Supportive Steps
Grant Thornton explains often-overlooked tax benefits that can help offset expenses for young families in Japan.
Often-overlooked tax benefits can help offset expenses for young families.
The number of children in Japan under the age of 15 as of April 1 was just 13.66 million, about 11 percent of the population. The reasons for this decline are best debated in another forum, but we thought we would take this opportunity to highlight tax credits that affect families with young children but may have flown under the radar.
Increased Basic Deduction
Starting in 2025, the basic allowance for national individual income tax will increase from ¥480,000 to ¥580,000 for taxpayers with a total annual income of up to ¥23.5 million. Above this level, the current reduced deductions apply. In addition, for 2025 and 2026 only, the deductions shown below (A) will increase in stages for those with a total annual income lower than ¥6.55 million.
Deduction for Spouse and Dependents
For spouses and dependents who live with a taxpayer, the maximum amount of income they can earn each year and still qualify for a deduction has increased from ¥480,000 to ¥580,000. A separate deduction is available for spouses with income above this level.
A deduction of ¥630,000 is available for each dependent aged 19 to 22. Previously, they could earn up to ¥1.03 million before the deductible amount began to drop. This limit has been increased to ¥1.5 million.
A cut in the national and local tax deductions was proposed for dependents between ages 16 and 18, but this has been deferred.
Home Loan Tax Credit
For young families—those in which the taxpayer or their spouse is under 40 or have children under 19—the borrowing limit for housing loans was increased in the 2024 tax reform. The limits shown below (B) have been extended to 2025.
Tax Credit for Specified Renovations
As families grow and needs change, it is common to make home improvements. There is a little-known tax credit for certain types of renovations related to child-rearing that was expanded in 2024. To qualify, the taxpayer or their spouse must be under 40 or have children under 19. Qualifying renovations include child-safety renovations, kitchen renovations, front door replacement, safety measures such as grilles and new windows, shelving and storage equipment, soundproofing, bathroom renovations, and the installation of partitions.
The credit is based on the standard cost of each repair as listed in the guide (scan QR code). It is equivalent to 10 percent of the cost up to ¥2.5 million and five percent beyond this amount. A minimum spend of ¥500,000 is required.
Overall, these efforts to ease the burden on young families may not have a huge impact, but they do represent steps in the right direction.
For more information, please contact Grant Thornton Japan at info@jp.gt.com or visit www.grantthornton.jp/en