Receipts Must Be Preserved Even for Miscellaneous Income
Introduction
In an era when even salaried workers have side or concurrent jobs, attention has focused on how these incomes will be taxed. From the 2022 tax year onward, it will be mandatory to keep receipts, etc., for certain items, even if miscellaneous income. Be careful not to throw away receipts.
Side Jobs and Dual Employment are Basically Miscellaneous Income
It has long been debated whether income earned by salaried workers from side or concurrent jobs falls under the category of “business income” or “miscellaneous income”. From now on, it will also be necessary to pay attention to distinctions in miscellaneous income, between "miscellaneous income from business that should generate such income" and "other miscellaneous income".
As a result of this revision, in practice, miscellaneous income will be divided into three categories: "miscellaneous income from public pensions, etc.”; "miscellaneous income from business activities that should generate such income”; and "miscellaneous income other than ‘miscellaneous income from business activities that should generate such income’ ”.
The newly-established "miscellaneous income from business activities that should generate such income" seems to basically take into account income from side jobs and dual-income businesses. In other words, income from side or concurrent jobs earned by salaried workers or business income earners through work that is different from their main business income is considered to fall under the category of "miscellaneous income from work that should generate such income," except in rare cases where the income from the side or concurrent job exceeds the income from the main occupation.
| Types | Specific Examples |
|---|---|
| Miscellaneous income from public pensions, etc. | National and employee pensions |
| Miscellaneous income from business that generates such income | Manuscript fees, speaking fees, side/additional income |
| Other miscellaneous income | Private pensions, virtual currency trading, etc. |
Receipts Must be Preserved When Earnings Exceed 3 Million Yen
For business income, the retention of receipts has been mandatory for some time. On the other hand, for miscellaneous income, preservation of bookkeeping documents and receipts has not been mandatory until now.
Preservation of receipts is now mandatory when the amount of earnings derived from business (a side business, etc.) for the 2020 tax year exceeded 3,000,000 yen. Strictly speaking, "documents related to cash and deposit transactions, etc." must be preserved.
Such “documents related to cash and deposit transactions, etc.” are documents such as invoices and receipts prepared by the taxpayer or received from business partners, etc., which are created in response to receipts or payments of cash, or deposits/withdrawals of savings in connection with the taxpayer’s business. Since this amendment applies to income tax for the 2022 tax year and thereafter, it is necessary to keep these "documents related to cash and deposit transactions, etc." if your business earnings for the year before last exceeded 3 million yen.
In other words, if your business earnings for 2020 were over 3 million yen, you will need to take action on this year's transactions that you have already made. If you do not start collecting receipts and other documents until next year when you file your tax return for this year, it is highly likely that you will not be able to file in time.
Please note that the 3million yen amount is earnings, not income.
If One’s Earnings for the Year Before Last Were 3,000,000 Yen or Less, the Procedures Will Remain the Same as Before
If your business earnings for the year before last were 3,000,000 yen or less, you do not need to save "documents related to cash and deposit transactions, etc.” such as receipts. However, they are valuable documents for proving the content of your tax return, so there is no harm in preserving them.
Points to Keep in Mind When Requesting a Business Partner to Convert to a Taxable Business
Introduction
With the introduction of the invoice system, there has been an increase in the number of cases where suppliers are requested to become taxable businesses because the consumption tax credit for purchases cannot be applied to payments made to tax-exempt businesses; however, there are some things that need to be taken into consideration in such cases.
Be Aware of Antitrust Laws and Subcontracting Laws
An increasing number of companies are taking the consumption tax invoice system, which will begin on October 1, 2023, as an opportunity to review the terms of their transactions with tax-exempt businesses. In a sense, this is a natural trend, since the consumption tax credit for purchases cannot be applied to payments made to tax-exempt businesses.
On March 8, the Ministry of Finance, the FairTrade Commission, and others published a partially-revised "Q&A on Responses to the Invoice System by Tax-Exempt Business Operators and Their Business Partners”. The original Q&A had just been published in January of this year, but the Antimonopoly Law perspective concerning requests to business partners to convert to taxable business operators was added.
The Antimonopoly Law prohibits unfair trade practices such as "abuse of a superior bargaining position," which is the use of a superior bargaining position to unfairly disadvantage the other party in a transaction. Also, the Act Against Delays in Payments of Subcontracting Proceeds, Etc. to Subcontractors, a supplementary law to the Antimonopoly Law, forbids unfair treatment of subcontractors by parent companies.
