Local Tax Act

The income from an individual's business in the year preceding the year in which the first day of the relevant fiscal year falls under paragraph (1) of the preceding Article, or the income from an individual's business from January 1 of the relevant year to the day of abolition of the business under paragraph (2) of that Article, is to be the amount obtained by deducting necessary expenses from the gross revenue relating to the business of that individual in the year preceding the year in which the first day of the relevant fiscal year falls, or relating to the business from January 1 of the relevant year to the day of abolition of the business, respectively, and, except as otherwise specially provided for by this Act or Cabinet Order, is to be calculated in accordance with the rules for calculating real property income and business income prescribed in Articles 26 and 27 of the Income Tax Act (including the cases that conform to those provisions pursuant to Article 165, paragraph (1) of that Act), which apply to the income that is the tax base of income tax in the year preceding the year in which the first day of the relevant fiscal year falls, or from January 1 of the relevant year to the day of abolition of the business; provided, however, that the rules of the provisions of Article 28-4 of the Act on Special Measures Concerning Taxation are not to be followed, and the amount received by an individual conducting a business set forth in Article 72-2, paragraph (10), items (i) through (v) for social insurance medical care (meaning social insurance medical care prescribed in Article 72-23, paragraph (3); the same applies hereinafter in this paragraph) is not included in gross revenue, and the expenses relating to that social insurance medical care are not included in necessary expenses.

Where a relative (excluding one who is under 15 years of age on December 31 of the year preceding the year in which the first day of the relevant fiscal year falls (or, where the relative died or the business was abolished in the middle of the year, at the time of that death or abolition)) whose living expenses are paid from the same resources as an individual conducting a business (limited to one who has obtained the approval of a national tax office to file the blue return prescribed in Article 2, paragraph (1), item (xl) of the Income Tax Act (hereinafter in this Section referred to as an "individual's blue return")) and who is engaged exclusively in the business conducted by that individual (hereinafter in this paragraph referred to as a "relative employed only by a blue-return filer") has received a salary from that business in accordance with the method stated in the document under Article 57, paragraph (2) of that Act and within the range of the amount stated therein, the income of the business of that individual is to be calculated in accordance with the rules for the calculation under paragraph (1) of that Article. The same applies where a relative employed only by a blue-return filer of a person liable for enterprise tax who did not submit the document under Article 57, paragraph (2) of the Income Tax Act because the person was found not to bear tax liability for income tax for the previous year or for other reasons specified by Cabinet Order has received a salary from that business, and the person has made a filing under Article 72-55 (including a filing made after the deadline for that filing but before the time when the tax notice for enterprise tax is delivered) (including the case where the prefectural governor finds that there are unavoidable circumstances for there being no filing concerning matters relating to this paragraph among the matters to be filed under that Article).

Where there is a relative (excluding one who is under 15 years of age on December 31 of the year preceding the year in which the first day of the relevant fiscal year falls (or, where the relative died or the business was abolished in the middle of the year, at the time of that death or abolition)) whose living expenses are paid from the same resources as an individual conducting a business (excluding a person falling under the preceding paragraph) and who is engaged exclusively in the business conducted by that individual (hereinafter in this paragraph referred to as a "relative employed only in the business"), for each relative employed only in the business, the lower of the amounts set out in the following items is deemed to be an expense necessary for calculating the income of the business of that individual.

the amount specified in the relevant sub-item below for the following categories of relatives employed only in the business:

a relative employed only in the business who is the spouse of the individual conducting that business: 860,000 yen;

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

the amount obtained by dividing the amount of the income of the business of that individual (being the amount calculated without applying the provisions of this paragraph) by the number obtained by adding one to the number of relatives employed only in the business.

The preceding paragraph applies only where a filing has been made under Article 72-55 (including a filing made after the deadline for that filing but before the time when the tax notice for enterprise tax is delivered) (including the case where the prefectural governor finds that there are unavoidable circumstances for there being no filing concerning matters relating to that paragraph among the matters to be filed under that Article).

Where the income of an individual is calculated pursuant to the provisions of paragraph (1), if that individual concurrently conducts a business that gives rise to the real property income referred to in that paragraph and a business that gives rise to the business income referred to in that paragraph, the income or loss arising in the calculation of that real property income and the income or loss arising in the calculation of that business income are calculated by being combined or offset against each other.

