3/20/17: White House Press Briefing
The Eves of one of the buildings of the Temple in Kyoto Byoudoin.
Interest costs and depreciation costs of fixed assets are two important properties related costs that may be considered necessary expenses under the Income Tax Act in the Japanese income ITL section 37 and, therefore, that are deductible for Japanese tax in the calculation of real individual income This article examines how the interest tax deductible and depreciation are calculated and some of the special considerations that apply.
Please also see this article for an overview of the Japanese real estate taxation for those further information are available on the following links related to the income tax of individuals and Japanese here on other issues of 'immovable.
Interest is deductible from income property if it meets the terms and conditions of deduction as necessary expense under section 37 ITL discussed here.
However, interest paid on money borrowed to purchase land or land rights below Interest related to land can not be offset against other types of income, but only against the property income Special Taxation Measures Law or LMCS No. 26 6 1 however, interest paid on loans to buy buildings can be charged to any other category of income if real estate overall loss for the year.
The income declaration form to declare property income includes sections for total interest expense reporting and the amount of interest related to land.
Given the above rule, it is often necessary to spread the cost of interest between the interest paid to buy land and interest paid for the purchase of buildings or other real estate.
LMCS 26 No. 6 2 says that when the land and buildings were purchased under a single contract and it is difficult to separate the related borrowings between the amount attributable to land and the amount relating to buildings or other assets then the calculation can be made assuming that the loans were first used for the purchase of the building or other assets, with the remainder used to purchase the land.
It is generous to the taxpayer in relation, for example, with a distribution of interest expenses pro rata based on the market value of land and buildings, however, it may be necessary to obtain evidence of the value of land and buildings concerned as evidence in support of any tax deduction This can be especially important for property overseas where the building's value can form a relatively higher proportion of the purchase price compared to Japan.
Eg where the interest paid to land is not deductible.
Below an example of calculating interest Attributable to land showing how the limit on all amounts are in thousands JPY.
We assume that the real estate property income is 11,000, the total required expenditure 15,000 and property costs 120 000, divided between countries from 80 000 to build 40,000 120,000 The purchase price was paid 20,000 cash and a loan of 100 000, including 6000 interest was paid included in the 15,000 necessary expenses How comprehensive loss may be deducted from other income of the taxpayer.
Assuming the loan 100 000 was applied to the purchase of the building and then 40,000 of the loan is due to the construction and the rest, 60,000, must be attributable to the earth.
The interest expense attributable to land is 6000 times interest 60,000 loan allocated land divided by total loan 100,000 6,000 x 3,600 60,000,100,000.
Therefore, the total loss on the property income 11,000 15,000 income less necessary expenses gives a 4000 loss, but from the 3 600 Interest Attributable to ground the remaining 400 of that 4000 losses may be deducted from revenue other than property income.
The depreciation of a building can be deducted as expenditure required amount of real estate income for Japanese tax purposes the amount of the deduction depends on the useful life of the property concerned and the method of calculating depreciation used .
The length of the useful life of a building depends on the physical construction of the property while the depreciation method used depends on when the building was purchased.
Note that the cost of land can not be depreciated Therefore, it may be necessary to identify a fraction of the value of real estate between that of the land and building or other depreciable assets when you ask for a tax deduction allowance.
2100 Tax reply link in Japanese outlines the CCA and includes this link in Japanese to the list of assets for which the tax law determined a useful life for depreciation purposes The life of a building the years used in calculating the amount of tax deductible depreciation of each year according to the methods listed below.
Some examples of useful lives or residential properties are given below, but proper guidance of a qualified accountant Japanese tax should be obtained to confirm the amount is calculated correctly note that useful lives are prohibited for buildings used as offices or for other non-residential use.
building steel structure in reinforced concrete or reinforced concrete buildings 鉄 骨 鉄 筋 コ ン ク リ ー ト 造 又 は 鉄 筋 コ ン ク リ ー ト 造 の も の 47 years.
Brick, stone or building blocks れ ん が 造 石 造 又 は ブ ロ ッ ク 造 の も の 38 years.
the thickness of the metal construction of the inner frame is greater than 4 mm 金属 造 の も の 骨 格 材 の 肉厚 が 四 ミ リ メ ー ト ル を 超 え る も の に 限 る 34 years.
the thickness of the metal construction of the inner reinforcement is greater than 3 mm 金属 造 の も の 骨 格 材 の 肉厚 が 三 ミ リ メ ー ト ル を 超 え 四 ミ リ メ ー ト ル 以下 の も の27 years old.
the thickness of the metal construction of the internal frame is 3 mm or below 金属 造 の も の 骨 格 材 の 肉厚 が 三 ミ リ メ ー ト ル 以下 の も の に 限 る 19.
