Income Tax Act

If, in any year, a Resident is issued a national or local government subsidy or benefit or anything that Cabinet Order prescribes as being equivalent thereto (hereinafter referred to as a "government subsidy or its equivalent" in this Article and the following Article) which is meant to be allocated to acquiring or improving Fixed Assets (including forested land; hereinafter the same applies in this Article and the following Article) (but only if the final decision that the Resident need not return the government subsidy or its equivalent is reached by December 31 of that year (or by the time of the Resident's death or Absence From Japan, if the Resident dies or the Resident's Absence From Japan occurs partway through the year; hereinafter the same applies in this paragraph and paragraph (1) of the following Article)), and the Resident acquires or improves Fixed Assets in line with the purpose for which it is issued by December 31 of that year, an amount equal to the amount of the government subsidy or its equivalent issued (or, if the Fixed Assets are Depreciable Assets acquired or improved in a year before that year, the amount calculated pursuant to Cabinet Order based on the amount of the government subsidy or its equivalent) is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

If, in any year, a Resident is issued Fixed Assets in lieu of a government subsidy or its equivalent, an amount equal to the value of those Fixed Assets is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

The provisions of the preceding two paragraphs apply only if the Tax Return indicates recourse to the application of those provisions, indicates the amount that is not being included in gross revenue pursuant to those provisions, and gives the information prescribed by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) or paragraph (2) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

Cabinet Order provides for the necessary particulars concerning the calculation of the depreciation allowance provided for in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) for Fixed Assets that have been subject to the provisions of paragraph (1) or for Fixed Assets as prescribed in paragraph (2) that are acquired by a Resident subject to the provisions of paragraph (1) or paragraph (2); and provides for the necessary particulars concerning the calculation of business income, timber income, capital gains, or miscellaneous income in the event that such a Resident transfers those Fixed Assets.

If, in any year, a Resident is issued a government subsidy or its equivalent that is meant to be allocated to acquiring or improving Fixed Assets, and the final decision that the Resident need not return the government subsidy or its equivalent has not been reached by December 31 of the relevant year, an amount equal to the government subsidy or its equivalent is not included in the gross revenue that is used to calculate that Resident's Income in Each Class for the year.

If the final decision is reached that a Resident subject to the provisions of the preceding paragraph need not return the whole or a part of the government subsidy or its equivalent referred to in that paragraph which the Resident has been issued, an amount equal to the part of the government subsidy or its equivalent which is subject to the final decision, less the part that Cabinet Order prescribes out of the amount allocated to acquiring or improving Fixed Assets in line with the purpose for which the government subsidy or its equivalent has been issued, is included in the gross revenue that is used to calculate that Resident's Income in Each Class for the year in which the date of the final decision falls.

If it is determined that a Resident subject to the provisions of the preceding paragraph needs to return the whole or a part of the government subsidy or its equivalent referred to in that paragraph which the Resident has been issued, an amount equal to the part of the government subsidy or its equivalent that is subject to the final decision is not included in the necessary expenses or amounts expended that are used to calculate that Resident's Income in Each Class for the year in which the date of the determination falls.

The provisions of paragraph (1) apply only if a Tax Return indicates recourse to the application of the provisions of that paragraph, indicates the amount that is not being included in gross revenue pursuant to that paragraph, and gives the information prescribed by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

Cabinet Order provides for the necessary particulars concerning the calculation of a depreciation allowance as prescribed in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) for Fixed Assets that a Resident subject to the provisions of paragraph (1) uses a government subsidy or its equivalent to acquire or improve; and provides for the necessary particulars concerning the calculation of business income, timber income, capital gains, or miscellaneous income in the event that such a Resident transfers those Fixed Assets.

