National rental affordability scheme - refundable tax offset and other taxation issues
National rental affordability scheme - refundable tax offset and other taxation issues
The national rental affordability scheme (NRAS) is designed to encourage large-scale investment in affordable housing. The NRAS offers tax and cash incentives to providers of new dwellings on the condition that they are rented to low- and moderate-income households at 20% below market rates.
The NRAS offers annual incentives for a period of 10 years. The incentive comprises:
- a Federal Government contribution in the form of a refundable tax offset or payment to the value of $7,486 per dwelling per year in 2012-13
- a state or territory contribution in the form of direct financial support or an in-kind contribution to the value of at least $2,495 per dwelling per year in 2012-13.
The incentive will be indexed in line with the rental component of the consumer price index.
The Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) is responsible for administering and implementing the scheme.
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For more information about the national rental affordability scheme, visit the FaHCSIA website at www.fahcsia.gov.au/nras
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The NRAS started on 1 July 2008 and impacts on income tax assessments for the 2008-09 and later income years.
The Federal Government contribution or incentive is paid in the form of refundable tax offsets for complying investors who can claim their entitlement to the tax offset using one of the following methods:
- in their annual tax return
- by lodging a short-form application if they are an income tax exempt entity who would not ordinarily lodge a tax return.
Tax endorsed charitable institutions that are entitled to receive their incentive in the form of a grant do not claim this through the tax system. They will receive the incentive from the Secretary of FaHCSIA (the Housing Secretary).
Most tax offsets can only reduce the amount of tax you pay to zero - that is, if your tax offsets are greater than the amount of tax you are liable to pay, you do not get a refund of the excess amount. However, there are some exceptions to this general rule. These exceptions are classed as refundable tax offsets. Refundable tax offsets can reduce the amount of tax you are liable to pay to an amount less than zero, which results in a refundable amount. The NRAS tax offset is a refundable tax offset.
Who is entitled to the NRAS tax offset in their annual tax return?
Claims by individuals, corporate tax entities and super funds
An individual, corporate tax entity or super fund is entitled to claim a refundable tax offset provided both of the following apply:
- they have been issued with a certificate from the Housing Secretary under the NRAS
- the income year begins in the NRAS year to which the certificate relates.
Claims by a members of an NRAS consortium
An individual, corporate tax entity or super fund that is a member of an NRAS consortium
Circumstances may arise where an individual, a corporate tax entity or a super fund is a member of an NRAS consortium. In these circumstances, these entities are entitled to claim a refundable tax offset provided all of the following apply:
- the NRAS approved participant of the NRAS consortium has been issued with a certificate from the Housing Secretary under the NRAS
- the income year begins in the NRAS year to which the certificate relates.
A partnership or trust that is a member of an NRAS consortium
In the circumstance where a partnership or a trust is a member of an NRAS consortium, all of the following apply:
- the NRAS approved participant of the NRAS consortium has been issued with a certificate from the Housing Secretary under the NRAS the partnership or trust is deemed to have been issued with a certificate for its income year, which begins in the NRAS year
- the rental dwellings covered by the certificate are those for which the partnership or trustee has derived NRAS rent
- the amount in the certificate is the total of all the amounts worked out in relation to those rental dwellings.
The refundable tax offset will flow through to the partners or beneficiaries receiving the NRAS rent indirectly. Alternatively, if a trust has no net income, the trustee will be able to claim the refundable tax offset.
Circumstances may arise where the certificate is issued under the NRAS to an entity but the refundable tax offset is claimed by another entity - for example, when the certificate is issued to a trustee of a trust and the offset needs to be claimed by the beneficiaries. An entity is entitled to claim its share of the refundable tax offset consistent with its share of rental income from its participation in the NRAS through trusts and partnerships.
An entity that indirectly derives NRAS rent from a rental dwelling as a partner of a partnership, or as the trustee or a beneficiary of a trust, is entitled to claim the refundable tax offset provided both of the following apply:
- the trust or partnership that directly receives the rental income has been issued, or is taken to have been issued, a certificate from the Housing Secretary under the NRAS applicable to the dwelling
- the income year of that trust or partnership begins in the NRAS year to which the certificate relates.
The entity indirectly receiving the NRAS rent may be:
- an individual
- a corporate entity (at the time the NRAS rent flows indirectly to it)
- the trustee of a trust that is liable to be assessed on a share of, or all or a part of, the trust's net income under section 98, 99 or 99A of the Income Tax Assessment Act 1936 (ITAA 1936) for that income year
- the trustee of a first home saver account
- a super fund, an approved deposit fund or a pooled super trust.
