Navigating Inheritance as a Japan Resident: Seeking Advice

[shadows]

Hi everyone,

I'm reaching out for advice on a complex inheritance situation involving Canada and Japan.

My mother recently passed away, and I'm one of the named beneficiaries on her TFSA account. RBC Dominion Securities is currently liquidating the account, and they require my contact information and social insurance number to transfer the funds to me and my siblings.

While the TFSA distribution is straightforward, the non-registered investment account will need to go through probate before we can access the funds.

I'm also facing Canadian tax implications. The money from the TFSA will have Canadian income tax deducted, requiring me to file a tax return. I haven't filed a Canadian return in over 28 years, I’m 58.

The funds from the estate will not be taxable in Canada, but I'm concerned about potential Japanese taxes. I'm considering offshore banking as a possible strategy to minimize these taxes.

I'm particularly interested in strategies to reduce fees associated with this process, including bank transfer fees, currency exchange fees, and any other potential costs.

I'm unsure about the best course of action and would appreciate any advice or recommendations. Should I consult with a Japanese tax accountant? Are there other strategies I should consider?

Thank you for your insights and support.

[TokyoWart]

How large is the inheritance? I would not expect "offshore banking" to help with the tax treatment for Japan if you are already a permanent tax resident here, but until the inheritance is over 30 million yen to the individual in Japan the inheritance tax here is not much of an issue.

[shadows]

Thank you for your input. I appreciate your insights regarding the inheritance size and its potential impact on Japanese taxes.

As it is too early to know in probate a ballpark estimate from my brother (POA) was said to be ~ 37M yen each.

Given my permanent tax residency in Japan, I'm keen to understand if there are any specific exemptions or strategies that could be applicable to my situation.

Would you recommend any Japanese tax professionals who could provide tailored advice based on the inheritance size and my specific circumstances?

[Beaglehound]

If you are the only heir in Japan your inheritance tax deduction would be 36m, so at 37m you would have minimal exposure, though you would have the hassle of having to file a return (if it's under the threshold you don't have to do anything).

Not sure what a TFSA is, but regardless of Canadian tax treatment Japan may be interested in taxing that. It may be treated as part of the estate even if it isn't treated thus in Canada. Hopefully a Canadian will be able to advise.

Regarding sending money, I have used Sony Bank, which offers Canadian dollar sub accounts IIRC, so you can send it in that currency for reasonable fees (in my experience) and convert to yen at a decent rate. Other banks offer similar services.

[katem]

If you are the only heir in Japan your inheritance tax deduction would be 36m,

Reading a Retire Japan blog piece (from 2021) and the accompanying comments

https://www.retirejapan.com/blog/overse ... -in-japan/

there seems to be some confusion as to how inheritance tax and the deduction allowance on an overseas inheritance is calculated. In a scenario where there are four heirs, with only one being in Japan would the allowance be 36M or 54M JPY and would the value of estate be the total value or only the value inherited by the heir in Japan?

[Beaglehound]

If you are the only heir in Japan your inheritance tax deduction would be 36m,

Reading a Retire Japan blog piece (from 2021) and the accompanying comments

https://www.retirejapan.com/blog/overse ... -in-japan/

there seems to be some confusion as to how inheritance tax and the deduction allowance on an overseas inheritance is calculated. In a scenario where there are four heirs, with only one being in Japan would the allowance be 36M or 54M JPY and would the value of estate be the total value or only the value inherited by the heir in Japan?

Yes, as I understand it the value of the estate is only that which is inherited by heirs in Japan. And i was forgetting that (counter intuitively), all the individual heir allowances are included in the deduction, so I think the allowance would be 54m in your scenario.

[shadows]

Thank you for your responses regarding the complex process of receiving an inheritance from Canada. This is a confusing time, and your insights have been helpful. I must admit I feel like I don't know what the heck I'm talking about when it comes to this matter. So, here's the update...

My two siblings, who are Canadian residents, will be signing the probate application this Wednesday via Zoom. The processing time will depend on whether the application can be submitted digitally or requires a paper copy.

After obtaining probate, we'll still need to wait for my mother's final tax returns to be filed and paid. This includes her personal taxes for the first half of 2024 and any estate income from investments.

Once the Canadian Revenue Agency issues a clearance certificate, we can begin distributing the estate.

Regarding my one-third share of the inheritance (unconfirmed ~330K $CA), I'm exploring options to potentially minimize Japanese taxes. I've considered the possibility of an offshore bank account. Do any of you have experience or recommendations in this area?

Additionally, the funds from my mom's TFSA (Tax-Free Savings Account) skipping the probate will be available soon ~40K $CA each. I'll receive a T5 slip detailing the amount of my share and the income tax deducted. I'll need to attach this to my Canadian income tax return next year. (been forever since I’ve had to file one.)

Should I open a Canadian bank account at any point during this process? Would it be simpler to just find a Japanese tax accountant and pay the Japanese inheritance tax?

Any solid advice or recommendations would be greatly appreciated.

Many thanks.

[beanhead]

Regarding my one-third share of the inheritance (unconfirmed ~330K $CA), I'm exploring options to potentially minimize Japanese taxes. I've considered the possibility of an offshore bank account. Do any of you have experience or recommendations in this area?

What makes you think that an offshore account will enable you to avoid tax in Japan?
The taxable event is receiving the money, not bringing it in to Japan, assuming you are a permanent resident in Japan for tax purposes.

[RetireJapan]

It sounds like you are going to inherit less than the tax-free amount (30m + 6m*3(4?) statuatory heirs) so you don't need to do anything with regards to Japanese taxes.

[shadows]

Thanks beanhead, I now see your valid point. The source of the funds whether domestic or foreign is not the determining factor for Jpn inheritance tax. So, what matters is that me as a resident of Jpn, am receiving and benefiting from the inheritance within Jpn, correct? So basically having an offshore account might not be enough to avoid Jpn inheritance tax. Jpn tax laws sucks. Having 4 kids here in Japan perhaps there's a Jpn gift tax reg. that can vary from inheritance tax? Or perhaps even try to set up a trust of sorts to help structure the inheritance in a way to reduce tax burdens. Anyone know a good Jpn tax accountant in Osaka?