The National Rental Affordability Scheme (NRAS) is a federal government-backed program designed to provide 50,000 affordable rental properties by 2014. It is not a public housing program, but rather a tax incentive to induce more private investment in the lower price range of the residential construction market.
The key to the NRAS is a simple incentive. In return for investors offering rental properties to approved NRAS tenants at rents 20% below market rates, the NRAS scheme provides an annual incentive of at least $9,524 for 10 years, with the incentive increasing each year in line with the consumer price index.
This incentive is tax free and is structured as a refundable tax offset. That means a taxpayer with a tax bill at the end of the financial year will have the NRAS incentive offset against his tax bill. If an investor has no tax to pay he would receive the incentive as a refund.
With the government incentives, a property in the NRAS can actually produce positive or neutral cash flow – as well as minimal holding costs and the opportunity for capital growth.
Furthermore, investors are still able to claim standard rental tax deductions, such as interest, depreciation, property management costs and some maintenance costs. And investors who buy an NRAS -approved property off the plan can also access the usual benefits this type of property offers, including substantial stamp duty savings. Investors can also purchase NRAS approved property using their self-managed superfunds.
- The Australian Government has made a 10 year commitment to NRAS. The Scheme is managed and regulated under the legislative framework provided through the National Rental Affordability Scheme Act 2008.
- Operating agreements between the scheme operator and individual investors can vary considerably. Investors should familiarise themselves with the specific provisions of the scheme operator agreement (and seek professional advice regarding) before deciding on a particular investment.
- The required discount to market rents can vary from a minimum of 20% to up to 30%.
- Where dwellings are approved under NRAS, investors should be aware that this does not mean that the Australian Government endorses guarantees or secures the investment in any way.