A beneficiary of a trust cannot receive NRAS rent indirectly in any year that the trust has no net income. In this situation, the trustee may be able to claim the refundable tax offset.
NRAS rent will be taken to flow indirectly to either a beneficiary or the trustee of a trust but not to both.
NRAS rent is taken to flow indirectly in an income year to a partner in a partnership, a beneficiary of a trust or the trustee of a trust if all of the following apply:
- the NRAS rent is derived by the partnership or trustee of the trust, or flows indirectly to the partnership or to the trustee as a partner or beneficiary
- one of the following conditions is satisfied
- the partner has an individual interest in the partnership's net income for that year or is allowed a deduction for the partnership's loss for that year under paragraphs 92(1)(a) or (b) and 92(2)(a) or (b) of the ITAA 1936
- the beneficiary has a share of the trust's net income for that year to which paragraph 97(1)(a) of the ITAA 1936 applies, or an individual interest in the trust's net income for that year to which section 98A or 100 of the ITAA 1936 apply
- the trustee is liable to be assessed on a share of the trust's net income in respect of a beneficiary under section 98 of the ITAA 1936, or assessed on all or part of the trust's net income for that year under section 99 or 99A of the ITAA 1936
- the entity's share of the NRAS rent as calculated is a positive amount - that is, the entity must be entitled to part or all of the NRAS rent.
NRAS rent will be taken to flow indirectly to either a beneficiary or a trustee of a trust but not to both.
This occurs where there is an entity (intermediary entity) and the NRAS rent flows through that entity to another entity (the focal entity). These terms are used to work out an entity's share of the NRAS rent where it flows indirectly.
An entity's share of NRAS rent is calculated under the table in subsection 380-30(3) of the National Rental Affordability Scheme (Consequential Amendments) Act 2008. This calculation is used to work out the entity's share of the NRAS rent where the NRAS rent flows indirectly to the entity. A focal entity's share of NRAS rent is calculated by referring to the share of the intermediary entity's share of the NRAS rent to which the intermediary entity is entitled. Column 2 in the table below provides the intermediary entity's share and column 3 provides the focal entity's share. The table operates so that an entity's share of NRAS rent can be calculated where the distribution flows indirectly to either of the following:
- a partner in a partnership, or to a beneficiary or trustee of a trust, where the partnership or trustee derives the NRAS rent
- a partner in a partnership, or to a beneficiary or the trustee of a trust, where NRAS rent flows indirectly to the partnership or trustee through a chain of trusts or combination of trusts and partnerships.
An entity's share of NRAS rent is its share of the NRAS rent as the focal entity in column 3 of an item in the table.
In the case of a trust, the table operates so that if deductions exceed assessable income - that is, the trust has no net income - there can be no amount that flows indirectly to a beneficiary or through it to another entity.
Share of NRAS rent
Item
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Column 1
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Column 2
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Column 3
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Identifying the intermediary and focal entities
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The intermediary entity's share of the NRAS rent is
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The focal entity's share of the NRAS rent is
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1
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A partnership is the intermediary entity and a partner in that partnership is the focal entity if both of the following apply:
- NRAS rent is derived by the partnership
- the partner has, in respect of the partnership, an individual interest in the partnership's net income or loss for that income year that is covered by subsections 92(1) and (2) of the ITAA 1936 (about income and deductions of partners).
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the NRAS rent
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the amount of the NRAS rent that is taken into account in working out the amount of that individual's interest
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2
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A partnership is the intermediary entity and a partner in that partnership is the focal entity if both of the following apply:
- NRAS rent flows indirectly to the partnership as a beneficiary of a trust
- the partner has, in respect of the partnership, an individual interest in the partnership's net income or loss for that income year that is covered by subsections 92(1) and (2) of the ITAA 1936 (about income and deductions of partners).
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the amount worked out under column 3 of item 3 or 4 of this table where the partnership, as a beneficiary, is the focal entity in that item
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the amount worked out under column 2 of this item that is attributable to the partner, having regard to the partnership agreement and any other relevant circumstances
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3
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The trustee of a trust is the intermediary entity and the trustee or a beneficiary of the trust is the focal entity if both of the following apply:
a. NRAS rent flows indirectly to the trustee as a partner in a partnership or as a beneficiary of another trust
b. the trustee or beneficiary has, in respect of the trust, a *share amount.
