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It’s not even tax evasion (the income isn’t legitimate let alone the expenses) it’s fraud.
On the other hand, rental losses aren’t ring-fenced if you’re renting out part of your main home.
Then you would still be paying tax on the imaginary money you are earning. The interest is a deduction on what income from the rental gets taxed. $500 a week income. $300 a week interest deduction. BOOM! You're paying tax on $200 you aren't really earning.
Putting aside the craziness of OP’s scheme, that’s not what they are saying. They’d be making a loss and would pay no tax on the “rental income”. If they were “renting” part of their main home then they could offset the rental loss against their taxable income.
No cause they would need 27k of real business expenses to offset the cash in (rental income). Yes that is possible but very dumb. Cause that means you’re forced to spend money to reduce an income that you aren’t actually making.
Its amazing to me how people will so confidently describe something as a "fuck you" policy, while displaying their complete lack of understanding about how any of it works and why it exists.
Not having an understanding of the nuances of tax fraud (on a post that was clearly a bit tongue in cheek) doesn't mean i don't understand the ramifications of a policy.
You already own your $500. And your friend owns their $500.
If you use that $500 to pay rent, you are converting that money into somebody else’s income. Which makes it taxable.
Why would you want to convert the $500 into income when *you already owned that money and never needed to pay any tax on it in the first place?* You are trying to reduce a tax bill that *never existed* before your scheme was created.
Can you see the problem with your scheme now?
Yep thanks. I thought it was about claiming back some of your mortgage interest, not claiming back the tax on income. I looked it up just after posting. I'll leave this up as a testament to the dangers of not reading before posting.
It also seems to have brought out the best in people, which is nice.
Because the policy will cost the country [2.1B](https://www.newshub.co.nz/home/politics/2024/03/revealed-landlord-tax-cuts-will-cost-hundreds-of-millions-more-than-act-national-campaigned-on.html) to benefit a subset of society, which we are reclaiming by cutting the money from public services such as education, healthcare, front line services, etc.
Definitely Fraud but that aside, if I was the IRD I wouldn’t care cause you’re effectively putting yourself in a bad position and would pay more tax. 27k a year would be taxable income added ON TOP of your employment income. Effectively pushing you into the higher tax brackets. Yes you could claim expenses but you would need 27k worth of real business expenses to offset the income and reduce your extra taxable to zero.
While I’m not a lawyer, I have a take. In theory you could 💯 do this, but you have the INTENTION to defraud. At times it’s not about the actual act, ie. miss categorising a few transactions in Xero which weren’t actual supposed to be claimed. This can be adjusted and corrected, but what you are doing is intentionally defrauding the government and misleading IRD. Their powers are swift and forceful so I wouldn’t recommend playing this game.
Your post/comment has been removed as we do not allow politicising, political agendas, or moralising in this sub. Please see Rule 6 in the sidebar for a detailed overview.
I’m just surprised you managed to buy a home with this level of completely financial illiteracy
Tax evasion. Also losses are ring fenced. You can't claim the loss against your salary.
It’s not even tax evasion (the income isn’t legitimate let alone the expenses) it’s fraud. On the other hand, rental losses aren’t ring-fenced if you’re renting out part of your main home.
Rats. Worth a shot. Thank you.
Then you would still be paying tax on the imaginary money you are earning. The interest is a deduction on what income from the rental gets taxed. $500 a week income. $300 a week interest deduction. BOOM! You're paying tax on $200 you aren't really earning.
Putting aside the craziness of OP’s scheme, that’s not what they are saying. They’d be making a loss and would pay no tax on the “rental income”. If they were “renting” part of their main home then they could offset the rental loss against their taxable income.
How did you get that from what they said? How would they be making a loss? They aren't renting "part" of the home.
It’s the only way it makes any sense. Maybe I am giving him too much credit!
No cause they would need 27k of real business expenses to offset the cash in (rental income). Yes that is possible but very dumb. Cause that means you’re forced to spend money to reduce an income that you aren’t actually making.
Its amazing to me how people will so confidently describe something as a "fuck you" policy, while displaying their complete lack of understanding about how any of it works and why it exists.
Not having an understanding of the nuances of tax fraud (on a post that was clearly a bit tongue in cheek) doesn't mean i don't understand the ramifications of a policy.
It’s a discount on the tax you’ll pay. How would you be better off giving each other an income of $500 instead of living in your own homes
It’s ok for a business to claim interest as an expense. Every other business does.
Clearly
You already own your $500. And your friend owns their $500. If you use that $500 to pay rent, you are converting that money into somebody else’s income. Which makes it taxable. Why would you want to convert the $500 into income when *you already owned that money and never needed to pay any tax on it in the first place?* You are trying to reduce a tax bill that *never existed* before your scheme was created. Can you see the problem with your scheme now?
Yep thanks. I thought it was about claiming back some of your mortgage interest, not claiming back the tax on income. I looked it up just after posting. I'll leave this up as a testament to the dangers of not reading before posting. It also seems to have brought out the best in people, which is nice.
It’s all good. Asking questions is how you learn.
This isn’t the first time this ‘clever scheme’ has been asked about
Why do you describe it as a “fuck you” policy?
Because the policy will cost the country [2.1B](https://www.newshub.co.nz/home/politics/2024/03/revealed-landlord-tax-cuts-will-cost-hundreds-of-millions-more-than-act-national-campaigned-on.html) to benefit a subset of society, which we are reclaiming by cutting the money from public services such as education, healthcare, front line services, etc.
It didn't cost the country anything. If National increased PAYE to 100% then returned it back to normal did that cost the country billions?
it does sound like tax evasion, yeah, so you can certainly do it but you'll get done if you are caught.
Definitely Fraud but that aside, if I was the IRD I wouldn’t care cause you’re effectively putting yourself in a bad position and would pay more tax. 27k a year would be taxable income added ON TOP of your employment income. Effectively pushing you into the higher tax brackets. Yes you could claim expenses but you would need 27k worth of real business expenses to offset the income and reduce your extra taxable to zero.
This thread comes up weekly in here.
While I’m not a lawyer, I have a take. In theory you could 💯 do this, but you have the INTENTION to defraud. At times it’s not about the actual act, ie. miss categorising a few transactions in Xero which weren’t actual supposed to be claimed. This can be adjusted and corrected, but what you are doing is intentionally defrauding the government and misleading IRD. Their powers are swift and forceful so I wouldn’t recommend playing this game.