Tax help for an Australian living in Japan - working remotely for an Australian company

[sammylove]

Hi All!

As the title says, I'm an Aussie living in Japan, and I'm working remotely for my Aussie company. I've been here in Japan almost 2 years - on a working holiday visa initially (until March this year) and on a spouse visa since then. I've been working remotely for my Aussie company the entire time, and have been paying all my tax in Australia. I normally just withdraw money out of an ATM to pay for all my expenses here in Japan.

I'm super confused about my tax situation. I contacted my local tax office and explained my working situation to them about the same time I received my first tax declaration form in the mail (also explained to them that I was planning to switch to a spouse visa as well so they got the full picture). They told me to put down 0 income and said I didn't have to worry about any taxes unless I stayed in Japan for 5+ years, so that's what I've been doing. But I recently stumbled onto some posts in r/Japanlife and it's made me question everything (I feel like I've been doing my entire taxes wrong after reading tax related posts).

Does anyone know what the correct tax procedure for my scenario is? I believed that I still qualify as an Australian resident for tax purposes so all my tax has been going to Australia (My Australian accountant has told me that I should be paying my taxes in Australia), but I've now read a few posts saying that my taxes are actually owed to Japan since I'm physically living here. I know Australia and Japan has a tax treaty to prevent double taxation as well, so with what the tax office told me on the phone I was under the impression that the treaty basically took care of it.

Have I been doing my tax wrong? Whats the best way to rectify my scenario if I have been doing it wrong? If I actually owe my taxes to Japan, can I retroactively get a tax refund from Australia as well? (or does anyone know of any good English speaking accountants in Tokyo?)

Thank you.

 

[rogueebear]

@sammylove When people ask these questions, I wish they would give exact dates they arrived…

In principle during your WHV period you would have been defined as a Non-Resident for tax purposes. This is because again, in principle the WHV is supposed to be for no more than 1 year. Obviously this is slightly different for Aussies and especially during COVID times.

Usually WHV are “supposed” to be earning their “domestic sourced income” working for Japanese employers to supplement their Holiday (not obtaining “domestic sourced income” as full time digital
Nomads like you) Hence the phrase “a Working Holiday”, thus the Japanese employers are therefore supposed to withhold the 20.42% Non-resident tax for the WHV holder.

Obviously, no visa restrictions preventing a WHV holder from being a digital nomad though, but then because you’re employer is not a Japanese employer and have no ties to the NTA, they cannot withhold the 20.42% Non-resident tax for the WHV holder, meaning it’s on the WHV holding digital nomad to declare it themselves on a Quasi tax return before they finish their WHV/depart Japan (https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/shinkoku/annai/pdf/027.pdf).

However, your circumstance is different because you have been here for over a year and now also on a spouse thus means you’ve now entered Resident for tax purposes territory.

To my understanding (happy to be corrected if incorrect) this should also mean your whole WHV period, and also your now spouse visa period should be treated as a resident for tax purposes* as opposed to a Non-resident for tax purposes during the WHV period. And therefore taxed as such. Even with tax treaty agreements and foreign tax Credits, the correct taxable income needs to be declared to Japan for Resident tax purposes, and NHI purposes…. You also will need to be enrolled in National pension if not already. This is of course unless your spouse is in. Shakai Hoken providing Job and you’re earning under ¥1.3 million a tax year (January 1st to December 31st)? If you’re earning over ¥1.3 million a year from your Australian employer, not declaring it, but getting NHI and national pension paid for via your spouse’s Shakai Hoken, then you’re also committing more than tax fraud.

As you’re a NPR you can earn “foreign sourced income” (FSI) that does not get remitted to Japan in the same tax year it’s obtained, tax free. FSI is passive in nature (overseas rental income, overseas interest income, overseas dividend income etc). So based information in your OP, you’re earning “domestic sourced income” (DSI) which for work you actively engage in and is taxable to Japan (must be declared to Japan) regardless if you remit it to Japan or not.

This document here explains more: https://www.nta.go.jp/english/taxes/individual/pdf/a-4.pdf

You will then have to navigate the Australia-Japan tax treaty to best offset any income tax double taxation.