*A beneficiary has a share amount for an income year if they have either of the following:
- a share of the trust's net income for that income year that they are presently entitled to and not under a legal disability
- an individual interest in the trust's net income for the income year that is covered by section 98A or 100 of the ITAA 1936
- this is the case regardless of whether or not that share amount becomes assessable income in the hands of the beneficiary.
A trustee has a share amount for an income year if they are liable or would be liable to be assessed in respect of an amount that is either of the following:
- a share of the trust's net income for that income year under section 98 of the ITAA 1936
- all or a part of the trust's net income for that income year under section 99 or 99A of the ITAA 1936
- this is the case regardless of whether or not the share amount becomes assessable income in the hands of the trustee.
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the amount worked out under column 2 of this item as is taken into account in working out that share amount
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4
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The trustee of a trust is the intermediary entity and the trustee or a beneficiary of the trust is the focal entity if both of the following apply:
e. NRAS rent flows indirectly to the trustee as a partner in a partnership or as a beneficiary of another trust
f. the trustee or beneficiary has, in respect of the trust, a *share amount.
*A beneficiary has a share amount for an income year if they have either of the following:
- a share of the trust's net income for that income year that they are presently entitled to and not under a legal disability
- an individual interest in the trust's net income for that income year that is covered by section 98A or 100 of the ITAA 1936.
This is the case regardless of whether or not that share amount becomes assessable income in the hands of the beneficiary.
A trustee has a share amount for an income year if they are liable or would be liable to be assessed in respect of an amount that is either of the following:
- a share of the trust's net income for that income year under section 98 of the ITAA 1936
- all or a part of the trust's net income for that income year under section 99 or 99A of the ITAA 1936.
This is the case regardless of whether or not the share amount becomes assessable income in the hands of the trustee.
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the amount worked out under column 3 of either of the following:
g. item 1 or 2 of this table where the trustee, as a partner, is the focal entity in that item
h. item 3 or a previous application of this item where the trustee, as a beneficiary is the focal entity in that item.
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the amount worked out under column 2 of this item that is attributable to the focal entity in this item, having regard to the trust deed and any other relevant circumstances.
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In item 3 or 4 of the table, the trustee of a trust can be both the intermediary entity and the focal entity in the same item.
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A trustee of a trust (rather than the trust's beneficiaries) is entitled to a refundable tax offset if the Housing Secretary has issued the trustee a certificate under the NRAS and the trust has no net income. Similarly, a trustee of a trust is entitled to a refundable tax offset if both of the following apply:
- the NRAS refundable tax offset flows to this trust from another entity because
- the trust is a member of an NRAS consortium
- the trust is a partner of a partnership, or
- the trust is a beneficiary of another trust that has net income
- the trust to which the offset flows has no net income.
Trustees assessable on net income of the trust are also entitled to a share of the offset.
The trustee of a trust that is indirectly entitled to NRAS rent can generally only claim the offset in years the trust has net income.
If the trustee of a trust is entitled to a refundable tax offset, neither a beneficiary of this trust nor a subsequent entity to which the NRAS rent flows indirectly is entitled to the refundable tax offset.
We are aware of certain NRAS arrangements where a dwelling owner leases their dwelling to a housing provider under a head lease and that housing provider subleases the dwelling to eligible NRAS tenants for at least 20% below market value rent. A housing provider in this context is an approved participant under the NRAS scheme and includes charitable housing organisations.
In some circumstances, these dwelling owners may not be entitled to the NRAS refundable tax offset.
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For more information, refer to ATO Interpretative Decision 2009/146.
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From 2010-11 income year onwards, the law has been amended to allow approved participants of NRAS consortiums to relinquish their entitlement to the NRAS tax offset in favour of certain other members of their consortium where the member did not directly derive NRAS rent.
Approved participants seeking to relinquish their entitlement must elect to do so. For more information about making the election, see Election to relinquish your entitlement to the NRAS tax offset.
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If you are considering participating in the NRAS and you want certainty about the way tax applies to your particular arrangement, we recommend you apply to us for a private ruling.
How individuals claim the offset
If you are an individual who is entitled to the NRAS refundable tax offset or a share of it, you can claim it in the Tax return for individuals (supplementary section) (NAT 2679).
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While the tax return label is specific to partnerships and trusts, all individuals making a claim must use this label. This includes individuals who are claiming because they are a member of an NRAS consortium. Do not claim the refundable tax offset under any other tax offset labels.
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How corporate tax entities claim the offset
A corporate tax entity that is entitled to the NRAS refundable tax offset or a share of it can claim the offset in the Company tax return (NAT 0656).
