Will my friends get caught by the ATO?

[SupaRex]

Hello all,

I have a friend who has refinanced his IP to the tune of $50k and put that toward the loan on his PPOR.

He still intends to claim the full amount of interest on his IP against his tax (wrong terminology, I know, but tired and can't think of the correct one). I explained that he can't do this as it's the purpose of the loan that determines the tax deductibility.

Anyway, my question is how likely is he to get caught out by the ATO? In all the millions of tax payers, will someone like him stand out? Does anyone know how the ATO goes about spotting people like my friend?

Cheers,
Brad

P.S - I have no intention myself of doing anything like this - I don't have a PPOR.

 

[Token Funder]

Hello all,

I have a friend who has refinanced his IP to the tune of $50k and put that toward the loan on his PPOR.

He still intends to claim the full amount of interest on his IP against his tax (wrong terminology, I know, but tired and can't think of the correct one). I explained that he can't do this as it's the purpose of the loan that determines the tax deductibility.

Anyway, my question is how likely is he to get caught out by the ATO? In all the millions of tax payers, will someone like him stand out? Does anyone know how the ATO goes about spotting people like my friend?

Cheers,
Brad

P.S - I have no intention myself of doing anything like this - I don't have a PPOR.

I certainly hope he does.

If you pass me his details I am prepared to guarantee it.

 

[Ausprop]

pretty unlikely IMO but you never know. they may note the interest deduction increasing substantially and it may trigger a flashing light?

 

[rugrat]

people get caught out all the time doing stupid things like this, and then many of them have a winge about how 'unfair' it all is and convieniently forget those who tried to warn them beforehand.

 

[coastymike]

Extremely easy to be detected.

Data matching and analysis as follows.

ATO already has acquisition details about property and depreciable assets and interest claims per annum. Interest claimed is matched back to details from the financial institutions which they also have access to.

Interest claim is increased without any corresponding increase in assets, other investments or depreciable property. Please explain.

 

[jaycee]

Extremely easy to be detected.

Data matching and analysis as follows.

ATO already has acquisition details about property and depreciable assets and interest claims per annum. Interest claimed is matched back to details from the financial institutions which they also have access to.

Interest claim is increased without any corresponding increase in assets, other investments or depreciable property. Please explain.

Mike,

You can increase intrest charges legitmately without recording increase in assets - what if I borrowed $30k for painting work on my IP's - all he ATO would see an extra $xxx interest pa, does this suggest I wuill be in trouble ?

 

[coastymike]

Jaycee

Agreed the increase in borrowings may be easily explained and totally justified. Just showing some examples of how the ATO datching matching can result in please explain letters. Just because you get a please explain doesn't mean you have done anything wrong.

 

[turk]

Mike,

You can increase intrest charges legitmately without recording increase in assets - what if I borrowed $30k for painting work on my IP's - all he ATO would see an extra $xxx interest pa, does this suggest I wuill be in trouble ?

Hi jaycee

That does`t suggest that you will in trouble but it suggests that a flag would be raised at the tax office and the taxpayer queried.

In your case the increased interest would be justifiable but wouldn`t be in the 1st example.

Cheers

Pete

 

[jaycee]

Hi jaycee

That does`t suggest that you will in trouble but it suggests that a flag would be raised at the tax office and the taxpayer queried.

In your case the increased interest would be justifiable but wouldn`t be in the 1st example.

Cheers

Pete

I understand that Peter...and I think the original poster undestsoodf that clealry too, hence his concern for his friedn fdoing the wrong thing. I sz more repsonding to mike's sugestins of the need to have increased assetss if oyu ahve increased your loans/interest payments and how you wuold be caught out shoudl you not have this... anyway, splitting hairs now....

An inverease in interester ates of .21 percent

 

[turk]

Hi JC

You misunderstand, I was replying your post #6 and your question-

" all he ATO would see an extra $xxx interest pa, does this suggest I wuill be in trouble ?"


Put simply, my answer to your question is the same as coastymike.

Cheers

Pete

 

[K4K4M]

I understand that Peter...and I think the original poster undestsoodf that clealry too, hence his concern for his friedn fdoing the wrong thing. I sz more repsonding to mike's sugestins of the need to have increased assetss if oyu ahve increased your loans/interest payments and how you wuold be caught out shoudl you not have this... anyway, splitting hairs now....

An inverease in interester ates of .21 percent

There is a spell checker on the top right corner - just in-case if you don't know.

 

[sammmeee]

What would the penalty/s be? Worst case and best case...

 

[coastymike]

Penalties could be up to 75 per cent for intentional disregard plus a potential 20 per cent uplift penalty and interest at the gic rate. Because it involves fraud or evasion also potential for referral to the cdpp for criminal prosecution.

 

[alexlee]

50k at 7% is 3,500 a year. The 'value' of the illegal deduction is maybe $1,600 or so and that's assuming you friend is at the top marginal rate. I doubt someone on 180k+ would care about that, so I'm assuming your friend is on a lower tax rate. At 30%, the 'value' is about $1,000.

It really isn't worth it.

 

[SupaRex]

50k at 7% is 3,500 a year. The 'value' of the illegal deduction is maybe $1,600 or so and that's assuming you friend is at the top marginal rate. I doubt someone on 180k+ would care about that, so I'm assuming your friend is on a lower tax rate. At 30%, the 'value' is about $1,000.

It really isn't worth it.

He is in the 30% bracket. I've tried to warn him.

 

[Ocean Architect]

My theory is if you're going to commit a crime, make it so big that you only have to do it once and never again. Putting yourself at that sort of risk for that sort of saving? An evil criminal mastermind, your friend is not

 

[skater]

My take on it is that if he legitimately borrowed $50k to do work on the property, then there would/should be a nice big jump in the rental return. It could signal a nice big red flag if the interest costs have jumped substantially and the rental return remains the same.

 

[Ocean Architect]

My take on it is that if he legitimately borrowed $50k to do work on the property, then there would/should be a nice big jump in the rental return. It could signal a nice big red flag if the interest costs have jumped substantially and the rental return remains the same.

roof leak not withstanding

 

[skater]

roof leak not withstanding

Ah yes, but again, if the ATO came calling that would be able to be substantiated.

 

[Mry]

I prefer questions along the lines of "Is this correct tax treatment?" rather than "Will he get caught?" I don't think its an appropriate question for the forums as I don't want to be seen giving a pass to dishonest behaviour.