Cashless Payments Allow for Non-Retention of Some Receipts

Introduction

Under a 2020 tax year revision concerning electronic bookkeeping maintenance, a new system is due to be established which will make it possible to store receipts, etc., electronically without the need to apply for approval from tax authorities.  In certain cases, it will no longer be necessary to store receipts for the reimbursement of employee-incurred expenses.  Let’s examine this program, which should help reduce accounting burdens.

Lessening the Burden of Managing Employees’ Reimbursed Expenses

 In order for companies to preserve the electronic data of electronic bills as-is, it has been necessary for them to create and apply administrative process regulations concerning such measures as adding time stamps, and preventing tampering.

Though electronic data has been able to be preserved if such administrative process regulations were drawn up, because of the burden on companies of introducing time stamps and establishing process regulations, the system hadn’t been widely utilized. In addition, it has been required to submit an application for approval to a tax office beforehand in order to preserve such documents by using scanners.

Regarding reimbursement of employees’ expenses, it follows that employees’ expense receipts have thus far been saved as hard copies (in paper form) as-is, or by scanning them after receiving approval from a tax office.

However, due to this revision, so long as a system whereby the company itself can’t freely edit the data (for instance, cloud storage) is used, it will be possible to retain receipts in electronic form without the need to draw up administrative process regulations.

Therefore, when expense information data is stored via cloud-based cashless payment services such as credit cards or e-money, it will be acceptable to maintain the expenses-related data there as-is.

Using a Company’s Own Cloud is Not Permissible For Such Storage

Regarding preservation of documents for blue-form returns, etc. for corporate tax and income tax purposes, data storage in the cloud will be approved as an acceptable means of retaining national tax-related documents.  However, data storage in a user’s own cloud service, through which they receive and store the data, will not be permitted because doing so would allow the user to possibly modify the data.

✖ One’s own cloud	〇 External party’s cloud
Possibility of data falsification Not permitted	Involvement of a third party cloud service provider is required

While intermediation through a third party providing a cloud service is necessary between the data issuer and the recipient, any cloud companies and users can utilize such an arrangement straight away, with neither an application for approval nor a registration with tax authorities needed.

Unlike electronic data storage and scanning storage options until now, because complicated advance procedures are no longer necessary, the utilization of cloud-based expense-handling services can be expected to increase from now on.  Also, the number of companies in Japan providing such cloud services already exceeds 40, and competition has been intensifying.

Points Regarding Donations of Funds for Housing Acquisitions

Introduction

While there are many cases of donations of funds for housing purchases in gift tax returns, many mistakes also tend to be made.  Regarding donations of housing acquisition funds, in order to be eligible for non-taxation, it is necessary to meet certain requirements.  Any mistakes will make applying for a special tax-free category impossible.

Points on Which Mistakes Are Frequently Made

The above was verified in a court ruling on December 10, 1997. In other words, even when comparing the two, it is not easy to clearly differentiate them.

The Necessity of Preparing Company-Specific Rules

One of the requirements for new construction or acquisition of residential housing is as follows: “the floor area is between 50㎡ - 240 ㎡ in size, and 1/2 or more of the floor space serves as a residence for the recipient”.

Regarding this determination, it is necessary to confirm the floor area in a real estate registry, because at times it may differ from the amount of space listed in a real estate agent’s catalog.

Also, one of the requirements concerning the recipient is that their total taxable income in the given year amounts to 20 million yen or less.  As an example, when an employee tries to apply for a special-case tax exemption, it is necessary to confirm whether capital gains through real estate or stock, etc. were generated.  There are some cases where total income surpasses 20 million yen due to capital gains, even if the recipient’s salary alone doesn’t exceed that figure.

Expanding the Exemption System due to the Consumption Tax Increase

For the housing tax exemption limit, a “Special Housing Tax Exemption Limit” has been established that largely expands the conventional housing tax exemption limit; this was a measure taken in response to a decrease in home purchasing after the increase in the consumption tax to 10% in October 2019.

（1）Housing Tax Exemption Limits（other than（2））

Conclusion Day of Contract for Newly-built Houses for Residence, etc.	Energy-efficient Homes, etc.	Other Homes
～December 2015	15 million JPY	10 million JPY
January 2016 to September 2017	12 million JPY	7 million JPY
October 2017 to September 2018	10 million JPY	5 million JPY
October 2018 to June 2019	8 million JPY	3 million JPY

（2）Special Housing Tax Exemption Limits
（Consumption tax rate of 10% applied）

Conclusion Day of Contract for Newly-built Houses for Residence, etc.	Energy-efficient Homes, etc.	Other Homes
January 2016 to September 2017	30 million JPY	25 million JPY
October 2017 to September 2018	15 million JPY	10 million JPY
October 2018 to June 2019	12 million JPY	7 million JPY

Saving Scheme for Social Insurance: Pay Attention concerning Retirement

Introduction

When calculating an appropriate amount for a corporate officer’s retirement allowance for tax purposes, the “Achievement Magnification Method”（功績倍率法, kouseki bairitsu hou） is usually used.  When an officer’s monthly salary is decreased in order to save on social insurance premiums, it is necessary to pay attention at the time of retirement, because a justifiable amount for the retirement allowance could be calculated much lower.

What is the Achievement Magnification Method?

Regarding a retirement allowance paid to an officer, after duly considering the period that person was at their post, the situation at retirement, and payment levels at other companies in the same field, the portion of a payment deemed to be unreasonably high is excluded from deductible expenses for the purpose of corporate tax calculations.

However, as judgement standards for ‘unreasonably high’ payments have been unclear, an appropriate amount for an officer’s retirement allowance is generally calculated using the “Achievement Magnification Method”.  This is a means by which to calculate an amount based on the interval in office as an officer (length of service), or magnification according to the officer’s achievements (achievement magnification), based upon the person’s salary just before retirement.  It is calculated as follows:

Appropriate amount of an officer’s retirement allowance
＝the average of similar companies’ achievement magnification
× the retiring officer’s last monthly salary
× the length of service of the retiring officer

Cases where Monthly Reimbursement is Lowered to Save on Social Insurance

For the purpose of saving on social insurance premiums, or increasing the amounts receivable from old-age pensions, in actual practice there can be cases where the monthly reimbursement amount is decreased, and the equivalent of the decrease paid as pre-reported salary for the executive - thus not changing the officer’s total amount received.

In such cases, the determination of whether an officer’s salary is excessive or not is made based on the “total amount paid”, not by the monthly remuneration. Therefore, there is the idea that in regards also to excessive officer retirement allowances, by adding the pre-reported executive salary to the monthly remuneration, then dividing the total by 12, one can calculate a figure for the final monthly remuneration.

However, an officer’s final monthly remuneration amount normally indicates a maximum payment amount during the period they were in office. Except in a special situation such as a significant pay cut just before retirement, court rulings have stated that it can’t be said that adding the pre-determined salary amount is reasonable.

In other words, the last monthly remuneration can be said to be the fixed regular salary
excluding the pre-determined salary. In short, even in the case of setting low monthly remuneration levels in order to save on social insurance, it will not be permitted to add amounts (such as the pre-determined salary) besides the regular fixed salary.

Setting low reimbursement levels to save on social insurance will incur such risk. It will be required to consider how to set appropriate officer remuneration levels in respect to retirement allowances.