Capital Gain/Loss Tax Carryover

[toni123]

Not investment advice. I have some tax questions that I’m hoping others here have had experience with.

On May 8, I bought 12,000 shares of SONY Corp. for at about ¥12207/share.

On May 15, I sold 9,000 of those shares at about ¥13312/share.

This resulted in a realized gain of ¥9,880,582 after deducting brokerage fees and margin interest. The brokerage withheld about ¥2,000,000 for capital gains tax.

Do Japanese brokerages (SBI, in my case) automatically account for trading history when withholding tax? e.g., if I incurred a capital loss last year, will the brokerage know to reduce my tax withholding from carrying over the losses? Do I need to manually account for those carryovers in my 2024 tax return? Does it matter if I purchased with own funds vs. margin?

Thanks!

SONY stock chart

SONY stock table

 

[scubadude]

@toni123 First of all, I apologize for my poor English. Losses and profits from stock trading can be added together if you are with the same brokerage company(SBI) in the same year. However, if you want to add up last year's losses and this year's profits, you need to do kakuteishinkoku for both last year and this year.

 

[toni123]

@scubadude Thanks for your reply. Your English is excellent.

I sold some shares at a loss late last year and did do kakuteishinkoku. Since SBI withheld taxes for this year’s profit, does it mean I will get a refund on those taxes next year? If I sell something else at a loss this year, will I get a tax credit from SBI or does it also become a refund next year?

 

[scubadude]

@toni123 Thank you. First of all, withholding is a provisional tax, and your actual tax for this year is calculated at the end of the year(kakuteishinkoku). Your profit for this year (the sum of last year's loss and this year's profit) is calculated at the end of the year, and if you have a profit, that amount is multiplied by 20.315% to become your actual tax for this year. If your actual tax is less than the amount of withholding, the difference will be refunded at the beginning of the following year.

 

[kristhuy]

@toni123

If I sell something else at a loss this year, will I get a tax credit from SBI or does it also become a refund next year?

At the end of each business day, SBI recalculates your tax liability on all trades occurring within the same designated (特定) account since the start of 2024. So if you realize a loss later in the year, SBI will immediately refund you some of the 2,000,000 yen worth of tax that they withheld from your May 15 trade (because your annual liability will be less than the amount of tax they are holding on your behalf). Their job is to make sure the amount of tax they are holding on your behalf is always perfectly equal to your tax liability on all trades occurring within the same account since the start of the year. As discussed above, you need to declare the transactions on your tax return if you want to take into account losses from previous years or other accounts, though.

 

[kristhuy]

@toni123

Do Japanese brokerages (SBI, in my case) automatically account for trading history when withholding tax?

It depends what kind of brokerage account you held the shares in. See this post for a detailed explanation of the various types of accounts available at Japanese brokerages.

As you will see, if you held the shares in a "withholding"-type designated (特定) account, the brokerage will withhold tax at the end of each day, based on your trading history through the current calendar year. They will not take into account anything that happened in previous calendar years.

If you want to use capital losses realized in a previous year to offset your capital gains, you need to file tax returns in both years (and any intervening years). Your brokerage can't handle that kind of offsetting for you.

Incidentally, if you had held the shares in a "no withholding"-type account, the brokerage would not have withhold tax from the proceeds of the sale of shares. Instead, you would just settle your bill when you file an income tax return. Given the trading volume referenced in your post, you may want to consider switching to a no-withholding account. Having an additional 2,000,000 yen to trade with over the 7-10 months between the sale and the time you file your tax return, for example, is not negligible.

Do I need to manually account for those carryovers in my 2024 tax return?

Yes, as discussed above.

Does it matter if I purchased with own funds vs. margin?

Nope.