Special Cases of Depreciable Assets Contributing to Work Style Reform
About special cases of depreciable assets which aid in work style reform
Specifically what kinds of assets qualify as depreciable assets which contribute to work style reform? They are those that can be applicable as special exceptions. Let’s examine examples of facilities and equipment which qualify.
Published cases of depreciable assets
The National Tax Agency has, in a question-and-answer (Q&A) format, presented the following examples of depreciable assets contributing to the promotion of work style reform:
①Examples of equipment attached to buildings Equipment attached to buildings (e.g., electrical equipment, plumbing and drainage equipment, heating & cooling systems, movable walls, etc.) installed in facilities (eating establishments, rest rooms, dressing rooms, locker rooms, shower rooms, nap rooms, toilets, etc.) within factories, stores and workplaces, etc. which are directly used for production and other activities
②Examples of instruments and equipment Instruments, equipment (electronic computers for telework/telecommuting, etc.) and software (teleconferencing systems, attendance management systems, etc.) obtained for production activities, etc. in factories, stores and workplaces
Employee-benefiting facilities which are integrated with factories can be depreciable assets
Even though productive facilities are intrinsically tangible “buildings” including factories and stores, real targets for the medium- and small-sized business management incentive taxation system will be depreciable assets for productive facilities – which include only machinery and equipment, industrial tools, instruments, accompanying equipment, and software.
The question has been posed about if the equipment accompanying facilities to benefit employees is to be included in ‘depreciable assets to constitute equipment for production, etc.’, when buildings such as factories directly needed for product activities happen to have employee-benefiting facilities inside which are not themselves production equipment.
In the above Q&A examples, as stated in ①, accompanying equipment pertaining to facilities in buildings needed directly for production activities, such as factories, ‘functioning as facilities integrated with buildings’, such equipment will be evaluated as depreciable assets which constitute ‘equipment for production, etc.’,
For instance, in the case of a company cafeteria later set up as a facility to benefit employees in a pre-existing factory which has accompanying equipment – such as electrical equipment, plumbing installation, etc. – the equipment may be thought of as depreciable assets which constitute ‘equipment for production, etc.’
Instruments and equipment for production activities subject to depreciable assets
Next, regarding ②, questions have arisen as to whether ’office supplies’ which are not referred to in official notices are to be included as depreciable assets.
In the Q&A examples, office supplies will be depreciable assets which constitute ‘equipment for production, etc.’, based on the fact that they are instruments, equipment and software installed for production activities, etc. in factories, stores and workplaces.
The Consumption Tax Rate Applied in Training Gyms
As people are becoming more conscious of their health, the number of gyms open 24 hours is increasing. Training gyms are of course places to train, but in some cases food and beverages are also sold. In this context, we will discuss the consumption tax rate which will be applied on and after October 1st.
Care needed regarding eating and drinking at tables/chairs near stores
Some sporting facilities sell foods and drinks including protein (supplements) at reception desks and stores. Also, in addition to sales by vending machine for beverages, many facilities recently tend to set up hydrogenated water servers and offer the option of ‘all-the-hydrogen-water-you-can-drink’ for a monthly flat-rate payment.
Under the upcoming reduced tax rate system of consumption tax, while ’food and beverage transfers’ will have the reduced tax rate system applied, ’meal service’ (so-called “eating out”) will not.
‘Meal service’ means to offer services to enable eating and drinking at a location with eating and drinking facilities. ‘Eating and drinking facilities’ refers to tables and chairs, etc., regardless of their scale or aim, for customers who wish to eat and/or drink.
This suggests that, for instance, business operators who operate both ’food and beverage transfers’ and ‘meal service’ will need to determine the applicable tax rate by confirming at the time of payment the intent of customers as to whether they wish to ‘take out’ or ‘eat-in’.
Confirmation of where customers will eat or drink
There are often various kinds of tables and chairs in a training gym. Tables and chairs placed near relaxation spaces and stores, for instance, will fall into the category of eating & drinking facilities. Therefore, it will be required to confirm whether guests will eat/drink there, in order to determine the applicable tax rate.
On the contrary, the benches in training areas are considered facilities of the gym itself, and not for eating and drinking purposes. Except in cases where such benches are designated as eating & drinking areas by, for example, the placement of menus there, they are not considered eating/drinking areas. So it is not necessary to confirm the guest’s intent concerning whether they will eat or drink there. Even if customers do consume food/beverages at that location, the reduced tax rate will be applied.
For vending machines, the reduced tax rate will apply
Furthermore, sales of beverages or foodstuffs via vending machines or hydrogenated water servers inside the facilities are not considered offering services of eating and drinking, but only as sales. Therefore, even if customers eat or drink at tables/chairs set up by such vending machines or water servers, the reduced tax rate will apply.
Musical Instruments Are Not Designated as Depreciable Assets?
It was recently reported that world-famous musical instruments were not accepted as depreciable assets in a tax audit. In certain cases, some musical instruments and objects of art are not considered depreciable assets.
Depreciation for violins denied
An asset management company for the founder of CURRY HOUSE CoCo ICHIBANYA, a Japanese-style curry restaurant, had posted depreciation expenses for its world-famous Stradivarius violins, but these were denied after a tax investigation by the Nagoya Regional Taxation Bureau. The denial reportedly resulted in about two billion yen of undeclared income.
The value of a Stradivarius can sometimes exceed one billion yen, and even those who are unfamiliar with music have probably heard the name. It is reported that there are only 600 Stradivarius violins worldwide, of which 30 are owned by the above-mentioned asset management company.
Why were the depreciation deductions denied?
Even though buildings, machinery, and vehicles owned by companies are approved as depreciable assets, why wouldn’t expensive musical instruments be?
‘Reduction in value due to the lapse of time’ is the main point.
Buildings, machinery, and vehicles usually decline in value as time passes. On the other hand, many musical instruments with rarity value do not depreciate. Therefore, the rarity of Stradivarius violins seemingly resulted in them not being designated as depreciable assets.
The same is true with certain art objects
The same holds true for some objects of art. If an object’s value exceeds one million yen, generally it will not be approved as a depreciable asset.
However, when the value clearly drops due to the passage of time, it could be appropriate to designate an item as a depreciable asset as an exception. In particular, an object which satisfies each of the following conditions would qualify:
Used for decoration or display in a public place such as the lobby of a public hall or a funeral hall (excluding cases where admission is charged)
Clearly only for the relevant usage
In the case of where a diversion in use occurs, market value as an art object is not expected in terms of the object’s installation status and/or condition.
A sculpture (monument) would be an example which might satisfy all three conditions. They are sometimes fixed on walls or placed on pedestals in public lobbies. Therefore, it appears that a situation is assumed where if someone wished to purchase such an item, it would have ‘no value as an art object’.
In conclusion, if an art object’s value exceeds one million yen, in principle, it would be difficult for it to be approved as a depreciable asset.
On the other hand, if the acquisition price for an object is less than one million, it would qualify as a depreciable asset. However, this is not the case if the value clearly has not dropped with the passage of time. Basically, it will not be a problem to claim depreciation for an art object with a value up to several hundreds of thousands of yen.