That is good news. It means it is not a mixed loan and can be paid off independently.

If you don’t use this as deposit do you have cash to use?

Kat, does the $90k loan have its own loan number separate to the $280K?

You could possibly claim only a max of 75% of the interest on this mixed loan if it became and IP. Other expenses could be claimed in full.

This is more complicated than you think because of that $90k mistake.

The loan is currently $280k (rounding to make it easier). Of this $90k relates to the extra repayment. So your loan must have been around

$280,000 before you withdraw the $90k

$370,000 after you withdraw the $90k

and

$280,00 now that you have redeposited the $90k.

The $90k is considered a separate loan as it was borrowed separately from the original money.

Now once you withdrew the $90k you had a mixed loan:

$280,000 associated with the purchase of the house and

$90,000 associated with a savings offset account.

total loan $370,000 $76% of the interest of this loan is associated with the first loan and 24% the second loan.

Now you have gone and deposited $90k. Since you have a mixed loan – ie two loans within one you cannot say the $90k deposit must come off the $90k loan. Any deposit must come off both loans in proportion to the %. So 76% of the $90k deposit must come off the $280,000 portion. 76% is $68,400. So your new mixed loan balance would be like this:

Total loan $280,000

Loan associated with the purchase of the property = $211,600

Loan associated with the money borrowed to fund an offset account = $90,000 – (24% of $90,000) = $68,400

Therefore only part of the loan is associated with the purchase of the property and this part is $211,600/$280,000 = 75.5%

ie only 75% of the interest on this loan would ever be deductible.

And this assumes you had not paid any principal off the loan since borrowing $90k. If you did you owuld need to do the cumbersome calculations as above for each repayment.

One way you could have fixed things when you became aware of the mistake was to split the loan into 2 portions one being $90k and then immediately pay off the $90k loan.

This is why brokers should not give tax advise

I don't know if there are any rules regarding there being only 1 lender to a SMSF. The assets of a bare trust can only be mortgaged or charged by one lender – I'm not even sure if this is the case actually. But a member can loan funds to the SMSF without security. This can be over and above the secured loan.

A member has to becareful with the interest rate charged. There are some ATO advices out saying you can charge less, but not more. It may even be possible to charge no interest – but be very careful

But, a valuation will only establish the value of the building. This won’t necessarily be what it cost you to construct. You might need to do several things such as valuation, QS report, go back over credit card statements, loan withdrawals etc.

But a valuation will only help in establishing the value. What is needed is proof of costs to help determine the cost base. These would be totally different.

There are rules for when this happens – ‘dog ate my homework’ type rules where people lose receipts etc. It will be especially difficult for an owner builder.

I know an old multi millionaire like that. He repairs his own underwear.

Lawyers can't even estimate their own costs, so they wouldn't be able to help.

With tax you have to substantiate your claims. If you don't have receipts then I don't think there is much scope for estimating the costs. This is why it is important to keep all receipts for all properties for ever – even after you have died as your heirs will have an even harder time.

Nigel, that is exactly what happened with me. I've done one property deal where I lost money and it was because I didn't do any DD. Just let a friend build a project for me which blew out with costs and time.

Good analogy about the holiday brochures/websites too – much different when you actually get there.

Sounds like you haven't got a lawyer. Saving money on a lawyer will likely cost you a lot more in the long run.