Where the income of the business of an individual is calculated pursuant to the provisions of paragraph (1), the amount of a loss arising in the calculation of income of that individual in the three years preceding the previous year that was not deducted before the previous year is, in the case where a filing under Article 72-55 has been made for the year in which that loss arose (including, where the prefectural governor finds that there are unavoidable circumstances, the case where the filing has been made after the deadline for that filing but before the time when the tax notice for enterprise tax is delivered), and that filing (including a filing made after the deadline for that filing but before the time when the tax notice for enterprise tax is delivered) has been made continuously for the subsequent years, to be deducted in the calculation of the income of the business of that individual, but only where that individual was, for the year in which that loss arose, a person who had obtained the approval of a national tax office to file an individual's blue return.

Where the income from the business of an individual is calculated pursuant to paragraph (1), the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets, among the losses arising in the calculation of the income from business of that individual during the three years before the previous year, is, even where the preceding paragraph does not apply, deducted in the calculation of the income from business of that individual only where the individual has made the filing under Article 72-55 for the year in which the loss arose (including, where the prefectural governor finds that there are unavoidable circumstances, where the filing has been made by the time the tax notice for enterprise tax is served after the deadline for that filing) and has continuously made that filing (including one made by the time the tax notice for enterprise tax is served after the deadline for that filing) for subsequent years.

The amount of loss on disaster-damaged business assets in the preceding paragraph means the amount of loss caused by a disaster (meaning an earthquake, storm or flood, fire or other disaster specified by Cabinet Order; the same applies hereinafter in this paragraph) to inventory assets (meaning merchandise, products, semi-finished goods, work in progress, raw materials and other assets (excluding securities and timber) relating to a business that is to generate business income, which are specified by Cabinet Order as assets for which inventory is to be taken), to fixed assets used for a business that is to generate real property income prescribed in Article 26 of the Income Tax Act or business income prescribed in Article 27 of that Act, or other assets equivalent thereto specified by Cabinet Order, or to timber (including the amount of unavoidable expenditure related to that disaster that is specified by Cabinet Order, and excluding the amount of the portion covered by insurance benefits, compensation for damage or other similar things).

Where a person who conducts business among individuals and who satisfies any of the requirements listed in the items of Article 70-2, paragraph (1) of the Income Tax Act (limited to a person who has submitted an individual's blue return for income tax for the year including the date of occurrence of the specified extraordinary disaster prescribed in Article 2, paragraph (1) of the Act on Special Measures concerning Preservation of Rights and Interests of Victims of Specified Disaster, relating to a specified extraordinary disaster (meaning an extraordinary disaster designated as a specified extraordinary disaster pursuant to Article 2, paragraph (1) of that Act) (hereinafter in this Article referred to as the "year of the specified extraordinary disaster")) has a loss amount in the year of the specified extraordinary disaster (meaning the amount of loss arising in the calculation of the income from individual business of that person in that year of the specified extraordinary disaster) or a disaster loss amount (excluding that arising in that year of the specified extraordinary disaster; the same applies hereinafter in this paragraph), then with respect to the application of paragraphs (6) and (7) to the individual enterprise tax for each fiscal year within the five fiscal years on or after the second fiscal year after the fiscal year including the last day of the year in which that loss amount in the year of the specified extraordinary disaster or that disaster loss amount arose, the phrase "amount of loss" in paragraph (6) is deemed to be replaced with "amount of loss (excluding the loss amount in the year of the specified extraordinary disaster prescribed in paragraph (9) (hereinafter in this paragraph referred to as the "loss amount in the year of the specified extraordinary disaster") and the disaster loss amount prescribed in paragraph (9) (referred to in the following paragraph as the "disaster loss amount")), being the portion not deducted before the previous year, and the loss amount in the year of the specified extraordinary disaster that arose in the five years before the previous year of that individual", the phrase "among the losses" in paragraph (7) with "among the amount of loss (excluding the disaster loss amount)", and the phrase "the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets" with "the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets, and the amount of the portion of the disaster loss amount that arose in the five years before the previous year of that individual that was not deducted before the previous year".