Specific Prohibitions
First of all, the specific act of requesting a tax-exempt business partner to become a taxable business partner itself is not considered a problem under the Antimonopoly Law. However, it should be noted that not only requesting a business partner to become a taxable enterprise, but also unilaterally notifying the business partner in essence that, "If it does not become a taxable enterprise, the transaction price will be reduced”, or "If it does not comply with our request, the transaction will be terminated" may cause problems under the aforementioned Antimonopoly Law and Subcontracting Act.
For example, it can be problematic if a purchaser reduces the transaction price without providing a reason for the reduction in writing or by e-mail, etc., despite the supplier having requested that the transaction price be maintained.
Formalistic Negotiations are Not Acceptable
Therefore, when renegotiating transaction prices, etc., with a tax-exempt business partner, sufficient discussions should be held and care should be taken not to set a lower price solely for the convenience of the purchasing side.
For instance, "If you do not become an invoice business operator (taxable business operator), we will not be able to pay you for the consumption tax. If you do not agree, we will reconsider doing business with you in the future.”, and not responding to price negotiations, are examples of cases that may cause problems under the Antimonopoly Law.
The key point is not a unilateral price reduction by the buyer, but a reasonable price negotiation based on mutual agreement through consultation. Even if the transaction price is lowered to reflect the increased burden on the buyer due to the limitation on the purchase tax credit, if the price is set based on mutual agreement via consultation, including comprehensive consideration of various factors such as transaction conditions and raw material costs, it is basically not considered a problem under the Antimonopoly Law.
Ultimately, the Fair Trade Commission will determine the appropriateness of transactions on a case-by-case basis. To avoid abusing the buyer's position by unilaterally setting a price, etc., please be sure to consult with your business partner and ensure that the transactions are mutually satisfactory.
Handling of Donations to Ukraine
Introduction
In response to the Russian invasion of (“military operations in”) Ukraine, many people likely have made donations to the Embassy of Ukraine in Japan. It is important to confirm the tax treatment of a donation to Ukraine, as it will differ depending on the organization to which the donation is made.
Donations Amounted to Approximately 5 Billion Yen
As soon as the Ukrainian embassy in Japan opened a dedicated account for donations in response to Russia's military operations in Ukraine on February 25, donations were collected from over 150,000 people, and as of March 7, the amount had reportedly reached approximately 4 billion yen. On April 1, Ukraine’s Ambassador to Japan Korsunsky announced at a press conference that donations to the embassy of Ukraine in Japan had reached 5 billion yen. Although the pace is slowing down, there are still a large number of donations arriving at the embassy.
Rakuten President Mikitani's personal donation of 1 billion yen also attracted attention.
With other organizations also soliciting donations, can you receive tax benefits for your donation to Ukraine? Whether or not a donation is deductible depends on the organization to which one donates.
For income tax purposes, tax benefits are available only if the organization to which the donation is made qualifies as a "specified donation organization”. Specifically, national and local governments, public interest incorporated associations, etc. designated by the Minister of Finance, and certified non-profit organizations, etc. are eligible for specified donations, and it is necessary to confirm whether the donation falls into one of these categories.
For example, in the case of the Japanese Red Cross Society, one of the organizations accepting donations for Ukraine, donations to the organization qualify for deductions because the Red Cross falls under the category of ‘specified public interest promotion corporations’. On the other hand, in the case of donations to the above-mentioned Ukrainian embassy in Japan, "country" as defined in Article 78, Paragraph 2, Item 1 of the Income Tax Law does not include foreign countries, and the final destination of these special donations is outside Japan.
This means that donations to the Ukrainian embassy in Japan will not be eligible for tax benefits, even though the donations are being made to benefit Ukraine.
Choosing Whether an Income Deduction or a Tax Credit is Advantageous
In addition, regarding tax deduction amounts for donations, if the organization receiving a donation is a "certified nonprofit organization {NPO}, etc." or "public interest incorporated association, etc.," the taxpayer can choose either an income deduction or a special tax credit for donations - whichever is more advantageous for the taxpayer.
In the case of an income tax deduction, the deduction amount is "the total amount of the donation - 2,000 yen" (up to 40% of income), whereas in the case of a tax credit, the deduction amount is “(the total amount of the donation - 2,000 yen) x 40%" (up to 25% of income). Other organizations that qualify as specific donation organizations include the Japan Committee for UNICEF, UNHCR, and Save the Children.
For Corporations, the Amounts are Determined Based on Capital and Income
General donations paid by a corporation are deductible up to a certain amount, depending on the company's capital and income amounts, etc.
Therefore, even corporate donations to the Ukrainian embassy may be deductible as expenses. However, please note that if the company does not have a large amount of capital or income, a major portion of its donation may not be deductible.
