Edited version of private ruling

Authorisation Number: 1011420252716

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Ruling

Subject

National Rental Affordability Scheme (NRAS)

Question

Will owner/investors involved in an arrangement with the entity under the National Rental Affordability Scheme (NRAS) be entitled to the tax offset available under the scheme?

Answer:

Yes, under the proposed Administrative Solution.

This ruling applies for the following period:

Financial year ended 30 June 2010

Financial year ended 30 June 2011

Financial year ended 30 June 2012

The scheme commences on:

1 July 2009

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

The entity has been endorsed as a charitable institution under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997).

The entity is considered an approved participant under the National Rental Affordability Scheme Regulations 2008.

A previously issued Private Binding Ruling examined arrangements where, in brief, the entity was a party to a series of arrangements with individual investors which utilises a head lease/sub lease structure. That previous ruling forms part of and is to be read with this description.

Assumptions

1. where the Housing Secretary has issued a certificate in accordance with the provisions of the National Rental Affordability Scheme Act 2008 (NRAS Act) in conformance with section 380-5 of the ITAA 1997 where an owner/investor is an individual, corporation or superannuation fund.

2. where the Housing Secretary has sought information from an owner/investor which is a partnership or trust identifying an individual, corporate tax entity or superannuation fund who is a partner of the partnership or the beneficiary of a trust and instead issue a certificate to them under the provisions of the NRAS Act in conformance with section 380-5 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Division 50

Income Tax Assessment Act 1997 - Division 380

National Rental Affordability Scheme Act 2008

National Rental Affordability Scheme Regulations 2008

Reasons for decision

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

The entity is seeking confirmation that owner/investors participating in its scheme will be eligible to the tax offset under the NRAS.

What is the NRAS?

The National Rental Affordability Scheme (NRAS) is an initiative of the Australian Commonwealth Government intended to assist low to middle income earners secure affordable rental accommodation.

In brief, NRAS approved rental dwellings are rented to eligible residential tenants for at least 20% below market value rent.

Upon satisfactory compliance with the National Rental Affordability Scheme Regulations 2008, participants in the scheme may be eligible to receive a Commonwealth Government and State Government incentive in respect of the approved rental dwelling.

The Commonwealth Government incentive, for the purposes of the current application, is a tax offset - refer to Division 380 of the ITAA 1997.

Subsection 380-10 of the ITAA 1997

Section 380-10 of the ITAA 1997 provides that, in certain circumstances, a party to a non-entity joint venture (NEJV) is entitled to a tax offset when they derive NRAS rent and the NEJV is issued with a certificate from the Housing Secretary under the NRAS Act.

In head lease/sub lease arrangements, the individual investor is not considered to be deriving NRAS rent; it is the head lessor who is deriving the NRAS rent.

The Administrative Solution

It is our understanding that the Housing Secretary is unable to issue a certificate to a non-entity joint venture (NEJV), which means that no party to a NEJV will have an entitlement to the tax offset as they will not be able to meet the requirements of section 380-10 of the ITAA 1997. It may also be the case that a party to a NEJV which has entered into a head lease with the manager of the NEJV does not have an entitlement to the tax offset as it does not derive NRAS rent (see ATO Interpretative Decision ATO ID 2009/146 for further details).

The Commissioner of Taxation understands that the Housing Secretary will implement an administrative solution to enable the parties to a NEJV to access the tax offset. The administrative solution will be based on the Housing Secretary issuing certificates under the National Rental Affordability Scheme Act 2008 (NRAS Act) directly to the parties to a NEJV. While this process has been described as an administrative solution, it accords with the existing tax law. The administration elements are about issuing NRAS certificates which allow section 380-5(1) of the ITAA 1997 to be followed rather than section 380-10, which would more usually apply to NEJVs.

Subsection 380-5(1) of the ITAA 1997

Under subsection 380-5(1) of the ITAA 1997 a party to a NEJV is entitled to a tax offset for an income year if:

(a) the entity is an individual, a corporate tax entity or a superannuation fund

(b) the Housing Secretary has issued the entity with a certificate under the NRAS Act, and

(c) the income year begins in the NRAS year to which the certificate relates.

Subsection 380-5(1) of the ITAA 1997 will not give rise to an entitlement where the party is not an individual, corporate tax entity or a superannuation fund, for example, where the party is a partnership or the trustee of trust. In these circumstances, the Housing Secretary may choose to obtain information about an individual, corporate tax entity or superannuation fund who is a partner of the partnership or the beneficiary of a trust and instead issue a certificate to them. If so, that individual, corporate tax entity or superannuation fund would be entitled to claim the tax offset under subsection 380-5(1).

Application of administrative solution

If the Housing Secretary issues a certificate to a party to a NEJV, and that party is an individual, a corporate tax entity or a superannuation fund, the party will be entitled to a tax offset for the relevant income year. The party will claim their entitlement when lodging their income tax return at the end of the relevant income year.

Where the party is a trustee or a partnership, the Housing Secretary may choose to seek information about an individual, corporate tax entity or superannuation fund who is a partner of the partnership or a beneficiary of the trust and issue a certificate to them. This is at the discretion of the Housing Secretary and you may need to discuss this further with the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA). The individual, corporate tax entity or superannuation fund issued with a certificate will claim their entitlement when lodging their tax return at the end of the relevant income year.

The Commissioner of Taxation cannot provide an assurance that the Housing Secretary will issue valid certificates to parties to a NEJV in a form that accords with the requirements of subsection 380-5(1) of the ITAA 1997: you may wish to discuss this further with FaHCSIA.

However, if the Housing Secretary does issue such certificates, the ATO is required to allow these parties to claim the tax offset when they lodge their own income tax returns (irrespective of whether they are approved participants or not).