If a Resident is issued a national or local government subsidy that is meant to cover the expenses of an administratively necessary relocation, reconstruction, or removal of the Resident's assets or any other similar action (other than the improvement of a Fixed Asset or an action as prescribed by Cabinet Order; hereinafter referred to as the "relocation, reconstruction, or removal" of assets in this paragraph), or is issued an amount of money that is meant to cover the expenses of a relocation, reconstruction, or removal of the Resident's assets due to an expropriation under the Land Expropriation Act (Act No. 219 of 1951) or the occurrence of any other compelling reason prescribed by Cabinet Order, and the Resident allocates the money issued thereto to cover the relocation, reconstruction, or removal of assets for which it has been issued, the amount allocated to cover those expenses is not included in the gross revenue that is used to calculate that Resident's Income in Each Class; provided, however, that this does not apply to an amount equal to the part of the monies allocated to cover expenses which is included in the necessary expenses that are used to calculate the Income in Each Class or the part of the monies so allocated which is found to have been a necessary transfer expense.

If a Resident receives forgiveness of a debt that the Resident owes in a case where there has been an order granting discharge as prescribed in Article 252, paragraph (1) (Requirements for an Order Granting Discharge) of the Bankruptcy Act (Act No. 75 of 2004) or an order confirming a rehabilitation plan, or in any other case where the Resident has lost financial resources and has extreme difficulty in paying debts, the value of the economic benefit received through that forgiveness is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

In the case referred to in the preceding paragraph, the provisions of that paragraph do not apply to the part of the value of the economic benefit received through the forgiveness of the debt referred to in that paragraph that is equivalent to the sum total of the amounts that the following items prescribe for the categories of case set forth in those items that apply to the Resident referred to in that paragraph (for the amounts prescribed in items (i) through (iv), the amounts calculated as if there were no value of the economic benefit, and for the amount prescribed in item (v), the amount arrived at if gross income, retirement income, and timber income are calculated as if the provisions of that paragraph did not apply):

if the Resident receives forgiveness of a debt relating to an operation that is meant to generate real property income: the amount of loss arising in the calculation of real property income for the year that includes the date on which the Resident received the forgiveness;

if the Resident receives forgiveness of a debt relating to a business undertaking that is meant to generate business income: the amount of loss arising in the calculation of business income for the year that includes the date on which the Resident received the forgiveness;

if the Resident receives forgiveness of a debt relating to an operation that is meant to generate timber income: the amount of loss arising in the calculation of timber income for the year that includes the date on which the Resident received the forgiveness;

if the Resident receives forgiveness of a debt relating to an operation that is meant to generate miscellaneous income: the amount of loss arising in the calculation of miscellaneous income for the year that includes the date on which the Resident received the forgiveness;

if there is a Net Loss to be deducted, pursuant to the provisions of Article 70, paragraph (1) or paragraph (2) (Deduction for Carryover of Net Loss), in calculating the gross income, retirement income, or timber income for the year that includes the date on which the Resident received the forgiveness of the debt: the amount of the Net Loss so deducted.

The provisions of paragraph (1) apply only if the Tax Return states that the provisions of that paragraph are to be applied, the amount not included in gross revenue pursuant to the provisions of that paragraph, and any other information specified by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

If a reduction is made to the amount of foreign income taxes as prescribed in Article 95, paragraph (1) (Foreign Tax Credit) which is used as the basis for calculating the amount to be credited pursuant to the provisions of Article 95, paragraphs (1) through (3) in any of the seven years beginning in the year after that in which a Resident is subject to the provisions of those paragraphs, the amount that Cabinet Order prescribes as corresponding to the part of the reduction to foreign income taxes which is pertinent to the application of the foreign tax credit under that Article in the year in which the date of the decision to reduce those taxes falls is not included in gross revenue that is used to calculate the Resident's real property income, business income, timber income, occasional income, or miscellaneous income for the year. In such a case, the amount arrived at when the amount specified by that Cabinet Order is deducted from the amount of the reduction is included in the gross revenue that is used to calculate the Resident's miscellaneous income for the year.