What was decided, when, and by whom

The Outline of the FY2019 Tax Reform is the government's outline approved by the Cabinet on December 21, 2018. Beneath the original title, it simply states “Cabinet decision of December 21, 2018.” Preparing for the consumption tax rate increase scheduled for the following year was the starting point for this year's reforms. The preamble reflects this approach.

In connection with the consumption tax rate increase, tax support for housing will be introduced to smooth fluctuations in demand, and vehicle taxation will be substantially revised while securing stable local government revenue. The R&D tax credit and other measures will also be revised to ensure an end to deflation and economic revitalization. In addition, a special corporate enterprise tax (provisional name) and special corporate enterprise transfer tax (provisional name) will be established to build a local tax system that supports the sustainable development of cities and regions.

For how to read the outline, see Key points of the FY2026 tax system revision outline Please also see.

Main pillars of the outline

The text is divided into seven chapters. Their titles and the decisions in each are as follows.

The accompanying estimate of revenue changes resulting from the FY2019 tax reform (internal taxes) shows a total revenue decrease of JPY104 billion in a full year and JPY4 billion in the first year. For the preceding and following years, see Outline of the FY2018 Tax Reform and FY2020 Outline of Tax Reform Please see

Adding Years 11 Through 13 to the Housing Loan Tax Credit

Eligibility is limited to acquisitions and other qualifying transactions for housing where the consideration or cost includes consumption tax at 10%, and the home is occupied between October 1, 2019 and December 31, 2020. In each of years 11 through 13, the smaller of the two amounts for the applicable category below may be credited. Years 1 through 10 remain unchanged.

The outline also includes a category for homes rebuilt by victims of the Great East Japan Earthquake and others, with a rate of 1.2% of the year-end loan balance. Subsidies and other grants, or gifts covered by the gift tax exemption for housing acquisition funds, are not deducted from the amount even where received.

Establishing Cryptocurrency Valuation Methods and the Treatment of Disposal Gains and Losses

This outline establishes valuation methods for cryptocurrencies (now called cryptoassets) for both individuals and corporations. It provides a framework for areas where calculation methods had remained unclear as trading expanded. For the background, see The crypto asset tax system was created this way. Please also see.

Individuals Use the Moving-Average or Total-Average Method

The individual income taxation chapter states:

For cryptocurrencies defined in the Payment Services Act held by individuals, the value of cryptocurrency held at year-end that forms the basis for determining the amount deductible as necessary expenses in calculating income shall be the acquisition cost calculated using the moving-average or total-average method, and other necessary measures shall be taken.

The starting point for calculating the cost of cryptocurrencies sold is the valuation of cryptocurrencies held at year-end. This provision specifies acquisition cost calculated using the moving-average or total-average method as that value. The difference between the two methods is explained in The Total-Average and Moving-Average Methods. Necessary measures will also be introduced for individual inhabitant tax concerning methods of calculating cryptocurrency acquisition costs and related matters.

Introducing Market Value Valuation for Corporations

The corporate taxation chapter provides for introducing market value valuation and other measures for cryptocurrencies for corporation tax purposes. The first measure is as follows.

Of the cryptocurrencies held by a corporation at its fiscal year-end, those for which an active market exists will be marked to market, with valuation gains or losses recognized.

Even without a sale, cryptocurrencies with an active market generate valuation gains or losses at year-end. Disposal gains or losses are recognized in the fiscal year in which the disposal contract is concluded. The carrying amount per unit used to calculate cost is determined under the cost method using either the moving-average or total-average method; the statutory default is the moving-average cost method. For outstanding credit transactions and similar transactions, an amount equivalent to the gain or loss calculated as if they had been settled at fiscal year-end is recognized. These rules apply to corporation tax for fiscal years ending on or after April 1, 2019.

Restructuring Vehicle Taxation

Reducing Automobile Tax Rates

The rates of automobile tax based on vehicle type for private passenger cars (excluding small three-wheeled vehicles) will be reduced by engine displacement category. The reduction applies to vehicles first registered as new on or after October 1, 2019. The table below shows three of the ten categories.