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The amount recorded at J must also be included in the calculation statement at Z.
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How super funds claim the offset
A super fund that is entitled to the NRAS refundable tax offset or a share of it can claim the offset in the Fund income tax return (NAT 71287).
A self-managed super fund that is entitled to the NRAS refundable tax offset or a share of it can claim the offset in the Self-managed superannuation fund annual return (NAT 71226).
How partnerships and partners claim the offset
A partnership that has received or is taken to have received an NRAS refundable tax offset certificate can claim the total NRAS refundable tax offset in the Partnership tax return (NAT 0659).
Each partner's share of the NRAS refundable tax offset will be included as part of the statement of distribution in the return.
The partners of a partnership who are entitled to the NRAS refundable tax offset must claim their share in their respective tax returns. Depending on the type of entity the partners operate, see one of the following for more information:
To work out if you are entitled to claim the NRAS refundable tax offset or a share of it, refer to Who is entitled to the NRAS tax offset in their annual tax return?
How trusts, trustees and beneficiaries claim the offset
A trust that has received or is taken to have received an NRAS refundable tax offset certificate can claim the total NRAS refundable tax offset amount in the Trust tax return (NAT 0660).
Each beneficiary's share of the NRAS refundable tax offset will be included in the Statement of Distribution in the return.
The beneficiaries of a trust who are entitled to the NRAS refundable tax offset must claim their share in their respective tax returns. Depending on the type of entity the beneficiary is, see one of the following for more information:
If the trust has no net income, the full amount of the NRAS refundable tax offset will be included under the column entitled 'Income to which no beneficiary is presently entitled and in which no indefeasible vested interest, and the trustee's share of credit for tax deducted' in the statement of distribution in the Trust tax return (NAT 0660).
How income tax exempt entities claim the offset
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Endorsed charitable institutions participating in the NRAS in their own right can receive their NRAS incentive as a payment from the Housing Secretary. Where an NRAS participant was an endorsed charitable institution for only part of an NRAS year, special apportionment rules apply.
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An income tax exempt entity that is entitled to the NRAS refundable tax offset can claim the NRAS refundable tax offset by completing the Application for refund of tax offset - National rental affordability scheme - Income tax exempt entities (NAT 72789).
Members of an NRAS consortium who are entitled to the NRAS refundable tax offset must claim their share in their respective tax returns. Depending on the type of entity the party is, see one of the following for more information:
To obtain copies of tax returns and forms to claim the offset:
- print them from our website
- order them online
- phone us on 1300 720 092.
The Housing Secretary may issue an amended certificate to the individual, corporate tax entity or a super fund. If this occurs, the amount of the tax offset is worked out using the amount stated in the amended certificate. This means you will need to apply to us for an amended assessment, subject to the statutory time limits applicable to requesting an amendment.
The state and territory contributions you receive (whether directly or indirectly, such as through an NRAS consortium of which you are a member) in cash or in-kind for participating in the NRAS are non-assessable and non-exempt for tax purposes. This means they are not included in your assessable income.
There are no capital gains tax consequences from providing incentives or other benefits under the NRAS.
Existing charities could participate in the establishment phase of NRAS (2008-09 and 2009-10 income years) without affecting their charitable status, due to the transitional provisions.
In the 2010-11 and later years, the charitable status of a charity may be affected by participating in the NRAS, as normal definitions of a charitable purpose apply.
The following table shows how the NRAS tax offset is calculated if you are an individual, corporate tax entity or super fund and you have received an NRAS certificate.
Step
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Action
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1
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The certificate states the amount of your refundable tax offset.
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2
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Claim this amount in your tax return.
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The following table shows how the NRAS tax offset is calculated per dwelling if you are a member of an NRAS consortium.
Step
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Action
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1
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The certificate the approved participant of the NRAS consortium receives from the Housing Secretary states the amount of NRAS tax offset for each rental dwelling. The approved participant should indentify your share of the NRAS tax offset.
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2
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Divide the amount of NRAS rent you derived from the dwelling for the income year by the total NRAS rent derived from that rental dwelling for the income year. If you were the only one deriving rent from this dwelling, the answer to step 2 will be equal to 1.
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3
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Multiply the amount at step 1 by the amount you worked out at step 2. The result is the amount of NRAS tax offset you are entitled to for that rental dwelling.
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4
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If you have derived NRAS rent for more than one rental dwelling, repeat steps 1-3 for each rental dwelling.
