Supplementary Provisions, Article 4Transitional Measures Concerning the Timing for Attributing Revenue and Expenses from Lease Transfers

①The provisions then in force continue to govern income tax for 2025 and prior years of an individual who, before the date on which this Act comes into effect (hereinafter referred to as "the Effective Date"), made a lease transfer as prescribed in Article 65, paragraph (1) of the Income Tax Act prior to the amendment by Article 1 (hereinafter referred to as "the Former Income Tax Act").

②With regard to the calculation of the amount of business income for each tax year from 2026 onward relating to former lease transfers (meaning lease transfers prescribed in that paragraph that are made in any year up to and including 2027; the same applies hereinafter in this Article) of an individual who has made a lease transfer as prescribed in Article 65, paragraph (1) of the Former Income Tax Act before the Effective Date (including an individual who received a transfer of a contract for a lease transfer prescribed in that paragraph that was made before the Effective Date), the provisions of Article 65 of the Former Income Tax Act (including where the calculation is made in accordance with that Article pursuant to the provisions of Article 165, paragraph (1) of the Former Income Tax Act) remain in force. In this case, the term "case" in the proviso to Article 65, paragraph (1) of the Former Income Tax Act is deemed to be replaced with "case (excluding a case falling under the case set forth in Article 4, paragraph (3), item (i) (Transitional Measures Concerning the Timing for Attributing Revenue and Expenses from Lease Transfers) of the Supplementary Provisions of the Act Partially Amending the Income Tax Act, etc. (Act No. 13 of 2025; referred to as the "2025 Amendment Act" in this paragraph and the following paragraph)) or a case where the provisions of Article 4, paragraph (3) or (4) of the Supplementary Provisions of the 2025 Amendment Act have been applied", the phrase "for the year" is deemed to be replaced with "for the year or for a year from the reference year prescribed in paragraph (3) of that Article onward", and the phrase "are included." in paragraph (2) of that Article is deemed to be replaced with "are included; provided, however, that this does not apply to the calculation of the amount of business income for a year from the reference year prescribed in paragraph (3) of that Article onward if the provisions of Article 4, paragraph (3) or (4) of the Supplementary Provisions of the 2025 Amendment Act have been applied, in any year from the year following the year that includes that date onward, with regard to the amount of revenue and the amount of expenses from that lease transfer.".

③If the amount of revenue and the amount of expenses from a former lease transfer to which the application relates, of an individual subject to the provisions of the main clause of Article 65, paragraph (1) or the main clause of paragraph (2) of the Former Income Tax Act that remains in force pursuant to the provisions of the preceding paragraph (hereinafter referred to as the "Former Income Tax Act Kept in Effect" in this Article) (including where the calculation is made in accordance with those provisions pursuant to the provisions of Article 165, paragraph (1) of the Former Income Tax Act; the same applies hereinafter in this Article), fall under any of the cases set forth in the following items, that amount of revenue and amount of expenses (excluding those included in gross revenue and necessary expenses in calculating the amount of business income for the tax years of the years before the year specified in the relevant item; referred to respectively as the "unrecorded revenue amount" and the "unrecorded expense amount" in the following paragraph) are included in gross revenue and necessary expenses in calculating the amount of business income for the tax year of the year specified in the relevant item (referred to as the "reference year" in the following paragraph and paragraph (5)):

④In the case where the amount of revenue and the amount of expenses from a former lease transfer to which the application relates, of an individual subject to the provisions of the main clause of Article 65, paragraph (1) or the main clause of paragraph (2) of the Former Income Tax Act Kept in Effect, fall under any of the cases set forth in the items of the preceding paragraph, if the unrecorded revenue amount relating to that former lease transfer exceeds the unrecorded expense amount relating to that former lease transfer, notwithstanding the provisions of that paragraph, the amounts set forth in item (i) (or, for the year that includes the date on which the business was discontinued and for a year in which the amounts set forth in item (i) exceed the respective amounts set forth in item (ii), the amounts set forth in item (ii)) are included in gross revenue and necessary expenses in calculating the amount of business income for each tax year from the reference year onward:

⑤The provisions of the preceding paragraph apply only if the Tax Return for income tax for the tax year of the reference year contains a statement to the effect that the provisions of that paragraph are to be applied.

⑥Even if the Tax Return referred to in the preceding paragraph is not filed or if a Tax Return is filed that is not filled out as referred to in that paragraph, the district director may apply the provisions of paragraph (4) on finding there to be unavoidable circumstances for the failure to file the Tax Return or fill it out in that manner.

⑦The number of months referred to in paragraph (4), item (i) is calculated according to the calendar, and any fraction of less than one month is rounded down.

⑧Special provisions on the treatment of the amount of revenue and the amount of expenses from former lease transfers in the case of the death or Absence From Japan of an individual to whom the provisions of the main clause of Article 65, paragraph (1) or the main clause of paragraph (2) of the Former Income Tax Act Kept in Effect are being applied, and other matters necessary for the application of the provisions of paragraphs (2) through (4), are specified by Cabinet Order.