Furusato Donation

Furusato Nouzei ふるさと納税?

Furusato Nouzei literally means "tax payment to your home town", but it does not make sense. Taxes must be paid to the public bodies designated by the relevant laws. You can never choose to which city you pay the taxes. Actually "Furusato Nouzei" is a mere nickname. It should be formally called as "Furusato Donation". "Furusato Nouzei" is misleading, and the payment is nothing but a donation in nature.

Japanese income taxation system prepares several preferential treatments concerning certain types of donations, and this "Furusato Donation" rule is the most expanded one of the preferential treatments. This rule enables the donators to reduce their tax burdens just by the donation amount. The reducible tax amount is set almost the same as the donation amount, therefore it appears as if the donators pay by their choice a certain portion of their income taxes to their favorite towns instead of the local bodies designated by the tax laws.
For example, given he/she makes a donation of 100 thousand yen to any favorite prefecture or municipality, his/her tax burden shall be reduced by 98 thousand yen, corresponding to the donation amount. The national income tax amount shall be reduced by 38 thousand yen, and the local income tax amount shall be reduced by 60 thousand yen. As a result, his/her substantial outgoings amount is no more than 2 thousand yen (100-(38+50) =2), although he/she makes a donation of 100 thousand yen. The allotment of the reducible tax amount varies depending on the amount of your taxable income. (The amount mentioned above is merely provisional.) But, as long as the amount of the qualified donations is within the limitation determined according to your taxable income, your substantial financial burden does not go beyond 2 thousand yen.

The interesting and controversial point of this taxation rule, which makes this rule so popular, is many cities offer return gifts for the donations. The cities are competing against each other to collect more donations. Many tax professionals are critical of this rule, but this rule appears to gain ground in the Japanese income taxation. Many taxpayers use this rule and gain various souvenirs around Japan by making the qualified donation.

I recommend you taking advantage of this rule and to find attractions of Japan.

I make the Furusato Donations to Gotsu city every year, and to Hamada city and Masuda city recently. I enjoy different fruits, rice products, sake (rice wine) and craft beer offered by these cities.

Return gifts from Gotsu city

[In Japanese]
”ふるさと納税”制度は、その文字通りに理解しようとすると意味が通じません。納税は、法律で決められた納付先に対して行うものであって、その納付先を納税者が選ぶことはできないからです。 ”ふるさと納税”とは、単なる通称であって、正しくは”ふるさと寄付金”と呼ぶべきでしょう。これは納税ではなく、あくまで"寄付金"なのです。

貴方がどこかの地方公共団体(都道府県あるいは区市町村)に10万円の寄付をしたとしましょう。そのとき、その寄付額10万円に応じて貴方の税負担が9万8千円圧縮されます。たとえば、所得税(国税)が3万8千円減少し、住民税が6万円減少するといった具合です。 この結果、貴方の実質的な支出額は10万円でなく、2千円となるわけです(10万円-(3万8千円+6万円)=2千円)。どちらの税金からいくら差し引かれるかは、寄付者の課税所得水準によって変わりますので、ここでの金額は仮定のものにすぎませんが、 幾らのふるさと納税を行っても、その合計額が課税所得水準によって算定される所定の限度額を超えない限り、貴方の実質の負担額が2千円を超えないことは変わりません。


Limitation amount of Furusato Donation

The most effective way to minimize the outgoings and maximize the return benefits is to make donations up to the "limitation amount". You can receive more return as you make more donations, but when your donation amount is beyond the certain amount according to your taxable income amount, your substantial financial burden becomes larger than 2 thousand yen. The "limitation" I say means the certain amount. It is determined by the taxable income amount of the relevant year of the taxpayer.

The calculation formula of the limitation is a little complicated as below:

Limitation amount = (Local tax amount × 20%) ÷ (90%-National tax rate)
≒ (Taxable income amount × 2%) ÷ (90%-National tax rate)
> Taxable income amount × 2.2%

In this formula, the local tax amount and the national tax rate depend on your taxable income amount. Local tax amount shall be approximately 10% of the taxable income, and the national tax rate varies progressively from 5% through to 45%, according to the taxable income. Therefore, the limitation amount must be more than 2% of your taxable amount subject to the local income tax.
Although you generally cannot precisely figure out your taxable income amount before the relevant year end, but you can make a rough estimate. In case where your taxable income amount is small and no income tax is levied on you, you cannot claim this preferential treatment. In this case, you simply pay the donation amount for the cuisines and souvenirs.

[In Japanese]

効率的なふるさと納税の限度額 = (住民税額 × 20%) ÷ (90%-所得税率)
≒ (課税所得の額 × 2%) ÷ (90%-所得税率)
> 課税所得の額 × 2.2%

このうち、住民税額と所得税率とが、課税所得の額によって左右されます。 住民税額はおおよそ課税所得の額の10%であり、所得税率は課税所得に応じて5%から45%まで累進的に決まります。 よって、限度額は、少なくともその年分の課税所得の額の2%相当額よりは大きくなるわけです。
課税所得の額を年内に正確に把握することは難しいですが、おおよその金額を知ることはできるでしょう。 もし、課税所得が少額であり所得税額が生じない場合には、この特例の適用は受けられません。この場合には、寄付額がそのまま返戻品を受け取るための貴方の負担額となります。

How to claim the Furusato nouzei deduction

The Furusato nouzei deduction is one of the items which shall be taken into consideration when the taxable income subject to the income tax rate/ the inhabitant tax rate is figured out. In other words, the Furusato nouzei is a kind of the donations qualified to the tax reduction, designated in the Income tax act. Therefore, the Furusato donation is applicable only when the relevant taxpayers accordingly file the final returns. They have to put the related matters in the tax returns and attach the donation certificates issued by the relevant local governments.
However, so called "One-stop treatment" is implemented for people who do not file their income tax return. In case a donor makes the Furusato donation to 5 local bodies or less in the relevant year and the donor is exempt from the obligation of tax filing, the donor shall be accepted to claim the special treatment. With the "One-stop treatment", the Furusato donation deduction for the taxpayer is realized without the tax filing, by actions of the related local governments. But the donor is supposed to submit the appropriate application to all the receiving local governments in order to claim the special treatment. Then, I am afraid the One-stop treatment cannot absolutely save many labors. I will recommend trying tax filing with help of different English guidance provided on internet, such as this site.

[In Japanese]