Taxable investment withdrawals: FIFO?

[cocacola]

Not sure if First In First Out would be the correct term to use, but I thought it sounds cool.

I think this is a very basic question:

If I have 100,000円 in a taxable investment, and it grows by 7%, the total of that investment would equal 107,000円.

100,000円 Initial investment
7,000円 growth

If I withdraw 2,000円 from the investment, will there be the 20% tax applied to that 2,000円 withdrawal?
Or would tax be applied only on withdrawals after the initial investment has been completely withdrawn from?

I am thinking of investing a sum of money into eMaxis Slim All Country for a short period in my taxable account, but probably need to withdraw that same sum within the next month or two. I already have money invested in my taxable account in the eMaxis Slim... wondering if tax will be applied on that full sum when withdrawn.

Edit: I realize that I am probably overthinking this

[RetireJapan]

I believe with mutual funds in a taxable tax-deducting account the broker just looks at the average purchase price vs sale price and deducts tax on any gains.

[cocacola]

Ah, OK, good to know!

Thank-you!

[Tkydon]

Yes, Average Price of all the units purchased, and you can sell all or part of you holding at that price.

If you buy more, then the new Average Price must be calculated.

[adamu]

Edit: I realize that I am probably overthinking this

Not at all, it's exactly the stuff you want to be sure about before you subject yourself to unexpected taxes.

However, I don't think you should invest any money you will need again in two months. A general rule of thumb is you should be willing to put money away for 5 years, longer if there's a downturn and you want to wait it out in the hope of a recovery.

[cocacola]

Edit: I realize that I am probably overthinking this

Not at all, it's exactly the stuff you want to be sure about before you subject yourself to unexpected taxes.

Thanks for the encouragement. I always feel apprehensive about asking questions, as I am quite novice. Cheers!

However, I don't think you should invest any money you will need again in two months. A general rule of thumb is you should be willing to put money away for 5 years, longer if there's a downturn and you want to wait it out in the hope of a recovery.

Yes, true. I had already pulled the trigger on this lump-sump investment, thought about exactly what you said, but could not cancel the order. Oh well, live and learn. Hopefully, this short-term investment will make a couple of bucks.

[cocacola]

Sorry to dig this topic up from the ashes...

But I was thinking about it again recently, and have another question:

If I have invested 100,000円 initially, then the investment grows to 107,000円, what will be taxed if I sell the entire investment amount?

Will the whole investment amount (107,000円) be taxed?
Or will just the growth portion (7,000円) be taxed?

[RetireJapan]

Sorry to dig this topic up from the ashes...

But I was thinking about it again recently, and have another question:

If I have invested 100,000円 initially, then the investment grows to 107,000円, what will be taxed if I sell the entire investment amount?

Will the whole investment amount (107,000円) be taxed?
Or will just the growth portion (7,000円) be taxed?

Only the profit (capital gain) is taxed.

[cocacola]

Only the profit (capital gain) is taxed.

Thank-you!!

[Tkydon]

Not sure if First In First Out would be the correct term to use, but I thought it sounds cool.

I think this is a very basic question:

If I have 100,000円 in a taxable investment, and it grows by 7%, the total of that investment would equal 107,000円.

100,000円 Initial investment
7,000円 growth

If I withdraw 2,000円 from the investment, will there be the 20% tax applied to that 2,000円 withdrawal?
Or would tax be applied only on withdrawals after the initial investment has been completely withdrawn from?

I am thinking of investing a sum of money into eMaxis Slim All Country for a short period in my taxable account, but probably need to withdraw that same sum within the next month or two. I already have money invested in my taxable account in the eMaxis Slim... wondering if tax will be applied on that full sum when withdrawn.

Edit: I realize that I am probably overthinking this

Sorry for the long answer to your short question.

Japan does not use FIFO (First-In-First-Out) or LIFO (Last-In-First-Out). The Tax Basis is calculated on the Average Cost of all Units.

If you bought some at different prices, you take the Sum of all the Purchase Costs or Total Amount Paid divided by the Total Units Owned to get the Average Cost per Unit.

This is your Tax Basis per Unit.

If/When you buy more Units, the amount you paid for those units is added to the Total Amount Paid, and the no. of Units purchased is added to the Total Units Owned to get the new Average Cost per Unit.
If the new price was lower than your previous Average Cost per Unit, it will drive the Average Cost per Unit down.
If the new price was higher than your previous Average Cost per Unit, it will drive the Average Cost per Unit up.

When you sell, you will multiply the No. of Units Sold by the Unit Sell Price to get the Final Amount.
And, you will multiply the No. of Units Sold by the Average Cost per Unit to get the Tax Basis.

You will then subtract the Tax Basis and any transaction costs, and any interest paid on any loan used to buy the Units, from the Final Amount to get the Capital Gain.

The Capital Gain will then be taxable at 20.315% (15% National, 0.315% Reconstruction, and 10% Residents' taxes)

You will then subtract the No. of Units Sold from the Total Units Owned and subtract the Tax Basis from the Total Amount Paid. This should not result in a change in the Tax Basis.

The issue you have is this; If you already have a significant unrealised Capital Gain in those Units, and you buy more units and then sell those same units, you may have no gain or even a loss in those units, but the Capital Gain will be based on the total Tax Basis, and so may be significant...
In that case, it would be better to buy units of a similar but different Fund that you do not already own, so that the Tax Basis will only be based on that particular purchase of the units of that particular fund, and not on your current position (equivalent to LIFO). You would then only be taxable on the Capital Gain on those actual Units, or if you make a Capital Loss, you will be able to offset that Loss against other Capital Gains in that year, or in the subsequent 3 years...

Sorry to dig this topic up from the ashes...

But I was thinking about it again recently, and have another question:

If I have invested 100,000円 initially, then the investment grows to 107,000円, what will be taxed if I sell the entire investment amount?

Will the whole investment amount (107,000円) be taxed?
Or will just the growth portion (7,000円) be taxed?

Only the profit (capital gain) is taxed.

Assuming that you did not already have a position in whatever you purchased with the 100,000円, then that is your Tax Basis, and only the 7,000円 will be taxed.
However, if you already had purchased units for 100,000円 @ say 500, and then these new Units were purchased @ say 1000, and then you sold some units @ say 800, then

100,000 / 500 = 200 Units
100,000 / 1000 = 100 Units

200,000 / 300 Units = 667 Average Price per Unit - Tax Basis

If you then sold the 100 Units @ say 800, you would have to pay Capital Gains Tax on 800 - 667 = 133 per Unit, or 13,300 capital Gain, instead of making a loss of 200 per Unit...

If you sold the 100 Units @ say 1200, you would have to pay Capital Gains Tax on 1200 - 667 = 533 per Unit, or 53,300 Capital Gain, instead of on the 200 per Unit or 40,000 Capital Gain