarely sell, so this (selling a loss-making USD ETF that made a gain in JPY) is a new experience for me.

for anyone who already does tax returns, the non-withholding option is worth considering

I'll keep it in mind, thanks. I did declare them once, simply because I had to because I wanted the foreign tax deduction too. But I don't plan on selling being a regular occurrence, so leaving it as tax-collecting for now is probably simplest.

Speaking of paying tax in advance, there's this thing called Furusato Nozei...

[sutebayashi]

No doubt… I make an exception for furusato nozei, but perhaps I should not.

But it saved me from buying beer last year, plus rice, meat, and I can’t forget the fabulous シャインマスカット grapes either.

If I knew the entirety of the money were going down the toilet instead I would certainly be delaying those tax payments too!