Gina, an Australian citizen and permanent resident of Japan, is considering heading back to her homeland:
“I am 51 and thinking of returning to Australia to live permanently (and work) in a couple of years. By that time I will have paid into the Japanese pension system for about 21 years. I understand that because of the kara kikan system, I will be entitled to a Japanese pension.
“Currently, I am considered a resident of Japan for income tax purposes. When I return to Australia, to which country do I pay taxes? If I pay them to the Australian government, how does that affect my Japanese permanent residency, pension and re-entry visas to Japan?”
First of all, for specific tax matters, it would be best for you to contact the tax bureaus in Australia and Japan directly. As such, we can only offer general advice.
So, to which country do you pay taxes if you move back to Australia? You can generally determine this by figuring out in which country you would qualify as a resident for tax purposes.
In Japan, as you probably know, your resident status for tax purposes is unrelated to your visa status. There are three tax residency classifications:
Nonpermanent resident: This includes any individual who a) does not have Japanese nationality and b) has had a domicile or residence in Japan for more than one year but less than five. Taxes are applied to all income from within Japan and any income remitted to Japan from abroad.
Permanent resident: This includes anyone with a domicile or residence in Japan and who does not fall under the “nonpermanent resident” category above. Taxes are applied to all sources of income, including income abroad, whether it is remitted to Japan or not.
Nonresident: A nonresident for tax purposes is anyone who does not fall into the two categories above. Taxes may be applied to any income sources from within Japan (which can include pension payments).
According to the Australian Taxation Office website, you are considered a resident of Australia for tax purposes if any of the following applies:
1) You have always lived in Australia;
2) you moved to Australia and live there permanently;
3) you have been in Australia continuously for six months or more, and for most of the time you have been in the same job, and living in the same place;
4) you have been in Australia for more than half of the financial year, unless your usual home is overseas, and you do not intend to live in Australia.
For more information, their website has an online tool to help determine tax residency in Australia.
So the answer to your question depends on whether you plan to keep a residence in Japan if you move back to Australia permanently. It’s also important to note that a residence can also mean a place in which you carry out day-to-day activities or business. Although, in this case, the tax agreement between Japan and Australia may also apply, in which case you would only pay applicable taxes in one country.
If you pay taxes to the Australian government, this should have no effect on your permanent residency, Japanese pension or re-entry permit. As mentioned above, visa status is unrelated to tax status, so despite where you pay taxes, you would still retain your permanent residency in Japan as long as you follow re-entry rules. Starting next summer, you will be able to leave Japan for up to a year without a re-entry permit, so if you don’t plan on returning to Japan within one year, you would need to consult with Immigration directly about a re-entry permit.
Regarding your Japanese pension, you are eligible to receive it if you have met the appropriate requirements, meaning that you have paid in for 25 years. You may be eligible for kara kikan (an exception to the 25-year pay-in rule) but it is not guaranteed, so you should consult your local pension office before you leave Japan. We’ve covered this more in depth in a previous article, ‘Permanent residents, mind the ‘gap years’ in your pension payments’
Once you qualify to receive your Japanese pension, and you’re living in Australia, there are a few more things to keep in mind. Tax accountant Akiko Kutzuzawa of Nagamine & Mishima Accounting Firm explains:
“A Japanese pension is considered to be Japan-source income, which is typically subject to Japanese income tax. However, in the case of an Australian resident, the pension income from Japan will be subject to Australian income tax only, not Japanese tax, if he or she submits the proper application.”
Takashi Yamajo, a certified public tax accountant at Yamajo International Tax and Accounting Office, adds:
“A 20 percent withholding tax is applied to pension payments for nonresidents by the pension payer. However, under a country tax agreement with Japan, such as with Australia or the U.S., you can apply for a tax exemption.
“According to the tax agreement between Australia and Japan, if an Australian resident receives a Japanese pension, it would be exempt from tax obligation in Japan. Please refer to Article 17 in the Japan-Australia tax treaty, here: www.mofa.go.jp/region/asia-paci/australia/agree0801.pdf
“To apply for this exemption, you should file an ‘Application Form For Income Tax Convention’ at your local tax office. The form can be found via this link: www.nta.go.jp/tetsuzuki/shinsei/annai/joyaku/annai/pdf2/258.pdf“
So, in principle, as long as you take the appropriate steps and consult with Immigration, the pension office and the tax office before you leave, you should have no problems.
Ms. Kutzuzawa can be reached via email at firstname.lastname@example.org. For more information about Nagamine & Mishima Accounting Firm, visit www.nagamine-mishima.com/?lang=en
Thanks also to Kumiko Mizuno, CPA, of Mizuno Accounting Firm for her tax advice. The firm’s website is at www.jptaxcpa.com