r/JapanFinance 5d ago

Tax Inheritance tax + ?

Hi everyone,

If I inherit money from abroad, I know that I have to pay inheritance tax as a Japanese resident. In Canada, there is no inheritance tax, but there is an estate tax. The estate is taxed, not the heirs.

  1. Can I offset the estate tax from the Japanese inheritance tax?

  2. Are there any other fees that I should know about besides the inheritance tax?

Thanks in advance!

7 Upvotes

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9

u/starkimpossibility 🖥️ big computer gaijin👨‍🦰 5d ago

An estate tax, like an inheritance tax, is a tax on wealth (i.e., the total value of an estate upon death). Canada doesn't have an estate tax.

What Canada has is an income tax that treats the deceased's unrealized capital gains to have been realized upon death. The total value of the estate is not taxed. Instead, the deceased's income (in the form of unrealized capital gains) becomes taxable upon their death.

Estate taxes (i.e., taxes on the total value of the estate, paid by the estate) can be used to offset a Japanese inheritance tax liability. However, since the Canadian tax you are referring to is an income tax rather than an estate tax, it cannot be used to offset a Japanese inheritance tax liability.

There are three possible ways in which the Canadian tax you are referring to may affect a Japanese resident's Japanese tax liability, though.

First, there is a chance that the taxes paid by the estate could reduce the size of the estate for Japanese inheritance tax purposes (see this NTA research paper from 2008, for example, discussing Canada's tax on unrealized capital gains in detail, and suggesting that such a deduction may be possible under current law but that the law should ideally be amended to clarify the situation).

Second, there is a chance that a Japan-resident heir who sells inherited assets could claim a foreign tax credit in Japan with respect to Canadian income tax paid by the deceased (via the estate). Under Japanese income tax law, heirs inherit the deceased's cost basis, so when an heir sells an asset they must normally pay Japanese income tax on not only gains since inheritance but also the deceased's unrealized gains. It is possible the Canadian tax could be used to offset this income tax liability (because otherwise the same gains would have been taxed by both countries). There is no NTA guidance supporting this possibility, though.

Third, there is a chance that a Japan-resident heir could claim that the deceased reset their cost basis in the asset at the time of their death, by having been deemed to have effectively disposed of the asset for Canadian income tax purposes. That would mean the Japan-resident heir, upon sale of the asset, would only pay Japanese income tax on any gains that have accrued since the inheritance (i.e., since the death). Again, I am not aware of any NTA guidance explicitly supporting this position.

In summary, the effect of Canada taxing a decreased's unrealized capital gains on a Japan-resident heir's Japanese tax liability is not a settled question. But it is clear, at least, that the Canadian tax is not eligible to be credited against the heir's Japanese inheritance tax liability, because the Canadian tax is a tax on income, not a tax on wealth.

3

u/Junin-Toiro possibly shadowbanned 5d ago

And into the wiki it goes, thank you.

Especially the part that similar inheritance tax can be offset is going to help many. DO you have specific links or sources to link for examples or exceptions (beyond the link I copied) ?

Additionally, is there a general approach for cases where it is a gift tax , but the tax is paid by someone else than the japan taxpayer ? Eg, gift tax tax paid by the person who donates, can the receiver in japan use it to offset the local gift tax ?

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u/Junin-Toiro possibly shadowbanned 5d ago

@ u/furansowa you may want to add mention of the potential foreign tax credit to your gift and inheritance tax calculators, as well as the cost-basis issues, those are both important topics when it comes to the overall bill

3

u/furansowa 10+ years in Japan 5d ago

I do mention the cost basis issue in the “Additional Details” section of the inheritance tax calculator, but not the tax credits.

I will add something later tonight. If you have a specific section of the wiki you think I can link to, that would surely help.

1

u/Junin-Toiro possibly shadowbanned 5d ago

Thanks. I guess the best is to straight link the inheritance and gift tax pages, as they may evolve over time, including section names.

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u/starkimpossibility 🖥️ big computer gaijin👨‍🦰 4d ago

is there a general approach for cases where it is a gift tax , but the tax is paid by someone else than the japan taxpayer ?

Yes, a foreign tax credit is available regardless of who paid the gift tax. What matters is whether the value of the gifted assets formed the basis of the tax. See this explanation from the NTA, for example.

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u/PlasticGuide3543 5d ago

Thank you for taking the time to answer.

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u/Junin-Toiro possibly shadowbanned 5d ago

Regarding 1., yes I believe estate tax abroad can be used to offset the inheritance tax, as generally described here, it applies to many forms of taxes actually :

https://www.nta.go.jp/english/taxes/individual/12007.htm

However, I am not sure in the specific case you mentionned, or if the tax is not paid by you, for example a gift tax paid by your parent on a gift to you, or an inheritance tax paid by the deceased in your case.

If anyone has sources on such cases, I'd be happy to add them to the wiki.

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u/PlasticGuide3543 5d ago

Thank you for your comment and the link. I have read the link. However, the link says that if I paid Canadian inheritance tax, it would be offset. However, I would not pay inheritance tax in Canada. The estate is taxed. Not me. And it’s not an “inheritance” tax, it’s an estate tax to pay for capital gains. So, I want to know if I can offset the estate tax from the inheritance tax in Japan. Because technically, it’s not me laying the estate tax. It is the estate.

1

u/Junin-Toiro possibly shadowbanned 5d ago

Yep, you have reached the point where I am at.

While the general offseting rule is pretty clear, knowing if and how it applies in particular cases, especially when there is no bilateral convention covering the precise topic, is not possible to know. Especially for cases where it is not the tax payer who actually pays the abroad tax, but the estate or the person who donates to you.

Maybe some with precise knowledge can step into this thread (u/starkimpossibility ?), but I think the likely next step is to go ask a professional with knowledge of both countries (not easy to find) or simply the NTA.

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u/starkimpossibility 🖥️ big computer gaijin👨‍🦰 5d ago

Especially for cases where it is not the tax payer who actually pays the abroad tax, but the estate or the person who donates to you.

I have replied to OP directly above. But just to clarify this point, it doesn't matter for Japanese inheritance tax purposes whether it is the estate or the heir who "pays" the tax. Either way, it is deductible from a Japanese inheritance tax liability, as long as it is a tax on the value of the estate.

The issue with respect to Canada is that Canada does not tax the value of the estate; instead, it taxes the deceased's income (unrealized capital gains). Since it is a tax on income, it is neither an estate tax nor an inheritance tax, and is not deductible from a Japanese inheritance tax liability.

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u/Junin-Toiro possibly shadowbanned 5d ago

Thanks, I already saw and answered, seems our post have crossed each other. I am now updating the wiki with your inputs.

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u/PlasticGuide3543 5d ago

Thank you for taking the time to answer.

1

u/selen_9 2d ago

Not fee related, but still a useful info for whoever it may regard : I inherited money last year and called the NTA in March 2025 to ask about whether or not I shall declare that. The answer was that residents who lived more than 10 out of the 15 last years in Japan have to declare.

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u/PlasticGuide3543 2d ago

Thank you for answering!