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5
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Add together the amounts you worked out at step 3 for each rental dwelling you derived NRAS rent from. This is the amount of NRAS tax offset you are entitled to.
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6
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Claim the amount at step 5 in your tax return. For more information about where to claim in your tax return to include your entitlement to the NRAS tax offset, refer to Claiming the NRAS tax offset.
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Example
Lee is a member of an NRAS consortium participating in the NRAS and owns two properties that have received an allocation. Lee owns one of these properties, 2 Lake Drive, outright. The second property, 42 Hitchhiker Cres, Lee owns jointly (50/50) with his wife.
The two properties are rented to eligible NRAS tenants. Throughout the 2009-10 income year, Lee derives $13,000 of NRAS rent from 2 Lake Drive, and he and his wife derive $20,800 NRAS rent from 42 Hitchhiker Cres.
On 28 June 2010, the Housing Secretary issues the approved participant of the NRAS consortium with a certificate for the NRAS year 1 May 2009-30 April 2010. The approved participant of the NRAS consortium provides Lee with a copy of the certificate. The total NRAS tax offset available for all the properties to the non-entity joint venture is $580,000. The NRAS tax offset available for Lee's properties are:
- 2 Lake Drive - NRAS tax offset $5,400
- 42 Hitchhiker Cres - NRAS tax offset $6,200
Lee is entitled to claim a refundable tax offset of $8,500, which is worked out as follows:
Step
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Action
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1
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The certificate lists the NRAS tax offset for 2 Lake Drive as $5,400.
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2
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All of the NRAS rent derived from 2 Lake Drive belongs to Lee.
$13,000 ÷ $13,000 = 1
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3
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$5,400 x 1 = $5,400
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4
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Lee repeats steps 1-3 for 42 Hitchhiker Cres.
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Step
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Action
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1
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The certificate lists the NRAS tax offset for 42 Hitchhiker Cres as $6,200.
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2
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Half of the NRAS rent derived from 42 Hitchhiker Cres belongs to Lee.
$10,400 ÷ $20,800 = 0.5
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3
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$6,200 x 0.5 = $3,100.
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4
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Lee has completed steps 1-3 for all his properties so he then moves onto Step 5.
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5
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$5,400 + $3,100 = $8,500.
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6
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Lee can claim $8,500 at the NRAS tax offset label in his tax return for the 2009-10 income year.
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The following table shows how to calculate your NRAS tax offset for each dwelling if you are a partner of a partnership or a trust beneficiary who indirectly derives NRAS rent from a rental dwelling.
Step
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Action
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1
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The certificate the partnership or trust received states the amount of the refundable tax offset for that entity.
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2
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Apportion that amount by the NRAS rent you derive from the dwelling for the income year and the total NRAS rent derived from rental dwellings covered by the certificate for the income year.
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3
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Add together the amounts you have worked out for each dwelling to work out the total amount of your refundable tax offset. This is the amount of the tax offset you can claim in your tax return.
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Example
Matthew and Jessica are beneficiaries of Trust X. Trust X derives NRAS rent of $160,000. Matthew and Jessica are each entitled to 50% of this income. Trust X received a certificate on 15 June 2011 for the 2011 income year stating that the refundable tax offset in relation to Trust X's participation in the NRAS is $60,000.
Matthew is entitled to claim a refundable tax offset of $30,000, which is worked out as follows:
Step
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Action
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1
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The certificate the trust received states that the amount of the refundable tax offset for that entity is $60,000.
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2
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$60,000 × ($80,000 ÷ $160,000)
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3
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Matthew can claim a refundable tax offset of $30,000 in the income year that begins in the NRAS year ending 30 April 2011.
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Examples of arrangements participating in NRAS
Poh Lee is a business woman who has decided to participate in NRAS.
Poh Lee plans to build 20 rental dwellings of appropriate standard to meet the requirements to participate in the NRAS. Poh Lee applies under the NRAS and receives an allocation.
Once the dwellings are complete, Poh Lee, through her real estate agent, finds eligible NRAS tenants to whom she rents the dwellings at 20% below market value. Poh Lee complies with all the requirements set out by FaHCSIA and lodges her first statement of compliance on 13 May 2010.
On 30 June 2010, Poh Lee receives an NRAS tax offset certificate from the Housing Secretary. The certificate is for the NRAS year 1 May 2009 - 30 April 2010.
