National Rental Affordability Scheme (NRAS)
The National Rental Affordability Scheme (NRAS) is an Australian government initiative designed to increase the supply of affordable rental dwellings by 50,000 by 2012. Under NRAS, the property investor must lease each approved property for at least 20 percent below market value. In return, the investor is offered an attractive tax incentive each year for 10 years.
Federal and State funding
At program inception in 2008/2009, each approved NRAS dwelling offered the property investor a $6,000 tax incentive from the Federal government and a $2,000 tax incentive from the State government, bringing the total incentive to $8,000.
Both Federal and State incentives are indexed each year according to movements in rents across each of the capital cities.
In the 2009/2010 year, the Federal NRAS incentive has increased to $6,504 and the State contribution has been increased to $2,168 bringing the total incentive to $8,672.
It is worthwhile noting that according to the Australian Tax Office (ATO), NRAS incentives are Refundable Tax Offsets.
“Tax offsets are generally non-refundable and cannot exceed basic income tax liability. This type of tax offset can only reduce the amount of tax payable to zero and, therefore, result in no refund. However, there are some exceptions to this general rule. These exceptions are classed as refundable tax offsets. Refundable tax offsets can reduce your tax liability below zero, to produce an amount refundable. The NRAS tax offset is a refundable tax offset.” – Australian Tax Office website
Typically the 20% market discount that the property investor foregoes is more than compensated for by the amount and type (Refundable Tax Offset) of the NRAS incentive indexed over 10 years.
Assessment Criteria
At this point, without further details disclosed, the Five Assessment Criteria for projects for Round Three don’t appear to have changed too much from Round Two. The five assessment criteria are that:
- There is a demonstrated need for the Proposal
- The Proposal addresses Priority Areas of Interest
- The Proposal delivers accessibility and sustainability outcomes
- The Entity or Organisation has demonstrated capacity and experience
- The Proposal is financially viable
In addition, there appear to be extra assessment criteria for:
1.” Applications which link to proposals under the Social Housing Initiative, a component of the Nation Building and Economic Stimulus Plan.”
2. “Applications which seek to have the private sector develop state-owned land that has been released for residential development – the NRAS component can be all or part of the development”
Round Three funding
NRAS Rounds One and Two have already taken place and are now closed.
NRAS Round Three is about to open on September 1st, 2009, at which point further application details will be disclosed.
It is worthwhile noting that a significant change in NRAS Round Three is an extended 12 month application period – reflecting feedback from Melbourne developers that the previous two application periods were too short and did not allow for the various timing and finance issues involved in putting together suitable NRAS projects.
Conclusion
In summary, the National Rental Affordability Scheme is an ambitious initiative by the Federal Government to increase the supply of affordable rental properties by 50,000 by 2012. This is done by offering tax incentives to property investors who offer approved properties for at least 20% below market value. These tax incentives, in the form of Refundable Tax Offsets, are offered for 10 years for each NRAS approved property and indexed each year according to movements in rents. There are Five Assessment Criteria that properties must meet in order to qualify for NRAS. Applications for NRAS Round Three commence on September 1st 2009 and remain open for a 12 month period.
What have your experiences been like?
We would welcome hear about your NRAS experiences. Please feel free to comment in the form below on anything related to this article and/or the following questions:
- Have you applied for NRAS Round One or Round Two funding? and/or
- Have you received NRAS funding already?
- What have your experiences been like?
National Rental Affordability Scheme related links:
- Australian Federal FAHCSIA National Rental Affordability Scheme (NRAS) site
- Victorian Office of Housing National Rental Affordability Scheme (NRAS) site
- Australian Tax Office (ATO) statement on NRAS Refundable Tax Offsets
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