Income Tax Act

The amount that, pursuant to the provisions of Article 37 (Necessary Expenses), is included in the necessary expenses that are used to calculate a Resident's real property income, business income, timber income, or miscellaneous income, as the depreciation allowance for a Deferred Asset that a Resident possesses on December 31 of the relevant year is the amount calculated pursuant to Cabinet Order on the basis of the period during which the expenses for the Deferred Assets continue to affect the calculation.

Beyond what is provided for in the preceding paragraph, Cabinet Order provides for the necessary particulars concerning the depreciation of Deferred Assets.

A loss incurred due to circumstances such as the demolition, removal, or destruction (including a decrease in value due to damage) of a Fixed Asset, or of any other equivalent asset as provided by Cabinet Order, which is used in a business run by a Resident that is meant to generate real property income, business income, or timber income (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these, and excluding loss due to or related to the transfer of an asset) is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day of the loss falls.

A loss incurred in the course of business due to accounts receivable, loans, advance payments, or bad debt claims equivalent to these, or due to other circumstances as provided by Cabinet Order, in a business run by a Resident which is meant to generate real property income, business income, or timber income is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day of the loss falls.

A loss due to Disaster, robbery, or misappropriation involving forested land owned by a Resident (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these) is included in the necessary expenses that are used to calculate the Resident's business income or timber income for the year in which the day of the loss falls.

A loss involving assets (other than forested land and assets prescribed in Article 62, paragraph (1) (Loss of Assets Not Ordinarily Necessary in Everyday Life, Due to Disaster)) used in the business operations of a Resident which are meant to generate real property income or miscellaneous income or are the basis of such income (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these; other than any loss due to or related to the transfer of an asset; and other than any loss prescribed in paragraph (1) or paragraph (2) or Article 72, paragraph (1) (Casualty Loss Deduction)) is included in the necessary expenses that are used to calculate the Resident's real property income or miscellaneous income for the year in which the day of the loss falls, up to the amount of the real property income or miscellaneous income for the year (meaning the amount of real property income or miscellaneous income for the year as calculated without applying the provisions of this paragraph).

Cabinet Order provides for the necessary particulars concerning the calculation of the loss prescribed in paragraph (1) and the preceding two paragraphs.

If a Resident running a business that is meant to generate real property income, business income, or timber income has accounts receivable, lendings, advance payments, or equivalent monetary claims (other than those that are to be represented by bonds; the same applies in the following paragraph) arising in the course of business (hereinafter referred to as "lendings and other claims" in this paragraph), any amount that the Resident transfers into the reserve account for bad debts in each year (other than a year in which the day of a complete business transfer or discontinuation falls; the same applies in the following paragraph) as the expected amount of the loss on those lendings and other claims on part of which a loss due to a bad debt or other equivalent circumstances is expected because a fact prescribed by Cabinet Order has occurred, such as their repayment being subject to a grace period or being made in installments based on a decision confirming a reorganization plan (this includes any other lendings and other claims held against the debtor associated with the lendings and other claims in question; hereinafter referred to as "individually assessed loans or other claims" in this paragraph and the following paragraph), is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year, up to the amount calculated pursuant to Cabinet Order based on the part of the amount transferred which, as of December 31 of the relevant year (or as of the time of the Resident's death, if the Resident dies partway through the year; the same applies in the following paragraph), there is found to be no prospect of collecting or having repaid with regard to the individually assessed loans or other claims; provided, however, that this does not apply if the Resident dies and the heir does not take over the business.

The amount that a Blue-Return-filing Resident running a business that is meant to generate business income transfers into the reserve account for bad debts in any year as the expected amount of losses due to bad debts in accounts receivable, lendings, and equivalent monetary claims arising in the course of business (other than individually assessed lendings and other claims; hereinafter referred to as "collectively assessed loans" in this paragraph) is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the amount of collectively assessed loans that the Resident holds as of December 31 of the relevant year; provided, however, this does not apply if the Resident dies and the heir does not take over the business, and does not apply in any other case as prescribed by Cabinet Order.

The part of a reserve account for bad debts which is included in the necessary expenses that are used to calculate the real property income, business income, or timber income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding two paragraphs is included in the gross revenue that is used to calculate the real property income, business income, or timber income for the year following that in which the amount is transferred into the account.

The provisions of paragraph (1) and paragraph (2) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the reserve account for bad debts in necessary expenses.

Even 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 fill out the Tax Return in that manner.

Cabinet Order provides for the necessary particulars concerning the handling, in the event of the death of a Resident as prescribed in paragraph (1) or paragraph (2), of any amount of a reserve account for bad debts that has been included in the necessary expenses that are used to calculate the real property income, business income, or timber income for the year in which the date of the Resident's death falls.

If a Blue-Return-filing Resident running a business that is meant to generate business income has established rules for severance packages as prescribed by Cabinet Order, the amount that the Resident transfers to the severance package reserves account in any year to cover severance packages that are paid to employees of the business (other than a spouse or other relative whose living expenses are paid from the same resources as the Resident; hereinafter the same applies in this Article) upon their separation from employment is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the amount of any increase that is found to have arisen in the year in the estimated amount that the Resident would have to pay in severance packages if all employees of the business that the Resident employs as of December 31 of that year (or as of the time of Resident's death, if the Resident dies partway through the year) were to resign of their own accord.

A Resident holding monies under a severance package reserves account (but only amounts of monies included in the necessary expenses that are used to calculate business income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding paragraph; this excludes any monies that it has already been established must be withdrawn pursuant to the provisions of this paragraph; hereinafter the same applies in this Article) must withdraw the monies under the severance package reserves account if an employee as referred to in the preceding paragraph separates from employment, if approval to file a Blue Return is rescinded, or in any other case prescribed by Cabinet Order.

An amount of monies under a severance package reserves account which it has been established must be withdrawn pursuant to the provisions of the preceding paragraph is included in the gross revenue that is used to calculate the amount of business income for the year in which the day it was established that the amount was to have been withdrawn falls; and any amount of monies under a severance package reserves account which is withdrawn even though it does not fall under the provisions of that paragraph is included in the gross revenue that is used to calculate business income for the year in which the day it is withdrawn falls.

The provisions of paragraph (1) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the severance package reserves account in necessary expenses.

Even 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 fill out the Tax Return in that manner.

Beyond what is prescribed in paragraph (2) to the preceding paragraph, Cabinet Order provides for the handling of amounts of monies under severance package reserves accounts following the death of the Resident holding them and for other necessary particulars concerning the application of the provisions of paragraph (1).

If, due to reasons such as being employed in a business run by a Resident which is meant to generate real property income, business income, or timber income, the spouse or any other relative whose living expenses are paid from the same resources as a Resident is paid a consideration by that business, an amount equal to that consideration is not to be included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business, and any amount that is to be included in the necessary expenses that are used to calculate the relative's Income in Each Class from that consideration 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. In such a case, the amount of the consideration paid to the relative and amounts to be included in the necessary expenses that are used to calculate the relative's Income in Each Class from consideration are deemed not to be a part of the calculation of the relative's Income in Each Class.