*you would be defined as a “Non-Permanent Resident” (NPR) for tax purposes because you have been here for under 5 years of and aggregated 10 years.

 

[sammylove]

@rogueebear Thank you for reply, appreciate it.

I think your logic makes sense, I would probably just be treated as a resident for tax purposes for my entire stay so far, it'd probably make it easier for me to rectify too. I'm earning about ¥11 million a tax year, but I think fraud is a bit of a strong word here, I'm just following the advice the tax office gave to me over the phone, and now that I've become aware of issues I'm trying/going to rectify them.

If I'm understanding you correctly, I will need to pay taxes to Japan instead of Australia, then use the tax treaty to avoid paying taxes to Australia. Australia's tax rate is higher than Japan's, so even after I pay all my tax in Japan (and offset that with the tax treaty) I may need to pay the "difference" to Australia. For all the tax I've paid to Australia so far, I will probably need to get a tax credit refunded back to me so that I can pay it to Japan instead? Luckily I can amend my Australian tax returns for 2 years after they're submitted, so I should technically have until around August next year to rectify my tax on the Australian side of things (although I'm looking to get it done ASAP now)

I believe there is also a treaty between Australia and Japan for retirement savings. I'm currently paying into my Australian superannuation account for retirement, and from what I've just been researching i should be able to keep doing that instead of paying into Japan's pension system.

In any case, I'm going to try find a good tax accountant that can help me sort through all of this so that I can make sure I'm doing everything correctly. Do you think if i contacted the tax office again they would be able to point me to an accountant that has all the knowledge required for tax treaties?

Thanks for your help!

 

[kristhuy]

@sammylove

I'm currently paying into my Australian superannuation account for retirement, and from what I've just been researching i should be able to keep doing that instead of paying into Japan's pension system.

The social security agreement between Japan and Australia determines which country's pension system you are obliged to contribute to. In general, you must contribute to the system of the country where you live (Article 7 of the agreement), unless you have been sent to that country temporarily. The Japanese Pension Service has a good explanation of the rules around this here.

If you determine that you are exempt from compulsory super contributions, which I suspect you are, then you can obtain a certificate of coverage from the Japanese Pension Service to show your Australian employer that you are not subject to compulsory super. Note that, under the agreement, you never have a choice regarding which country's system to contribute to.

Regarding your existing super account, you should check that your super fund knows that you are no longer an Australian tax resident (if that is indeed the case, see comment above), because some funds won't accept contributions from non-residents. Also, you should be aware that gains realized within super funds may be taxable in Japan, because their special tax status only exists under Australian law.

 

[sammylove]

@kristhuy Thank you for the great information. Do you know if its possible to transfer the contributions I made (wrongly) to my super to the Japanese pension system?

Edit:

https://www.gtalent.jp/blog/japanwo...ercome_the_disadvantages_of_being_a_foreigner

this page says the following:

Prevent double charges of insurance premiums

If you are staying in Japan for less than 5 years, you only need to join the pension in your home country.

Im planning to return to Australia with my spouse before a total of 5 years, so according to this, I think I can just continue paying into my superannuation?

 

[kristhuy]

@sammylove

Do you know if its possible to transfer the contributions I made (wrongly) to my super to the Japanese pension system?

No, they can't be transferred. But they won't be withdrawn from your super account, either. So you may end up contributing to both systems because you didn't claim an exemption from either system. At the same time, you will get credit for your contributions in both systems, so you shouldn't be significantly worse-off in the long run.

according to this

I recommend that you trust the information at the Australian DSS and Japanese Pension Service sites that I linked, rather than a site made by some random recruitment firm. The key factor, under the agreement, is whether your employer sent you to Japan temporarily. If you being in Japan has nothing to do with your employer (as in, your employer didn't send you here temporarily), then the five-year rule doesn't apply to you.

 

[sammylove]

@kristhuy Hmm I see thank you. What do you mean by getting the credit for both systems? You mean I can withdraw my pension from Japan when I leave?

