Total Average vs Moving Average for Crypto in Japan

Japan gives individuals exactly two ways to compute the cost of crypto they dispose of, and requires a formal election to use the one that is not the default. Most people find out about the election after the deadline has passed, which is how they end up on a method they did not choose.

One correction first, because the opposite is widely repeated: the method is not irreversible. There is a published procedure to change it. It has conditions, and it is not retroactive, but it exists.

The two methods

FAQ section 2-4 explains that disposal cost is computed from the value of the crypto held at 31 December, using either the total average method or the moving average method.

Total average method. One average acquisition cost per crypto asset type for the whole year, computed from all acquisitions in the year. Every disposal in the year uses the same figure, including disposals that happened before the later purchases that changed the average.

Moving average method. The average is recomputed at each acquisition, and each disposal uses the average as it stood at that moment. It tracks the economics of the individual trade far more closely.

Over the entire life of a holding the two converge. Within any single year they can differ a lot, and in Japan a single year is what you are taxed on.

The election, and the default that catches people

FAQ section 2-5 sets out the procedure. The method is selected per type of crypto asset. Where you acquire crypto for the first time, or acquire a different type of crypto asset, you must file a notification of valuation method for crypto assets for income tax with the head of your competent tax office, by the filing deadline for the year of that acquisition, which is generally 15 March of the following year.

Then the line that decides most people's method for them: where no notification is filed, the valuation method is the total average method. The default is not a neutral outcome, it is a choice made by inaction, and because the election is per asset type, buying a new token creates a fresh obligation to elect for that token.

Changing method later

FAQ section 2-6 is the part usually left out. To change, you file an application for approval of change of valuation method for crypto assets for income tax with your competent tax office by 15 March of the year in which you want the change to apply, and obtain approval. Three points from its notes:

• If no notice of approval or rejection is given by 31 December of the year you file the application, approval is deemed to have been given on that day.
• The application may be rejected where a reasonable period has not passed since you adopted the current method. The section states that, absent a special reason, that period is three years.
• It may also be rejected where the method you want would make it difficult to compute income properly.

So the honest summary is: it is changeable, prospectively, subject to approval, and normally not more often than every three years. That is a meaningful constraint, which is presumably why the shorter and wrong version circulates.

Which to choose

There is no universally better method, and anyone who tells you otherwise is guessing about your trading pattern.

• Few trades, buy and hold. The two rarely diverge much. Total average is simpler and is what you get by default.
• Frequent trading in the same token, especially with large swings within a year. Moving average usually reflects the actual result of each trade far better. Total average can produce a taxable gain on a trade that lost money, because a large purchase later in the year lifted the annual average.
• Many different tokens. Remember the election is per type, so a moving average preference has to be filed for each one as you acquire it.

The decisive point is that this is not a calculation you can defer. The election deadline runs from the year of first acquisition of each asset, and the change deadline is 15 March of the year you want the change to bite. Both fall before you know what the year will look like.

Our crypto tax calculator computes disposal cost under either method, and the Japan crypto tax guide covers the rest of the return.

General information, not tax advice. Confirm the election and change procedures for your own case with the National Tax Agency or a qualified tax professional.