Wood or wood construction composite 木造 又 は 合成 樹脂 造 の も の 22 years.
frame mortar timber 木 骨 モ ル タ ル 造 の も の 20 years.
When a property is purchased then used, in principle, the acquisition cost of the property or other depreciable assets can be amortized over the remaining term over which the building can be used.
However, where it is difficult to estimate the remaining life of such second hand property a simplified approach can be used to depreciate its value The simplified approach is as follows.
When the entire useful life of the second property of the hand has already passed at the time of the acquisition, the remaining life is 20 percent of the useful life of the property, for example, if a wood frame building mortar building with a useful life of 20 years bought more than 20 years after its construction, the property can be depreciated with a useful life of 20 x 20 4 years.
Where part of the building's life spent at the time of acquisition, then it can be amortized over the remaining life of more than 20 percent of the time that has already passed, for example, a building wood frame with a useful life of 20 years bought after 10 years have passed can be amortized over the remaining 10 years 20 to 10 years, a total of 12 years.
There are three different methods that can be applied to calculate the tax deductible amortization for based on the date the building to which it was purchased and the election of the taxpayer These methods are.
The fixed amount method 法 Japanese 定額 or teigaku hou.
The former fixed amount Method Japanese 旧 定額 法 or kyuu teigaku hoo.
Former fixed rate method Japanese 旧 定 率 法 or kyuu teiritsu hoo.
For buildings acquired on or after April 1, 2007, the fixed amount method applies buildings purchased before March 31, 1998 then either the fixed amount or ancient old method fixed rate method can be used for other buildings iE those purchased from 1 April 1998, but later 31 March 2007, and the old method fixed amount applies different rules to choose the method for assets other than buildings, but these are not discussed in more detail right here.
The amount of tax deductible depreciation for a given year is simply calculated as the cost of the building multiplied by the depreciation rate for the year, which is just the opposite of life building useful to say where the life expectancy is ten years, the damping factor is 1 10 0 1.
A calculation example is given on the website of the Japanese National Tax Authority NTA link here in Japan In the example of a property JPY1,000,000 cost is depreciated over its useful life of ten years, the amount of the deductible depreciation tax each year is JPY1,000,000 x January 10 JPY100,000 Note that the cost of JPY1 last year remains the amount of depreciation is JPY99,999.
The first fixed amount method differs from the previous current method of specifying a fixed amount of residual assumed value for the property when calculating the amount of damping.
A tax deduction may be claimed for the cost, excluding the residual value, which was generally 10 percent of the total until the tax deduction exceeds the residual value of the building when the rest could be written off over the years later, as the example.
An example is given on the homepage of the NTA link here in Japanese Example left column shows a property with JPY5,000,000 costs a residual value of 10 amortized over five years, the deductible amount of annual taxable income for each year is the least expensive JPY5,000,000 acquisition JPY500,000 residual cost JPY4,500,000 x 1 5 for a lifetime of five years gives JPY900,000 per year in sixth grade this amount exceeds the amount JPY900,000 residual so that the rules allow five of the original acquisition cost depreciated, amortized JPY250,000 the balance on the last five years seven to eleven.
This method is a method of accelerated depreciation by which a constant rate is applied to the remaining unamortized balance to find the amount of tax deductible depreciation for the year is used in combination with the concept of residual value of the above former method fixed amount.
The rates used for this method can be found in this table the column on the far right The number in this column 0369 corresponding to a five-year property is then used in the example NTA, the depreciation for the first year being JPY5 , 000000 x 0 369 JPY1,845,000 the rate is then used each year on the balance remaining up to seven years.
Resident non-permanent resident and non-resident for tax purposes residence is a crucial issue for any expatriate to come Japa.
Proof of payment of tax of Japanese companies A seemingly trivial issue that can have great practical importance is OBT.
Treaties Japan Web English translations of Japanese tax treaties available on the web.
Japanese forms of tax treaties on the Web The Japanese tax administration site allows downloading PDF files forms.
Asia Here are links to the English text of tax treaties with Japan's Asian cooperation.
Japanese tax payable by a non-resident person This article examines the scope of the Japanese taxation of non-residents.
Resources This page contains links to information in English and Japanese related to t.
Japanese furniture withholding tax on royalties Table related to this article summarizes the tax rate at source on royalti.
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