Japanese tax for Australians: why year two hits harder than year one

Japan taxes your salary twice: once now, and once more a year later, through your ward. Plan for the second bill and it stops being a shock.

The short version

• Japan has two income taxes on your salary: national income tax, withheld from every pay, and a local resident tax of about 10%, based on last year's income and billed from June [1][4].
• Most employees never file a return. Your employer settles the year in December through the year-end adjustment, unless you earn over ¥20 million, have two employers or more than ¥200,000 of side income [2][1].
• In your first calendar year you usually pay no resident tax. From June of year two, it starts coming out of your pay, which is why take-home pay suddenly drops [4][1].
• Leaving Japan doesn't cancel tax you owe. Pay before you go or appoint a tax representative (a nozei kanrinin) [7][10].
• The Australia–Japan tax treaty has been in force since 3 December 2008. It stops the same income being fully taxed twice, but whether the ATO still sees you as a resident is a separate question [6][7].

The two taxes on a Tokyo salary

Back home, the ATO takes one bite and that's that. In Tokyo you deal with two systems run by two different offices.

National income tax brackets

JETRO's 2026 summary sets out the national brackets on taxable income (after deductions) [1]:

Add the 2.1% reconstruction surtax on top of the tax figure. Social insurance (health insurance and pension) comes out of your pay too and reduces taxable income, so your payslip will show more deductions than you're used to.

Resident, non-permanent resident or non-resident?

Japan sorts you into one of three groups [5][1]:

• Resident: you have a domicile in Japan, or have lived there for a year or more. Moving to Tokyo on a work visa with a lease and a job normally makes you a resident from day one.
• Non-permanent resident: a resident who isn't Japanese and has lived in Japan for five years or less out of the last ten. You're taxed on Japanese income and on foreign income only if it's paid in Japan or sent to Japan [5].
• Non-resident: everyone else, taxed only on Japanese-source income, with salary usually taxed at a flat 20.42% [1].

The non-permanent resident rule matters to Australians. Rent from your flat in Brisbane or interest in your CommBank account generally isn't taxed in Japan for your first five years, unless you send that money to Japan.

The year-two resident tax shock

This is the bit that catches most new arrivals. Resident tax is assessed on everyone with an address in the ward on 1 January, based on income earned in Japan the previous year. Leaving or moving after 1 January doesn't remove the bill [4][7].

Here's how it plays out if you arrive in April 2025:

1. April–December 2025: you pay national income tax from your first pay. No resident tax, because you had no ward address on 1 January 2025.
2. 1 January 2026: you're registered in, say, Setagaya. You're now liable for resident tax on your 2025 Japanese income.
3. June 2026: your employer starts deducting it, in 12 monthly slices through May 2027 [4]. Your take-home pay drops by roughly a tenth of last year's taxable income, spread over the year.
4. 1 January 2027: you're liable again, this time on your full 2026 income, which will be higher because it's a full year.

If you're self-employed or your employer doesn't handle it, the ward posts you a bill in June to pay in four instalments, due at the end of June, August, October and January [4].

The fix is simple: in your first year, put aside around 10% of your taxable pay. Your cost of living in Tokyo budget will thank you.

Year-end adjustment and when you need to file

The December settle-up

Each month your employer withholds income tax using standard tables. In December (or your last pay of the year) they run the year-end adjustment (nenmatsu chosei): they work out your real tax for the year and either refund the difference or take a bit more [2]. You'll be handed forms in October or November asking about your spouse, dependants and life or earthquake insurance premiums. Fill them in. That's how you get the deductions.

Non-residents don't get a year-end adjustment. Their tax is final at 20.42% when withheld [2].

When you must file a kakutei shinkoku

You don't need to file a final return if all of these apply [3]:

• your salary for the year is ¥20 million or less
• it all comes from one employer
• tax was withheld from all of it
• your other income is ¥200,000 or less.

Otherwise you file a final return (kakutei shinkoku) for the calendar year between 16 February and 15 March of the following year, at the tax office for your address or online through e-Tax [3]. Freelancers, people with two jobs, landlords with a Japanese property and anyone with sizeable side income will need to file. Filing a return also passes your income to the ward, so you don't need a separate resident tax return [4].