As Poh Lee is participating in NRAS as an individual (she is not involved in a partnership, trust or non-entity joint venture) and she has received a tax offset certificate, she is entitled to claim under section 380-5 of the Income Tax Assessment Act 1997.
Homes For You Ltd is a company in the construction business. Perfection Properties Ltd is a real estate agency. The two companies establish a partnership to participate in the NRAS (the 'NRAS Partnership').
The partners agreed that Homes For You would finance and build 25 rental dwellings and Perfection Properties would manage them once built. They also agreed that Homes For You would receive a 90% share of the partnership income and Perfection Properties a 10% share.
Perfection Properties Ltd applied on behalf of the NRAS Partnership and received an allocation of 25 rental dwellings under the NRAS. The dwellings were completed and eligible NRAS tenants started renting them for 20% below market value on 20 October 2010.
The NRAS Partnership complies with all the requirements set out by FaHCSIA and Perfection Properties Ltd lodges a statement of compliance on behalf of the NRAS Partnership on 13 May 2011.
The NRAS Partnership derived NRAS rent for the 2010-11 income year. Each partner has an interest in the partnership's net income, including a share of the NRAS rent derived by the partnership, so that NRAS rent flows indirectly to them through the partnership. Homes For You has a 90% share of NRAS rent and Perfection Properties a 10% share.
On 30 June 2011, the NRAS Partnership receives an NRAS tax offset certificate from the Housing Secretary. The certificate is for the NRAS year 1 May 2010-30 April 2011.
Homes For You and Perfection Properties are participating in the NRAS in a partnership. As NRAS rent flows indirectly to the partners and the partnership has received a certificate from the Housing Secretary, the partners are entitled to their respective share of the NRAS tax offset under section 380-15 of the Income Tax Assessment Act 1997.
The partners will claim their entitlement to an NRAS tax offset in their respective company tax returns. The shareholders in the companies will not have an entitlement to the NRAS tax offset; however, they may receive an economic benefit from the offset in the form of an assessable dividend.
Goodhousing Ltd wants to participate in the NRAS. The company does not have the capital to finance the construction of the dwellings. DD Developer Pty Ltd approaches Goodhousing and agrees to provide 124 houses as NRAS dwellings.
DD Developer established a unit trust, NRAS Unit Trust, to enable individual investors who buy the NRAS dwellings to participate and receive the NRAS incentive. Goodhousing is the trustee of NRAS Unit Trust.
Raj was looking to invest in the property market and purchased a dwelling from DD Developer Pty Ltd. Raj then leases his dwelling to Goodhousing as trustee for the NRAS Unit Trust. In return for leasing the dwelling, Raj receives units in the NRAS Unit Trust. The number of units issued is proportionate to the rental value of Raj's dwelling. Goodhousing, as trustee for the NRAS Unit Trust, subleases the dwelling to the eligible NRAS tenants. The eligible tenants, under the sublease, pay rent (NRAS rent) to Goodhousing as trustee for the NRAS Unit Trust. Raj receives a share of the NRAS rent as a distribution made by the NRAS Unit Trust.
Goodhousing, as trustee, ensures that the NRAS Trust complies with all the requirements set out by FaHCSIA and Goodhousing lodges a statement of compliance on 13 May 2014. On 30 June 2014, Goodhousing, as trustee for the NRAS Unit Trust, receives an NRAS tax offset certificate from the Housing Secretary. The certificate is for the NRAS year 1 May 2013 - 30 April 2014.
Goodhousing, as trustee of the NRAS Unit Trust, derives NRAS rent. Raj is assessable, as a beneficiary of the NRAS Unit Trust, on his share of the trust's net income, which constitutes a share of the NRAS rent. As NRAS rent flows indirectly to Raj and the NRAS Unit Trust received a certificate from the Housing Secretary, Raj is entitled to an NRAS tax offset under section 380-15 of the Income Tax Assessment Act 1997.
Karma Housing Ltd has the support of developers and real estate agents to secure 300 dwellings to participate in the NRAS.
The dwellings are sold to individual investors who are interested in participating in NRAS. At the time the investors purchase the dwellings, they enter into a contract with Karma Housing, which meets the definition of a non-entity joint venture.
Under the contract, Karma Housing manage the dwellings, including finding eligible NRAS tenants.
On finding an eligible NRAS tenant, Karma Housing helps the dwelling owner enter into a lease with the tenant. The tenant pays the rent to Karma Housing who passes it on to the dwelling owner. In these circumstances, Karma Housing does not derive any rent, even though the rent is paid to them. This is because Karma Housing receives the rent as an agent for the dwelling owner1.
