Election to relinquish your entitlement to the NRAS 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 2009/146External Link.
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 2008External Link) 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.
Apportionment of rental expenses – non- assessable, non-exempt payments
The NRAS tax incentive is tax-free income and is comprised of two components:
- An Australian Federal Government contribution per dwelling is provided to an investor in the form of a refundable tax offset on the investor’s income tax return for the relevant year; and
- A State or Territory Government contribution per dwelling is provided to an investor. It is provided as a non-assessable, non-exempt (NANE) payment or in –kind financial support (such as reduced stamp duty or land tax).
An investor in an NRAS property will be able to claim a deduction for the same type of expenses they have incurred as an investor who has invested in a non-NRAS property. However, any amount that an investor in an NRAS property can claim as a deduction must be apportioned to the extent that these expenses relate to the earning of NANE income. Deductions for the decline in value of any depreciating assets, as well as the cost of capital works, are also subject to apportionment.
A deduction can be claimed for rental property expenses that are incurred in gaining or producing assessable income. The expense must not be a private, domestic or capital expense or incurred in relation to gaining or producing exempt income or NANE income.
Whilst a taxpayer who invests in an NRAS property receives assessable rental income they also receive government incentives, including state government NANE income. In order to receive government incentives, including state government NANE income, investors must rent out their property at 20 per cent less than the market rent.
If expenditure related to the NRAS rental properties had been incurred solely for the purpose of gaining assessable income, it would be wholly deductible. However, as investors in an NRAS property incur expenses in order to both earn assessable income and NANE income, any expenses an investor incurs in order to invest in NRAS must be apportioned.
You can deduct expenditure you incur (such as loan fees) in order to borrow money, to the extent that you use the money for the purpose of producing assessable income. The deduction is spread over the lesser of 5 years or the length of the loan.
Where the borrowed money is used partly for a non-assessable income producing purpose it is necessary to apportion any deduction claimed for borrowing expenses. This includes expenses incurred in order to borrow money to purchase a NRAS property as the borrowed money is used to earn NANE income in as well assessable income. The allowable deduction for borrowing expenses must therefore be apportioned.
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used, with certain exceptions.
You can deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year. You must reduce the deduction by any part of the asset's decline in value that is attributable to your use of the asset, or you having it installed ready for use, for a purpose other than a taxable purpose. “Taxable purpose” includes “the purpose of producing assessable income.”
Depreciating assets held by NRAS investor are in part used to produce NANE income. As these assets have been used for a purpose other than a taxable purpose (i.e. to earn NANE income) any deduction claimed in respect to the depreciation of these assets must be apportioned.
Deductions for capital works
To deduct an amount for capital works an investor’s construction expenditure must be used for the purpose of producing assessable income or conducting research and development (R&D) activities.
Taxation Ruling TR 97/25External Link notes that where capital works expenditure is wholly attributable to a construction expenditure area that is used partly in a deductible way then apportionment of the allowable deduction for capital works will be necessary. Therefore, the deduction for capital works must be reduced to the extent the investment in the NRAS properties produces NANE income.