Some people file even when they don't have to, to claim a refund for big medical bills or donations. The NTA's English guide covers each deduction.

Leaving Japan: don't skip the tax step

Australians often leave Tokyo in a rush between Christmas and a new job at home. The tax system doesn't care. The NTA says that if you leave with tax obligations and no tax agent, you must file and pay before departure. With a tax agent appointed, you file and pay by the normal due date [10]. JETRO puts it the same way [1].

What to do before your last day:

1. Ask your employer how they'll settle resident tax. Some deduct the remaining balance from your final pay; otherwise the ward bills you directly, and you still owe the full year assessed on 1 January [4].
2. Check whether you need a final return. If you had more than one employer that year, side income, or you want refunds of tax overpaid, you probably do.
3. Appoint a tax representative if anything will still be outstanding. This is someone with a Japanese address, often a trusted friend, colleague or tax accountant, registered with your tax office and your ward. Chuo City tells departing residents to either pay the resident tax equivalent before leaving or name a representative [7]. Toshima City's guide makes the same point about liability continuing after you move [4].
4. Lodge your moving-out notification at the ward office, then claim your pension refund if you're eligible. The Employees' Pension lump sum has 20.42% withheld, which you can only get back through a tax representative. See our guide to Japan's nenkin pension refund.

Where the ATO and the tax treaty fit

The treaty

The Convention between Australia and Japan for the Avoidance of Double Taxation was signed in Tokyo on 31 January 2008 and entered into force on 3 December 2008, replacing the 1969 agreement [6]. Treasury's release at the time said it caps withholding tax on dividends, interest and royalties between the two countries [8]. For employees, the practical effect is that salary for work done in Tokyo is taxed in Japan, and if Australia also has a claim, it gives credit for Japanese tax rather than taxing you in full again.

Japan's NTA notes that treaty relief usually needs a form lodged through your employer or the tax office; it isn't automatic [2].

Are you still an Australian resident?

This is the question that matters most, and Japan doesn't answer it. The ATO decides your Australian tax residency using its own tests. Many people who move to Tokyo for a long-term job, rent a flat and take their family stop being Australian residents. Others, especially on short postings or who keep a home ready in Sydney, may still be residents.

• If you stop being an Australian resident, you generally pay Australian tax only on Australian-source income, such as rent from a property at home. Your Japanese salary is taxed only in Japan.
• If you're still an Australian resident, you declare your worldwide income, including your Tokyo salary, in your Australian return and claim a foreign income tax offset for Japanese tax paid. Japan is on the ATO's list of treaty countries for the offset [9].

Our guide Are you still an Australian tax resident once you move? walks through the ATO tests. Get it sorted in your first year, before you lodge a return in the wrong country.

A few Australian loose ends

• Tell your Australian bank you're a non-resident, if that's what you are, so it withholds non-resident tax on interest instead of asking for a TFN.
• HECS-HELP doesn't disappear in Tokyo; overseas repayment rules apply.
• Australian super stays in Australia. Japan's pension is a separate system with its own exit rules.

Questions about which tax office covers Shibuya or who did their own kakutei shinkoku in English? Ask Cooee Japan, our Facebook group for Australians in Japan, where plenty of members have been through a June resident tax bill.

Sources

1. Taxes in Japan: individual taxes – JETRO
2. Outline of Japan's Withholding Tax System Related to Salary – National Tax Agency
3. Overview of final tax return – National Tax Agency
4. Individual resident tax (juminzei) – Toshima City
5. Income Tax Guide for Foreigners 2025: residents and non-residents – National Tax Agency
6. Australia–Japan Convention for the Avoidance of Double Taxation [2008] ATS 21 – DFAT Treaties Database
7. Taxes – Chuo City
8. New tax treaty signed with Japan – Treasury ministers
9. Countries and jurisdictions that have a tax treaty with Australia – ATO
10. Procedures for those leaving Japan – National Tax Agency

Keep reading

• Japan's nenkin pension: the lump-sum refund and the Australia deal
• Moving to Tokyo from Australia: the complete guide
• Are you still an Australian tax resident once you move?
• HECS-HELP debt when you live overseas