 

[kristhuy]

@sammylove If you contribute to the Japanese system for 10 years or more, you can claim a Japanese pension when you turn 65. If you contribute for less than 10 years, you can either apply for a lump-sum withdrawal when you leave or claim a Japanese pension when you turn 65.

So your contributions to the Japanese system are not lost merely because you also contributed to super. And your contributions to super are not lost merely because you also contributed to the Japanese pension.

 

[sammylove]

@kristhuy Yeah so basically it means I'll have to cover it with my savings, and then get it all back once I leave Japan.

 

[kristhuy]

@sammylove You won't get it all back, but yeah. Note that Japanese national pension contributions are not based on income, so you're only looking at around 200,000 yen/year.

 

[sammylove]

@kristhuy Oh really that's all? That's a relief! I thought I was going to be on the hook for 25k+ or something.

If that's the case I don't mind actually paying that + my super at the same time.

 

[rogueebear]

@sammylove You’ve not been specific with dates though.

For example when did the tax office person give you this Information? Was it at some point when you were on an extended WHV, or during your Spouse visa?

The information they give could be swayed by that because in theory if it’s WHV it’s only really potentially an abnormality (COVID) for the reason to still be in Japan on a WHV beyond the normal time frame.

Also what level of understanding did the tax office person have? Were they just a desk monkey? Or were they actually pretty knowledgeable on income sourced outside of Japan? Did you show them official NTA information, they look at it in detail and explain why you don’t have to declare to Japan? Or did they just say “yea, no need to declare”, or was there maybe even a translation issues with what your interpretation of overseas “domestic sourced income” is? I.e the tax office person you discussed with may have thought you were referring to “foreign sourced income” which is not taxable for NPRs/Non-residents unless it’s remitted etc.

So there are a whole host of variables at play here, but from my understanding of official documentation, the person you spoke to at the tax office gave you incorrect information.

Additionally, tax treaty or potentially incorrect information from the tax office aside, you earn ¥11 million but potentially pay no Resident tax and no National Health Insurance, and no national pension to Japan… the place in which you actually reside. If I was in your shoes that would certainly make me think… “hang on a minute surly that ain’t right”.

I mean good on you for wanting to rectify it, but I feel the terminology I used is correct. Fraud is fraud regardless if you’re aware you’re committing it or not.

As for taxation rights with the treaty I am not too sure. You’re gonna need to navigate the treaty for that. But either way as a NPR when you’re physically in Japan it’s domestic sourced income and thus, must be declared to Japan regardless if remitted to Japan or not (because you also have resident tax, NHi and national pension obligations… not just income tax).

 

[sammylove]

@rogueebear The information given to me would have been during my WHV time, when I received my first tax form in the mail, I cant recall the date though (there was no abnormality due to covid in my case, no covid extensions etc). My (Japanese) spouse was the one on the phone with them, we made sure to give them the full picture and mentioned I was going to change over to a spouse visa (as mentioned in my OP). I recall the person she was speaking to had to check with their higher ups to answer the questions we were asking, so they may have been a desk monkey but they did consult with others before telling us what we had to do, we wrongly trusted the info provided to us.

Additionally, tax treaty or potentially incorrect information from the tax office aside, you earn ¥11 million but potentially pay no Resident tax and no National Health Insurance, and no national pension to Japan… the place in which you actually reside. If I was in your shoes that would certainly make me think… “hang on a minute surly that ain’t right”.

It does seem the information I received was incorrect, and I do want to (and will) rectify it. I've been paying health insurance the entire time I've been here (and resident tax too I believe, although the amounts are probably wrong due to my wrongly declared income), and the pension seems to already be covered as part of the treaty as well.

As for taxation rights with the treaty I am not too sure. You’re gonna need to navigate the treaty for that. But either way as a NPR when you’re physically in Japan it’s domestic sourced income and thus, must be declared to Japan regardless if remitted to Japan or not (because you also have resident tax, NHi and national pension obligations… not just income tax).

I think this may actually simplify things for me. I believe I need to get a tax credit from Australia for the amount I owe to Japan. I will try find a good accountant to consult with and confirm everything though.

Thanks again, appreciate it.

