ATO targets borrowing expenses and/or legal claimed on rental properties

On reading and after several discussions with other Accountants, some clients may receive letters from the ATO in relation to reviewing expenses especially borrowing expenses and/or legal expenses claimed on their rental properties.  These letters are to advise the clients that the expenses claimed look higher than average and must show evidence to support their claim. See below article from the ATO:

https://www.ato.gov.au/Individuals/Data-matching-letters/Types-of-letters/Rental-expenses/

You need to be aware that certain borrowing expenses are claimed over 5 years not upfront. Examples of borrowing expenses would include:

  • Lenders Mortgage Insurance
  • Loan Establishment Fees
  • Title search fees
  • Costs for preparing Mortgage Documents.

In relation to legal expenses, this relates to any legal services incurred in regards to the rental property. A few clients have issues with their tenant which forces them to take matters further which in turn will incur legal fees.

Now, if you receive these letters you have two options:

  1. If you agree with the information contained in the letter then no need to do anything as the ATO will issue an amended assessment.
  2. If you disagree with the information, then you must reply to the ATO in writing.

For more information, contact TaxPro today.