Where a person who conducts business among individuals and who satisfies any of the requirements listed in the items of Article 70-2, paragraph (1) of the Income Tax Act (excluding a person to whom the preceding paragraph applies) has a specified loss in the year of a specified extraordinary disaster or a disaster loss amount (excluding that arising in the year of the specified extraordinary disaster; the same applies hereinafter in this paragraph), then with respect to the application of paragraphs (6) and (7) to the individual enterprise tax for each fiscal year within the five fiscal years on or after the second fiscal year after the fiscal year including the last day of the year in which that specified loss in the year of a specified extraordinary disaster or that disaster loss amount arose, the phrase "amount of loss" in paragraph (6) is deemed to be replaced with "amount of loss (excluding the disaster loss amount prescribed in paragraph (10) (referred to in the following paragraph as the "disaster loss amount"))", the phrase "among the losses" in paragraph (7) with "among the amount of loss (excluding the specified loss in the year of a specified extraordinary disaster prescribed in paragraph (10) (hereinafter in this paragraph referred to as the "specified loss in the year of a specified extraordinary disaster") and the disaster loss amount)", and the phrase "the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets" with "the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets, and the amount of the portion of the specified loss in the year of a specified extraordinary disaster and the disaster loss amount that arose in the five years before the previous year of that individual that was not deducted before the previous year".

Where an individual who conducts business (excluding a person to whom the preceding two paragraphs apply) has a disaster loss amount, then with respect to the application of paragraphs (6) and (7) to the individual enterprise tax for each fiscal year within the five fiscal years on or after the second fiscal year after the fiscal year including the last day of the year in which that disaster loss amount arose, the phrase "amount of loss" in paragraph (6) is deemed to be replaced with "amount of loss (excluding the disaster loss amount prescribed in paragraph (11) (referred to in the following paragraph as the "disaster loss amount"))", the phrase "among the losses" in paragraph (7) with "among the amount of loss (excluding the disaster loss amount)", and the phrase "the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets" with "the amount of the portion not deducted before the previous year of the amount of loss on disaster-damaged business assets, and the amount of the portion of the disaster loss amount that arose in the five years before the previous year of that individual that was not deducted before the previous year".

In the preceding three paragraphs, the meaning of the terms listed in the following items is as specified in each item.

disaster loss amount: the amount of loss, among the amount of loss arising in the calculation of the income from individual business of that person in that year, that is specified by Cabinet Order as relating to the total specified disaster loss on disaster-damaged business assets (meaning the total of the specified disaster loss on inventory assets prescribed in Article 70-2, paragraph (4), item (vi) of the Income Tax Act, the specified disaster loss on fixed assets prescribed in item (vii) of that paragraph and the specified disaster loss on timber prescribed in item (viii) of that paragraph, which falls under the amount of loss on disaster-damaged business assets prescribed in paragraph (7));

specified loss in the year of a specified extraordinary disaster: the amount of loss, among the amount of loss arising in the calculation of the income from individual business of that person in the year of the specified extraordinary disaster, that is specified by Cabinet Order as relating to the amount of loss on disaster-damaged business assets prescribed in paragraph (7).

Where the income from the business of an individual is calculated pursuant to paragraph (1), the amount of the loss arising from the transfer of assets specified by Cabinet Order that are used directly for business by that individual (referred to in Article 72-55, paragraph (1) as "loss on transfer") is deducted in the calculation of the income from business of that individual only where the individual has made the filing under that Article (including, where the prefectural governor finds that there are unavoidable circumstances, where the filing has been made by the time the tax notice for enterprise tax is served after the deadline for that filing).

Where the income from the business of an individual is calculated pursuant to paragraph (1), the amount of the portion not deducted before the previous year of the amount of the loss in the preceding paragraph during the three years before the previous year of that individual is, where the individual has made the filing under Article 72-55 for the year in which the loss arose (including, where the prefectural governor finds that there are unavoidable circumstances, where the filing has been made by the time the tax notice for enterprise tax is served after the deadline for that filing) and has continuously made that filing (including one made by the time the tax notice for enterprise tax is served after the deadline for that filing) for subsequent years, deducted in the calculation of the income from business of that individual only where that individual is a person who has received the approval of the national tax office to submit an individual's blue return for the year in which the loss arose.

The deductions under paragraph (6), paragraph (7), paragraph (13), the preceding paragraph and Article 72-49-14, paragraph (1) are to be made in the following order: first the deduction under paragraph (6) or the deduction under paragraph (7), then the deduction under paragraph (13), the deduction under the preceding paragraph and the deduction under paragraph (1) of that Article.

In addition to what is provided for in the preceding paragraphs, matters necessary for the calculation of the income from the business of individuals are specified by Cabinet Order.