 

[rogueebear]

@sammylove I am a bit confused… Are you enrolled on your spouse’s Shakai Hoken as a dependent and thus not paying NHI and national pension yourself? Or are you enrolled in and paying NHi and national pension yourself? Also FYI as a resident of Japan you should be enrolled in National pension. I believe WHV maybe exempt if they apply for exemption (not 100% certain on that) but you’re no longer a WHV holder.

Your resident tax should be ~10% of your taxable income.

Taxable income is All income minus tax deductibles. Your Australian income (assuming it’s salaried) should at least be defined as “Employment income”, meaning it gets the the Employment income tax deduction applied to it which is substantial. You then also have the ¥430,000 basis deduction for resident tax. You then also have national pension tax deductible (but you’re not paying national pension I take it?) and you have National health insurance deduction (which you said you pay each month but not stated how much…).

However, still with “normal” deductibles of an ¥11 million salary, you’re looking at Resident tax of in the high Hundreds of thousands… maybe even verging on ¥1 million depending on the deductibles you utilize.

 

[sammylove]

@rogueebear Sorry I was/am confused too, I might've said the wrong thing regarding resident tax earlier. I quickly spoke to my spouse, I am on her Shakai Hoken, but our local tax office said to her that I don't need to pay residents tax (wrong info again I presume). So sounds like I will be owing resident tax as well.

My Australian income is salaried. You're right, I'm not paying into the national pension either, I've just been paying into my Australian superannuation (which is automatically done for us here). I did read somewhere that this should be fine as there is a treaty for this too, but I will need to confirm it with an accountant that actually knows about all the treaties I guess. https://taxsummaries.pwc.com/japan/individual/foreign-tax-relief-and-tax-treaties here it mentions prevention of double enrollment for social security, which Australia is a part of.

Thanks for the info. I also read that the resident tax can be included in the tax treaty/credit as well, which means it counts towards my total tax paid to Japan, which would mean that I should owe less money to Australia (if any) after tax treaty has been accounted for. I believe Australia's tax is higher than Japan - so I would have paid too much if I paid the same in Japan, which would mean that I can probably offset my resident tax with all the extra tax I paid to Australia.

I may try book in with a specialist at the tax office, or find an accountant in either Japan or Australia (or both) to resolve my mess. At the end of the day, I just want to do the right thing and pay what I owe to the right places.

 

[rogueebear]

@sammylove Ah yea so if you’re enrolled on your spouse’s Shakai Hoken then you’re getting your NHI and national pension paid for by her Shakai Hoken (obviously you should rectify that ASAP because that a separate thing to taxes).

As for what falls in the Australia-Japan tax treaty you probably know more than me on that one haha.

 

[sammylove]

@rogueebear Thank you, I really appreciate all the information and assistance you've provided!

 

[rogueebear]

@sammylove Welcome. And again good on you for wanting to rectify

 

[kristhuy]

@rogueebear

under ¥1.3 million a tax year

FYI shakai hoken dependency has nothing to do with the tax year. The test is whether you are "currently earning" more than 1.3 million/year and it is theoretically evaluated daily. Different providers apply the test slightly differently, but the basic idea is that you lose dependent status as of the day on which you expect to earn more than 1.3 million yen over the following 365 days.

 

[rogueebear]

@kristhuy I see. Thanks for the correction there.

I guess it still applies though, because in the perspective of OP, OP’s spouse’s employer/Shakai Hoken provider, the tax office (based on the information given to OP by the tax office/lack of declaration of domestic sourced income by OP), OP does not earn ¥1.3 million,

In the perspective of essentially all entities I mentioned above, on paper OP earns a taxable income (to Japan) of ¥0 (when in reality that is not case). Hence why I suspect there is a high possibility OP is getting that benefit.

And if not (say OP pays their own NHI and national pension) then their NHI would only been be super low… like ¥3,000 a month or whatever the minimum payment is due to having a declared “taxable income” of ¥0.

Edit: and then also OP’s spouse could potentially be getting the spouse dependent deductible too if OP’s declared taxable income is ¥0 meaning OP’s spouse is potentially saving ¥380,000 off their annual taxable income each year too.