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Edited version of your private ruling

Authorisation Number: 1012474036098

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Ruling

Subject: NRAS Structure - Head lease/Sub-lease

Issue 1 - Income Tax Assessment Act 1997

Question 1

Is the Trust deemed to be issued with an NRAS certificate pursuant to subsection 380-14(2)?

Answer

Yes

Question 2

Will Investors be entitled to tax offsets pursuant to section 380-25 of the ITAA 1997 on the basis that NRAS rent flows indirectly to unitholders in the Trust?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

1 July 2013

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1. The National Rental Affordability Scheme was established to encourage investment in affordable housing stock by offering a National Rental Incentive (Incentive) to providers of new rental dwellings.1 The objectives of the NRAS include encouraging large-scale investment in and innovative delivery of affordable housing.

2. The Incentive comprises a Federal Government contribution in the form of a refundable tax offset for each dwelling provided and a State or Territory Government contribution in the form of a cash payment per dwelling. The entitlement to the Federal tax offset is the subject of Division 380 of the Income Tax Assessment Act 1997 (ITAA 1997). The State/Territory payment is non-assessable non-exempt income of the entity deriving the payment: section 380-35 of the ITAA 1997.

3. A pre-condition of entitlement to the Incentive is the issue of a certificate by the Federal Housing Secretary to an NRAS Approved Participant, which is the entity primarily responsible for ensuring compliance with the provision of dwellings under the NRAS and the other NRAS statutory requirements (such as reporting and record-keeping). The NRAS Approved Participant is likely to be a charity or other not-for-profit entity. However, Division 380 provides that the entitlement to the tax offset may pass to other entities, including investors in consortiums established for the purpose of participating in the NRAS or who otherwise derive the rental amounts from NRAS dwellings indirectly through trusts or partnerships.

4. The transaction will be undertaken as follows:

a. the Investor will acquire units in a Trust, funded by a limited recourse loan made from the Lender

b. the Investor must pay interest on the Loan (in advance) to the Lender.

c. the Trust will enter into a Consortium Agreement with an Approved Participant under the NRAS (Approved Participant).

d. under the Consortium Agreement, the Approved Participant will lease the dwellings to the Trust under a head lease. The Trust will lease the dwellings back to the Approved Participant under a sub-lease and the Approved Participant will lease the dwellings to the eligible NRAS tenants.

e. the Approved Participant will make the relevant election pursuant to section 380-11 of the ITAA 1997.

f. Before the end of the income year, it is expected that the Federal Housing Secretary will issue the necessary NRAS certificate or certificates to the Approved Participant. This will establish the amount of the Federal tax offset applicable to the dwellings.

g. Investors on the register of the Trust at the end of the income year will be presently entitled to all of the net income of the Trust. A distribution of the income of the Trust will be made at the end of the income year.

Assumptions

The ruling is made on the basis of the following assumptions:

Relevant legislative provisions

Section 380-11 of the Income Tax Assessment Act 1997

Subsection 380-14(1) of the Income Tax Assessment Act 1997

Subsection 380-14(2) of the Income Tax Assessment Act 1997

Subsection 380-15(1) of the Income Tax Assessment Act 1997

Subsection 380-25(3) of the Income Tax Assessment Act 1997

Subsection 380-30(2) of the Income Tax Assessment Act 1997

Subsection 380-30(3) of the Income Tax Assessment Act 1997

Section 380-35 of the Income Tax Assessment Act 1997

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Issue 1 Question 1

Is the Trust deemed to be issued with an NRAS certificate pursuant to subsection 380-14(2)?

Summary

Yes.

Detailed reasoning

(a) the *Housing Secretary issues an *NRAS certificate in relation to an *NRAS year to the *NRAS approved participant of an *NRAS consortium; and

(b) the NRAS certificate covers one or more *NRAS dwellings; and

(c) a *member of the NRAS consortium, other than the NRAS approved participant, *derives *NRAS rent during the NRAS year from any of those NRAS dwellings; and

(d) the member is a partnership or a trustee of a trust.

Issue 1 Question 2

Will Investors be entitled to tax offsets pursuant to section 380-25 of the ITAA 1997 on the basis that NRAS rent flows indirectly to unitholders in the Trust?

Summary

Yes.

Detailed reasoning

Flow through of NRAS rent to unitholders

Paragraph 380-15(1)(a) - The Housing Secretary issues an NRAS certificate in relation to an NRAS year to a trustee of a trust;

Paragraph 380-15(1)(b) - NRAS rent derived from any of the NRAS dwellngs covered by the NRAS certificate during the NRAS year flows indirectly to the unitholders in any income year;

Paragraph 380-25(3)(b) - the beneficiary has this amount for that income year (the share amount):

Paragraph 380-25(3)(c) - the beneficiary's *share of the NRAS rent under section 380-30 is a positive amount (whether or not the beneficiary actually receives any of that share).

Paragraph 380-15(1)(c) - the offset year of the partnership or trustee begins in the NRAS year; and

Paragraph 380-15(1)(d) - the entity is:

(i) an individual; or


(ii) a *corporate tax entity when the NRAS rent flows indirectly to it; or


(iii) 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 for the offset year; or


(iv) the trustee of an *FHSA; or


(v) a *superannuation fund, an *approved deposit fund or a *pooled superannuation trust.

Amount of the tax offset

Amount stated in the *NRAS certificate

×

The entity's *share of the *NRAS rent for the
*NRAS dwelling *derived during the *NRAS year

Total *NRAS rent *derived during the *NRAS
year from *NRAS dwellings covered
by the *NRAS certificate


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