Income Tax Act

Notwithstanding the provisions of the preceding Article, if the spouse or other relative (other than one under 15 years of age) whose living expenses are paid from the same resources as a Resident that the director of the district tax office has approved to file a Blue Return, who works exclusively in a business as prescribed in the preceding Article which is run by the Resident (hereinafter referred to as a "relative employed only by a blue-return filer" in this Article) is paid a salary by the business of up to the amount stipulated in the document referred to in the following paragraph and in the way that is stipulated in that document, the part of the salary that, in light of the period, nature, and extent of the relative's service; the type and size of the business; salaries ordinarily paid in the same type and similar size of business; and any other circumstances provided for by Cabinet Order, is found to be appropriate as consideration for the relative's work, is included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business for the year in which the salary is paid, and is treated as the annual revenue constituting salary income of the relative employed only by the blue-return filer.

A Resident seeking to apply the provisions of the preceding paragraph to income taxes in and after the current year must submit a document to the competent district tax office director for the locality in which the Resident pays taxes, giving the names of relatives employed only by the blue-return filer, the details of their duties, the amounts of their salaries, the pay periods for those salaries, and the information prescribed by Ministry of Finance Order, no later than March 15 of the relevant year (or within two months from the day on which the Resident starts a business as referred to in that paragraph, if this is on or after January 16 of that year).

If a Resident (other than one as prescribed in paragraph (1)) has a spouse or other relative whose living expenses are paid from the same resources as the Resident (excluding a relative under 15 years of age) and who works exclusively in a business as prescribed in the preceding Article which is run by the Resident (hereinafter referred to as a "relative employed only by the Resident" in this Article), whichever is the lower of the following amounts is deemed to constitute the necessary expenses for each relative employed only by the Resident which are used to calculate the real property income, business income, or timber income from that business of the Resident for the year:

the amount prescribed in each of the following clauses for the category of relative employed only by the Resident set forth in the clause:

a relative employed only by the Resident who is the spouse of the Resident:860,000 yen;

a relative employed only by the Resident other than the person set forth in (a):500,000 yen.

the amount calculated by dividing the real property income, business income, or timber income from that business for the year (meaning the amount calculated without applying the provisions of this paragraph) by one more than the number of relatives employed only by the Resident in that business.

If the provisions of the preceding paragraph are applied, the amount deemed to be the necessary expenses for each of the relatives employed only by the Resident pursuant to the provisions of that paragraph is deemed to be the revenue constituting salary income of each of the relatives employed only by the Resident which is used to calculate their Income in Each Class for the year.

The provisions of paragraph (3) do not apply unless a Tax Return indicates recourse to the application of the provisions of that paragraph and gives information about the amounts that are deemed to be necessary expenses pursuant to the provisions of that paragraph.

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 (3) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

In a case as referred to in paragraph (1) or paragraph (3), whether a relative as prescribed in those provisions is under 15 years of age is determined by the relative's age as of December 31 of the relevant year (or as of the time of the Resident's death or the start of the Resident's Absence From Japan, if the Resident prescribed in these provisions dies or becomes Absent From Japan partway through the year); provided, however, that if such a relative has already died as of that point in time, whether that relative was under 15 years of age is determined by the relative's age as of the time of death.

Cabinet Order prescribes procedures for if the details of the requirements for a relative employed only by a blue-return filer or relative employed only by a Resident change and for if information that has been given in the document referred to in paragraph (2) changes, and provides for other necessary particulars concerning the application of the provisions of paragraph (1) and paragraph (3).

Notwithstanding the provisions of Article 28, paragraph (2) and paragraph (4), if a Resident has specific expenses in any year and the sum total of the specific expenses for the year exceeds an amount equivalent to half of the salary income deduction prescribed in Article 28, paragraph (2) (Salary Income), the salary income prescribed in that paragraph for the year is the amount arrived at when the amount by which such expenses exceed that amount is deducted from the remaining amount that is referred to in paragraph (2) of that Article.

The specific expenses prescribed in the preceding paragraph means the following expenses of a Resident (excluding, if any part of the expenses is reimbursed by the person who pays the Resident a salary or other wage as prescribed in Article 28, paragraph (1) (hereinafter referred to as the "person paying the salary or other wage" in this paragraph) and income tax is not imposed on the reimbursed part, that reimbursed part, and, if any part of the expenses is covered by the payment of an education and training benefit as prescribed in Article 10, paragraph (5), item (i) (Unemployment Benefits, etc.) of the Employment Insurance Act (Act No. 116 of 1974), a single mother household self-reliance support education and training benefit as prescribed in Article 31, item (i) (Single Mother Household Self-Reliance Support Benefits) of the Act on Welfare of Mothers and Fathers with Dependents and Widows (Act No. 129 of 1964), or a single father household self-reliance support education and training benefit as prescribed in that item as applied mutatis mutandis pursuant to Article 31-10 (Single Father Household Self-Reliance Support Benefits) of that Act, that part so covered):