No lease is entered into between the dwelling owner and Karma Housing. The NRAS rent is derived by the dwelling owner. As the dwelling owner is a party to a non-entity joint venture and derives NRAS rent, if the non-entity joint venture receives a certificate from the Housing Secretary for the dwelling from which the dwelling owner derives the NRAS rent, the dwelling owner will be entitled to the NRAS tax offset under section 380-10 of the Income Tax Assessment Act 1997.
The dwelling owner must claim their NRAS tax offset in their tax return.
For an example of a non-entity joint venture that does not give the dwelling owners an entitlement to an NRAS tax offset, refer to ATO ID 2009/146.
From 2010-11 income year onwards, the law has been amended to allow approved participants of NRAS consortiums to relinquish their entitlement to the NRAS tax offset in favour of certain other members of their consortium where the member did not directly derive NRAS rent.
Approved participants seeking to relinquish their entitlement must elect to do so. For more information about making the election, see Election to relinquish your entitlement to the NRAS tax offset.
Chameleon Housing is established as an NRAS consortium. The approved participant of the consortium is the manager. The manager applies to the Housing Secretary to participate in the NRAS and represents the parties to the consortium. The dwelling owners enter into a head lease with the manager of the consortium. The manager of the consortium then enters into a sublease with NRAS eligible tenants.
Under this arrangement, it is the manager (approved participant) of Chameleon Housing that derives NRAS rent from the eligible tenants under the sublease. The dwelling owners derive ordinary rent (not NRAS rent) from the manager under the head lease. These facts are identical to those addressed by ATO ID 2009/146. Following the completion of the NRAS year, the Housing Secretary issues the manager representing the consortium with a certificate in relation to the rental dwelling.
If an election is not made, the manager would be entitled to a tax offset, as the manager is the entity deriving NRAS rent. The dwelling owners, having not derived any NRAS rent, would not be entitled to a tax offset. This is not NRAS rent for the reasons given in ATO ID 2009/146.
Alternatively, the parties to the consortium may have predicated their participation in the NRAS on the basis that the NRAS incentive would be enjoyed by the dwelling owners, rather than the manager. To achieve this outcome, following receipt of the certificate from the Housing Secretary, the manager may elect to relinquish its entitlement to a tax offset for the income year corresponding to the NRAS year covered by the certificate.
If the manager makes the election, each party's entitlement to the NRAS tax offset for a dwelling would be in proportion to their share of the ordinary rent derived in relation to that dwelling, for the time in the NRAS year covered by the certificate in which the dwelling was eligible for the NRAS incentive. In this example, the ordinary rent derived from a rental dwelling means the rent derived by a dwelling owner under the head lease (that is, the rent derived by the dwelling owner from the manager of the consortium). Although this is not NRAS rent, it is rent ultimately sourced from the NRAS rent derived by the manager.
In this example, the dwelling owners are the ultimate recipients of all of the rent in respect of the property, under the head lease. Each dwelling owner therefore would be entitled to a portion of the tax offset but only if the election is made. The manager, having made the election, and not being the ultimate recipient of any rent in respect of the dwelling, is no longer entitled to any tax offset.
Example 7: Members of an NRAS consortium participating in the NRAS under a head lease/sublease arrangement for part of the year
The next year, the NRAS consortium of which Chameleon Housing is a manager agrees, part way through the year, with the dwelling owners that the owners will enter into the leases with the NRAS tenants directly (direct lease), as opposed to leasing dwellings to the manager.
Therefore, during the NRAS year, the dwelling owner will have derived an amount of ordinary rent (not NRAS rent) from the manager under the head lease and will also have derived an amount of NRAS rent for the period that the dwelling owner leased the dwelling directly to the tenant.
Following the completion of the NRAS year, the Housing Secretary issues the manager representing the consortium with a certificate in relation to the rental dwelling.
The dwelling owner would be entitled to a tax offset based on the proportion of the NRAS rent derived by them divided by the total NRAS rent for the dwelling (including that paid to the manager).
Likewise, the manager would be entitled to a tax offset based on the proportion of the NRAS rent derived by them divided by the total NRAS rent for the dwelling. The manager may then elect to relinquish their entitlement to the tax offset in favour of the dwelling owner who received the rent that was ultimately sourced from the NRAS rent derived by the manager.