Purchase-Date-Based Relief and Reduced Eco-Car Tax Incentives

For the environmental performance levy introduced on October 1, 2019, a special measure will reduce the tax rate by one percentage point for private passenger cars acquired between that date and September 30, 2020. The resulting revenue loss will be fully covered by national government funds.

Meanwhile, existing incentives for fuel-efficient vehicles will be narrowed. The eco-car reduction for motor vehicle weight tax will be extended by two years, but reductions for passenger vehicles will fall from 75% to 50% and from 50% to 25%. The eco-car reduction for automobile acquisition tax will be extended by six months, with reductions for passenger cars of 80% and 60% reduced to 50%, and the 40% reduction reduced to 25%.

Introducing Tax Deferral for Successions to Sole Proprietors' Business Assets

A central asset taxation measure is the introduction of tax deferral for business assets of sole proprietors. Where a certified heir acquires specified business assets by inheritance or similar means between January 1, 2019 and December 31, 2028 and continues the business, inheritance tax corresponding to their taxable value is deferred, subject to the provision of security. Specified business assets comprise land (up to 400 square meters), buildings (up to 800 square meters of floor area), and depreciable assets other than buildings used in the deceased's business (excluding real estate leasing and similar businesses) and recorded on the balance sheet attached to the blue return.

A prerequisite is a succession plan prepared with guidance and advice from a certified support institution for business innovation and submitted to the prefecture between April 1, 2019 and March 31, 2024. If the business is discontinued or certain other events occur, the entire deferred tax must be paid together with interest tax. The special provisions for small residential and business land will also be revised to exclude land first used for business within the three years before inheritance from the category of specified business land. Where this tax deferral is used, the special provisions for small land cannot be applied to specified business land.

The gift tax exemption for lump-sum gifts of education funds will also be revised. Its application period will be extended by two years, but it will not apply if the recipient's total income in the year preceding the year of the trust or similar arrangement exceeds JPY10 million. The same requirement will be added to the exemption for marriage and child-rearing funds.

Revising the R&D Tax Credit and Restructuring Corporate Enterprise Tax

Under the tax credit for total R&D expenses, the credit rate will be expressed through two formulas depending on whether the rate of increase or decrease in R&D expenses exceeds 8%. For certain venture companies conducting R&D, the credit limit will also be increased to 40% of current-year corporation tax (currently 25%). Eligible companies are those incorporated within the preceding ten years that have tax losses to carry forward to the following year, excluding subsidiaries of large corporations and certain other companies. Under the tax system for strengthening the technological base of SMEs, the special provision for increases exceeding 5% will also be changed to one for increases exceeding 8%.

For local taxes, standard corporate enterprise tax rates will be reduced. For ordinary corporations with capital exceeding JPY100 million, the standard income-based rate on annual income exceeding JPY8 million will fall from 3.6% to 1%; for ordinary corporations and others with capital of JPY100 million or less, it will fall from 9.6% to 7%. This applies to fiscal years beginning on or after October 1, 2019.

A special corporate enterprise tax (provisional name) will be introduced alongside the reduction. This national tax is imposed on taxpayers liable for the income-based or revenue-based component of corporate enterprise tax, using the corporate enterprise tax calculated at standard rates as its tax base. It is filed and paid to the prefecture together with corporate enterprise tax. The proceeds are transferred to prefectures through a special corporate enterprise transfer tax (provisional name) as general revenue with no restrictions on use.

To determine if it relates to you

• If you plan to buy a home subject to 10% consumption tax, see the individual income taxation chapter. The credits for years 11 through 13 are subject to conditions on when the home is occupied.
• If you buy and sell cryptocurrency, see the individual income taxation chapter. Cryptocurrency held at year-end is to be valued using the moving-average or total-average method.
• If your corporation holds cryptocurrency, see the corporate taxation chapter. Cryptocurrency with an active market generates valuation gains or losses at year-end even without a sale.
• If you are considering replacing your car, see the consumption taxation chapter. The automobile tax reduction depends on when the vehicle is first registered as new, while environmental performance levy relief depends on when it is acquired.
• If you operate a sole proprietorship and are considering handing it over to a successor, see the asset taxation chapter. There is a prescribed period for submitting the succession plan to the prefecture.

Source

• Outline of the FY2019 Tax Reform (Cabinet decision of December 21, 2018)