that which Cabinet Order prescribes, in respect of any expenses that the Resident incurs to use the transportation facilities or transportation equipment necessary for a commute via routes and means of transportation that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as being the most economical and reasonable in light of the fare, commute time, distance of the commute, and any other circumstances of the Resident's commute, as the part of such expenses that the average commuter is found to need under ordinary circumstances;

expenses prescribed by Cabinet Order which are necessary under ordinary circumstances for travel that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as being travel directly necessary for the Resident to perform the Resident's duties away from the workplace;

what is prescribed by Cabinet Order as the expenses that are found to be necessary under ordinary circumstances for a change of residence that the person paying a salary or other wage attests to, pursuant to Ministry of Finance Order, as being connected with a transfer of workplace;

expenses for training that the person paying the salary or other wage has attested to, pursuant to Ministry of Finance Order, as being taken for the purpose of acquiring skills or knowledge directly necessary to perform the Resident's duties (other than training for obtaining a qualification), or expenses for such training that a career consultant (meaning a career consultant prescribed in Article 30-3 (Duties) of the Vocational Abilities Development Promotion Act; the same applies in the following item) has so attested to (limited to the part relating to education and training (meaning education and training prescribed in Article 60-2, paragraph (1) (Education and Training Benefits) of the Employment Insurance Act; the same applies in that item));

expenses for obtaining a qualification that the person paying the salary or other wage has attested to, pursuant to Ministry of Finance Order, as being directly necessary for the Resident to perform the Resident's duties, or that a career consultant has so attested to (limited to the part relating to education and training);

expenses prescribed by Cabinet Order which are necessary for travel under ordinary circumstances between the Resident's workplace or residence and the place where the spouse or other family member of the Resident resides, in circumstances that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as falling under a case in which a transfer of workplace has caused the Resident to live constantly apart from the spouse thereof whose living expenses are paid from the same resources as the Resident, or as falling under circumstances that Cabinet Order prescribes as being equivalent thereto.

the following expenses (limited to expenses up to 650,000 yen, if the total amount of those expenses exceeds 650,000 yen) that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as being directly necessary for the Resident to perform the Resident's duties:

expenses to purchase books, periodicals, and other publications that Cabinet Order specifies as relating to the Resident's duties, and uniforms, office wear, and other clothing required to be worn at the workplace that Cabinet Order specifies;

entertainment expenses, hospitality expenses, and other expenses spent on entertaining, hosting, giving gifts to, or other similar acts toward customers, suppliers, or other persons having business relationships with the person paying the salary or other wage.

The provisions of paragraph (1) apply only if a Tax Return, Amended Return, or written request for Reassessment (referred to as a "Tax Return or similar filing" in the following paragraph) indicates recourse to the application of the provisions of paragraph (1) and gives the sum total of the amount of specific expenses prescribed in that paragraph, and is accompanied by a detailed statement of the specific expenses set forth in each of the items of the preceding paragraph and the certifying documents prescribed in those items.

When filing a Tax Return or similar filing indicating recourse to the application of the provisions of paragraph (1), the filer must include with that Tax Return or similar filing a document prescribed by Cabinet Order as evidencing the fact that the Resident has incurred the specific expenses prescribed in that paragraph and the amount spent, or must present such a document at the time of filing that Tax Return or similar filing.

Beyond what is prescribed in the preceding three paragraphs, Cabinet Order provides for the details of the scope of specific expenses prescribed in paragraph (2) and for other necessary particulars concerning the application of the provisions of paragraph (1).

If a Resident makes a transaction in a foreign currency (meaning that the Resident sells or purchases assets, provides services, borrows or lends monies, or conducts any other transaction involving payment in a foreign currency; hereinafter the same applies in this Article), the yen equivalent of that transaction (meaning the amount arrived at when the amount of the foreign-currency-denominated transaction is converted into a Japanese-currency-denominated amount; the same applies in the following paragraph) is the amount arrived at when the amount of the transaction is converted into yen based on the foreign exchange rate as of the time of the foreign-currency transaction, and this is used to calculate the Resident's Income in Each Class for the year.

If a Resident conducting business that is meant to generate real property income, business income, timber income, or miscellaneous income fixes the yen equivalent of assets acquired or liabilities incurred through a transaction in a foreign currency based on a foreign exchange futures contract or similar contract (meaning what is provided for by Ministry of Finance Order as a contract that fixes the yen equivalent of assets acquired or liabilities incurred through a transaction in a foreign currency; hereinafter the same applies in this paragraph) and enters an indication of this, pursuant to Ministry of Finance Order, in the books and documents connected with the Resident's business or in any other document prescribed by Ministry of Finance Order, as on the day that the foreign exchange futures contract or similar contract is concluded, the yen equivalent of the assets or liabilities is treated as the amount arrived at via the conversion into yen pursuant to the preceding paragraph, and this is used to calculate the Resident's real property income, business income, timber income, or miscellaneous income for each year.

Beyond what is prescribed in the preceding paragraph, Cabinet Order establishes special provisions on the conversion of transactions in a foreign currency and provides for other necessary particulars concerning the application of the provisions of the preceding two paragraphs.