The stock market was energized by Abenomics.

The Nikkei Stock Average was around 10,000 yen in 2012 and reached 20,000 yen in 2015. It doubled in three years.

In addition, in 2015 the government was broadly promoting higher share prices through measures such as ETF purchases by the Bank of Japan, one of the investors nicknamed "whales," the Government Pension Investment Fund (GPIF)'s higher allocation to equities, and NISA, which made a certain amount tax-exempt. According to Nomura Securities research, the number of people who had opened NISA accounts was estimated at 9.8 million at the end of 2015. That is an extraordinary number.

There must have been a considerable increase in new investors.

This time, I will summarize the tax system relating to individual investment as it stood in 2015.

Table of Tax Treatment for Individuals' Financial Assets

# Type of product Income item Type of income Taxation method Notes
1 Listed shares Capital gain Capital gains income Separate assessment (no return) No return may be required for a specified account with withholding tax
Dividends Dividend income No return, aggregate, separate assessment Aggregate taxation includes a dividend tax credit
2 Fractional-lot shares / periodic investment plans Capital gain Capital gains income Separate assessment No return may be required for a specified account with withholding tax
Dividends Dividend income No return, aggregate, separate assessment Aggregate taxation includes a dividend tax credit
3 Margin trading Capital gain Capital gains income Separate assessment Calculate dividend-equivalent adjustments as part of gains and losses on sale / No return may be required for a specified account with withholding tax
4 Trusts other than public and corporate bond trusts Capital gain Capital gains income Separate assessment No return may be required for a specified account with withholding tax
5 Listed equity investment trusts Capital gain Capital gains income Separate assessment No return may be required for a specified account with withholding tax
Income distributions Dividend income No return, aggregate, separate assessment
5 Listed real estate investment trusts (J-REITs, etc.) Capital gain Capital gains income Separate assessment No return may be required for a specified account with withholding tax
Income distributions Dividend income No return, aggregate, separate assessment
6 Publicly offered equity investment trusts Gains on redemption or cancellation; gains on repurchase or sale Capital gains income Separate assessment No return may be required for a specified account with withholding tax
Income distributions Dividend income No return, aggregate, separate assessment
7 Public and corporate bond investment trusts Capital gain Tax-exempt N/A
Income distributions; gains on redemption or cancellation Interest income Separate withholding Some income distributions qualify for the Maruyu program
8 Interest-bearing public and corporate bonds Capital gain Tax-exempt N/A
Income distributions Interest income Separate withholding Eligibility for Maruyu and special Maruyu available
Redemption gains Miscellaneous income Aggregate
9 Commodity futures Profit Miscellaneous income Separate assessment May be offset against Click 365 (FX futures)
10 Nikkei Stock Average futures and options Profit Miscellaneous income Separate assessment
11 Foreign exchange margin trading (FX) Profit Miscellaneous income Separate assessment
12 Listed foreign shares Capital gain Capital gains income Separate assessment Gains and losses may be offset against futures transactions
Dividends Dividend income No return, aggregate, separate assessment Foreign tax credit available. No dividend tax credit
13 Foreign investment trusts (foreign-currency MMFs) Income distributions Interest income Separate withholding
When cashed in Tax-exempt N/A Losses cannot be offset, even if incurred
14 Foreign-currency deposits Interest Interest income Separate withholding
Foreign exchange gains Miscellaneous income Aggregate
15 Foreign bonds (interest-bearing bonds) Capital gain Tax-exempt N/A
Income distributions Interest income Separate withholding
Redemption gains Miscellaneous income Aggregate
16 Foreign bonds (discount bonds) Capital gain Capital gains income Aggregate Special deduction of 500,000 yen available
Redemption gains Miscellaneous income Aggregate
17 Bonds issued at par with no interest Capital gain Capital gains income Aggregate Special deduction of 500,000 yen available
Redemption gains Miscellaneous income Aggregate
18 Transactions in a NISA account Capital gains; dividends Tax-exempt N/A Dividends are taxable if the securities account is not set to the proportional allocation method based on the number of shares held

Note: Abbreviations used

Aggregate: aggregate taxation, "Tax is calculated and paid together with other income. Because the tax rate is progressive, people with higher income face higher tax rates."

Separate assessment: separate taxation under a tax return, "Tax is calculated and paid on this income alone, without combining it with other income."

No return: no tax return required, "For income subject to withholding, taxpayers may choose whether to file a return."

Separate withholding: separate withholding taxation, "A prescribed amount of tax is withheld from the income."

Eligible for Maruyu: small-savings tax-exemption scheme, "A scheme that exempts interest income on principal of up to 3.5 million yen held by certain persons, including persons with disabilities."

Special Maruyu: small-government-bond tax-exemption scheme, "A scheme that exempts interest income on principal of up to 3.5 million yen in Japanese government bonds and similar instruments."

How to Calculate Tax Gains and Losses

In principle: "Amount of income = proceeds from sale − (acquisition cost + sales commissions, etc.)"

The acquisition amount also includes commissions and other costs required to make the purchase. Confirm the acquisition price in the following order.

  1. If you have the transaction report, check the transaction report.
  2. Check a copy of the securities company's customer account ledger.
  3. Your own notes (a diary or bankbook).
  4. The share price at the time of purchase (if you have share certificates, the date of registration transfer or the period shown in the shareholder register).

Note: The securities company's customer account ledger in item 2 is kept by the securities company for 10 years, so you can obtain it by making an inquiry. Be aware that a fee is charged.

Note: The shareholder register in item 4 is primarily held by the trust bank or other institution designated as the shareholder registrar. However, the company itself also holds a shareholder register, so it may kindly provide the information if you inquire with it. I recommend first contacting the company.

Note: Calculating the Purchase Date and Sale Date Is Unusual

The basic rule is the "settlement date." However, you may also choose the "trade date."

Differences in Tax Payment by Type of Securities Account

  • Specified account (with withholding): "An account in which the securities company calculates gains and losses for tax payment and pays the withheld tax."
  • Specified account (without withholding): "An account in which the securities company calculates gains and losses for tax payment but does not pay the withheld tax."
  • General account: "An account in which the taxpayer calculates gains and losses for tax payment."

When you try to open a general account with a securities company, it may even persistently urge you to open a specified account.

Somewhat More Advanced Tax Planning for Financial Products: Tax-Saving Sales and Repurchases

For financial products, income is generally calculated based on the date of sale.

Even if you have unrealized gains, the gain is not fixed until you sell (or repurchase). The same applies to losses.

Therefore, at year-end, people with an overall profit may sell securities carrying unrealized losses in December to realize those losses, while carrying forward securities with unrealized gains, thereby deferring their tax payment.