Here's the English translation:
Hi, when it comes to NISA, everyone knows its biggest benefit is "investment gains are tax-free." But there's no free lunch; it also has some "pitfalls" or points that require special attention. Based on my own experience, I've summarized a few key points for you, trying to explain them in simple terms.
1. Losses are just losses; they can't offset other gains
This is the biggest characteristic of NISA and the most important point to note.
Here's an example to make it clear:
- In a regular account: If you invested in two stocks, Stock A gained 100,000 JPY, and Stock B lost 30,000 JPY. You would only need to pay tax on the net gain of 70,000 JPY (100,000 - 30,000 = 70,000). This is called "損益通算" (loss-offsetting), meaning gains and losses can cancel each other out.
- In a NISA account: In the same situation, Stock A gained 100,000 JPY (this 100,000 is tax-free, which is great), but Stock B lost 30,000 JPY. This 30,000 JPY loss cannot be used to offset any other gains elsewhere. The tax authorities will not recognize this loss.
In short, NISA accounts treat gains and losses independently. Gains are truly gains (tax-free), and losses are truly losses (cannot be offset for tax purposes).
2. This year's losses can't save you next year either
This point is related to the one above.
- In a regular account: If you incurred a significant overall investment loss this year, say 500,000 JPY, you can "carry forward" this loss amount for up to three years. If you make a large profit of 600,000 JPY next year, you can use last year's 500,000 JPY loss to offset it, meaning you'd only pay tax on 100,000 JPY of profit next year. This is called "繰越控除" (loss carry-forward).
- In a NISA account: This feature is completely absent. This year's losses automatically "reset" at the end of the year and cannot be carried over to offset future gains.
Therefore, NISA is not very suitable for high-risk investments that might generate significant short-term losses.
3. The tax-free allowance is like a "one-time" use; once used, it's gone
Starting from 2024, the new NISA offers an annual investment allowance of up to 3.6 million JPY. You should note that this allowance is calculated based on the "purchase" amount.
For example, if you used your NISA "growth investment allowance" to buy 1 million JPY worth of funds this year, but a few months later you sold them because you felt the market was unfavorable. In this case, 1 million JPY of your 2.4 million JPY growth investment allowance for the year has still been used up, and it will not be restored just because you sold the funds. Your remaining growth investment allowance for the year would only be 1.4 million JPY.
So, NISA accounts are not ideal for frequent short-term trading; they are more suitable for selecting investments and holding them for the long term.
4. Want tax-free dividends? Choose the right payment method
If you buy dividend-paying stocks or funds in your NISA account and want these dividends to also be tax-free, you must set the dividend payment method with your brokerage firm to "株式数比例配分方式" (stock proportion allocation method, meaning dividends are directly deposited into your stock account).
If you choose other methods, such as receiving cash at the post office (配当金領収証方式) or having it deposited into your bank account (登録配当金受領口座方式), then 20.315% tax will be deducted from these dividends, and this tax cannot be reclaimed! Many people are unaware of this and end up paying unnecessary tax.
5. Tax-free doesn't mean "loss-free"; your principal can still decrease
This is the most basic point, but also the easiest for beginners to overlook.
NISA is merely a tax-exempt "policy wrapper"; within this wrapper, you are still buying risky financial products like stocks and funds. When the market is unfavorable, and the value of your investments falls, your principal (元本) will decrease.
The tax authorities only promise you "if you make money, I won't tax you," but they don't guarantee that you "will definitely make money." Never treat NISA as a bank deposit; it is fundamentally an investment and carries the risk of loss.
In summary:
Overall, NISA is an excellent system, especially suitable for long-term, stable asset growth. However, you must understand its rules to avoid the "pitfalls" mentioned above. Treating it as a "one-way, no-regrets" long-term savings pot might make it easier to understand.