Income Tax Act

If a Resident transfers an asset as prescribed in paragraph (1) of the preceding Article which was acquired due to any of the following circumstances, the Resident is deemed to continue to possess that asset as regards the calculation of business income, timber income, capital gains, or miscellaneous income:

an inter vivos gift (other than a gift to the trustee of a public interest trust (but only one made in order for the property to become trust property of that trust; the same applies in paragraph (6), item (ii) of the following Article and in Article 60-3, paragraph (6), item (ii) (Special Provisions on Capital Gains upon Transfer of Assets to a Nonresident by Gift or Similar Transfer))), hereditary succession (other than hereditary succession subject to qualified acceptance), or a legacy (other than a legacy left to the trustee of a public interest trust (but only one made in order for the property to become trust property of that trust; the same applies in paragraph (6), item (iii) of the following Article and in Article 60-3, paragraph (6), item (iii)) and a universal legacy which is associated with a qualified acceptance);

a transfer falling under paragraph (2) of the preceding Article.

In the case referred to in the preceding paragraph, when an asset set forth in one of the following items that was acquired through hereditary succession or a legacy set forth in item (i) of that paragraph is transferred, the acquisition cost of the asset is as prescribed in that item, notwithstanding the provisions of that paragraph:

a building subject to a spouse's right to reside: the amount arrived at by deducting the amount that would be the acquisition cost of the spouse's right to reside pursuant to the provisions of the following paragraph if the spouse's right to reside had been extinguished at the time the building was transferred, from the amount that would be calculated as the acquisition cost of the building pursuant to the provisions of the preceding paragraph at the time the building was transferred if no spouse's right to reside had been established on the building;

land used as the site of a building subject to a spouse's right to reside (including rights existing on land; hereinafter the same applies in this item and in item (ii) of the following paragraph): the amount arrived at by deducting the amount that would be the acquisition cost of the right to use the land based on the spouse's right to reside pursuant to the provisions of the following paragraph if that right had been extinguished at the time the land was transferred, from the amount that would be calculated as the acquisition cost of the land pursuant to the provisions of the preceding paragraph at the time the land was transferred if no spouse's right to reside had been established on the building.

In the case referred to in paragraph (1), when a right set forth in one of the following items that was acquired through hereditary succession or a legacy set forth in item (i) of that paragraph is extinguished, the calculation of the amount of capital gains is as prescribed in that item, notwithstanding the provisions of that paragraph. In such a case, the provisions of Article 38, paragraph (2) (Acquisition Costs Deducted to Calculate Capital Gains) do not apply.

spouse's right to reside: the spouse's right to reside is deemed to have been acquired, at the time it was acquired through that hereditary succession or legacy, for the amount calculated pursuant to Cabinet Order as the part corresponding to the amount equivalent to the value of the spouse's right to reside at that time, out of the amount that would be calculated as the acquisition cost of the building subject to the spouse's right to reside if the building had been transferred at that time, and the amount arrived at by deducting from that amount the amount calculated pursuant to Cabinet Order based on the period for which the spouse's right to reside continues is the acquisition cost of the spouse's right to reside as prescribed in Article 38, paragraph (1);

the right to use land used as the site of a building subject to a spouse's right to reside, based on that spouse's right to reside: the right is deemed to have been acquired, at the time it was acquired through that hereditary succession or legacy, for the amount calculated pursuant to Cabinet Order as the part corresponding to the amount equivalent to the value of the right at that time, out of the amount that would be calculated as the acquisition cost of the land if the land had been transferred at that time, and the amount arrived at by deducting from that amount the amount calculated pursuant to Cabinet Order based on the period for which the spouse's right to reside continues is the acquisition cost of the right as prescribed in Article 38, paragraph (1).

If a Resident transfers an asset acquired through an inter vivos gift, hereditary succession, or a legacy as set forth in Article 59, paragraph (1), item (i), the Resident is deemed to have acquired the asset, with an amount equivalent to the value thereof at the time the Resident acquired it being used in the calculation of business income, timber income, capital gains, or miscellaneous income.