In this example, the dwelling owners are the ultimate recipients of all of the rent in respect of the property (being ordinary rent under the head lease arrangement, and NRAS rent for the period of the direct lease). Each dwelling owner therefore would be entitled to a tax offset (in proportion to their share of the rent derived in relation to that dwelling), but only if the election is made. The manager, having made the election, and not being the ultimate recipient of any rent in respect of the dwelling, is no longer entitled to any tax offset.
This election allows approved participants of NRAS consortiums to relinquish their entitlement to the NRAS tax offset in favour of certain other members of their consortium where the member did not directly derive NRAS rent. For an example of when this can occur, refer to ATO ID 2009/146.
Who can make this election?
You are eligible to make this election if the following applies:
- you are the approved participant (within the meaning of the regulations made for the purposes of the National Rental Affordability Scheme Act 2008) of a National Rental Affordability Scheme (NRAS) consortium (or you were the approved participant at any time during the NRAS year)
- you were issued a certificate which entitles you to the NRAS tax offset
- you want to make an election to relinquish your entitlement to the NRAS tax offset to a member of the consortium.
What should you do with this election?
You must give a copy of the election to the member of the NRAS consortium who will be entitled to an NRAS tax offset as a result of the election. You must keep a copy of the completed election and make it available if we request it. Do not send your completed election to us.
When should you make this election?
The election must be made within 30 days after the day the Housing Secretary issues an NRAS certificate to the NRAS approved participant in relation to each NRAS year.
If the Housing Secretary issues an amended NRAS certificate for the NRAS dwelling for the income year to the NRAS approved participant, the election must be made 30 days after this day.
How much of the entitlement can you relinquish?
You can only pass on an amount of your NRAS tax offset entitlement equal to the proportion of the total NRAS rent derived from an NRAS dwelling for the income year belonging to the member. That amount would be equal to the member's rent proportion of the total rent.
Can you change the election after it is made?
Once an election is made it cannot be revoked.
The legislation says you have to make this election in an 'approved form'. What is an approved form?
In general, a document can be considered to be an approved form if it contains information that the Commissioner requires.
For more information about approved forms, refer to Approved forms - overview.
What will be considered an approved form for the purposes of making this election?
There is no specific approved form that we have published for the purposes of making this election. However, an election will be considered to be made in the 'approved form' as long as the election records contain the following details:
- name of the approved applicant who is making the election (the electing member)
- name of the members to whom the NRAS entitlement is being transferred
- mailing address for the member
- date of birth
- NRAS dwelling ID
- NRAS dwelling address
- amount of entitlement
- relevant NRAS year
- date election was made
- declaration that is signed by the approved participant.
Ensure you provide a copy of the completed election to the member of the NRAS consortium who will be entitled to the NRAS tax offset as a result of the election. Once the election is made it cannot be revoked.
Corporate tax entity
An entity is a corporate tax entity if the entity is a company, a corporate limited partnership, a corporate unit trust or a public trading trust in relation to the income year. Corporate tax entities can include non-profit entities that are taxable or income tax exempt.
Derived
In working out whether you have derived an amount of ordinary income and, if so, when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
Income tax exempt entities
This is an entity that is exempt from income tax. For example, an endorsed charitable institution or a non-profit entity that self-assesses it is income tax exempt.
Non-entity joint venture
This is an arrangement that we are satisfied is both of the following:
- a contractual arrangement under which two or more parties undertake an economic activity that is subject to the joint control of the parties
- entered into to obtain individual benefits for the parties in the form of a share of the output of the arrangement rather than joint or collective profits for all the parties.
NRAS consortium
This is the mechanism by which a group of taxpayers collectively participating in NRAS each become entitled to an NRAS tax offset. An NRAS consortium is a consortium, joint venture or non-entity joint venture established by a contractual arrangement that facilitates the leasing of approved rental dwellings under NRAS.
NRAS rent
This is the rent derived in respect of a rental dwelling from renting it on an affordable housing basis under the NRAS for an income year.
NRAS year
This is the period 1 July 2008 to 30 April 2009, or the period 1 May to 30 April each year from 1 May 2009.
Super fund
This is a fund that is an indefinitely continuing fund and is a provident, benefit, superannuation or retirement fund, or a public sector superannuation scheme.
For more information:
1 This is an important distinction from the example provided in ATO ID 2009/146, where the dwelling owner leased the property to the housing provider for their use. The housing provider then leased the property to the NRAS tenant in their own right, not acting as agent for the dwelling owner. This means the housing provider derived the rent, not the dwelling owner. The NRAS incentive attaches to the entity that derives the rent.
Last Modified: Friday, 28 September 2012
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