This page is very much a work in progress. The National Rent Affordability Scheme has been in place for some time, but it has only recently become available to private investors. As such, I am yet to meet (or even hear of) a taxpayer who has actually purchased an investment property, obtained a National Rent Affordability Scheme credit, and received their rebate. That said, in theory the scheme can be used as part of an investment strategy, and does provide a considerable monetary benefit to the investor.
What is the National Rent Affordability Scheme?
In brief, the National Rent Affordability Scheme is a federal government initiative introduced in July 2008. Ultimately a rental property is rented to an eligible tenant at a rate which is 20% less than current market value. The property owner then receives a refundable tax rebate in place of the lost revenue.
Who is an elligible tenant?
Well, according to the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA):
NRAS aims to provide affordable rental housing for low to moderate income earners including key and essential service workers, such as childcare workers, nurses, police officers, fire-fighters and paramedics.
So just what constitutes a low to moderate income earner? Well, in fact the income rates are quite generous:
| Single person | $42,386 |
| Sole parent with one child | $58,638 |
| Sole parent with 2 children | $72,695 |
| Couple with 1 child | $72,653 |
| Couple with 2 children | $86,710 |
| Couple with 3 children | $100,768 |
Furthermore, a tenants salary is allowed to increase by up to 20% during their tenancy before they will be inelligible to remain in the National Rent Affordability Scheme. That is to say, a single person's salary may increase to $52,983 during their tenancy before they will be unable to renew their lease.
What properties are elligible to enter the National Rent Affordability Scheme?
NRAS dwellings must meet certain criteria:
- The dwelling must be brand new–that is, it must not have been previously tenanted in its current condition.
- The dwelling must be rented at a minimum of 20 per cent below market rent.
- An NRAS dwelling must be self contained. It must be demonstrated that a tenant, or tenants, would be able to live independently within the dwelling and not need to access external or common facilities.
- The dwelling must provide the following facilities:
- a bathroom and kitchen;
- a bedroom and living space (the bedroom and living space may be combined within a single large room, as in the case of studio apartments); and
- a separate lockable entrance which can be accessed either externally or via an internal hallway or common entrance. The entrance cannot be accessible only via entry to another dwelling.
- A dwelling which does not provide private facilities cannot be considered a rental dwelling or a subsidiary dwelling under the Scheme and will not be eligible for the National Rental Incentive.
- An eligible dwelling does not include a caravan, houseboat or other kind of mobile dwelling.
- The tenants of eligible dwellings must meet the income requirements prescribed by the Scheme.
However, whilst a property may be eligible to enter the scheme, the trouble would be getting it accredited. FaHCSIA will not deal with individual investors. Generally a developer would have a number of properties accredited as a group prior to selling them individually.
What happens if I sell a property which is in the National Rent Affordability Scheme?
Whilst I am currently trying to verify these assumptions, logic would suggest that were the house sold with an NRAS tenant, the purchaser would subject to the same terms, obligations, and options, that you are. That is, they could continue the NRAS contract, or they could opt out of the scheme.
Is the cost of the National Rent Affordability Scheme Credit tax deductible?
This is something I am still trying to ascertain. I would assume that as the credit has a useful life of 10 years, then it would be depreciable over that time. That is, if you pay $10,000 for a National Rent Affordability Scheme Credit, then you can claim $2000 in the first year (diminishing value method) reducing to $0 in the tenth year.
How do I enter my property into the National Rent Affordability Scheme?
This is actually quite a complex question, according to FaHCSIA:
As NRAS aims to encourage large-scale investment in affordable housing, it is not directly available to small-scale, private, individual investors in the rental property market. These investors could become involved by investing in entities that participate directly in the Scheme, for example, through a superannuation fund or property trust.
That said, it would be possible to buy an accredited property from a developer who has had a group of properties accredited.
How does the National Rent Affordability Scheme Rebate work?
Well, your NRAS agent (who sold you the credit and administers the property) will issue you with a certificate subsequent to the 1st of May every year, which will provide the amount of the rebate you are entitled to claim. The exact amount of the rebate will vary every year for two reasons. Firstly the maximum amount available is indexed annually, that is, its increased every year in line with national inflation. And secondly, where there is a period of vacancy of greater than 13 weeks your rebate will be reduced pro-rata to the remaining portion of the year. Whilst such an extended vacancy would be unusual, this means that in the year you purchase the property, and in the final year of the contract term (10 years) your rebate would be reduced. For example, if you purchase on the 1st of April, then you will receive ~25% of the rebatein the first year and 75% of the rebate in the 11th year.
The rebate is refundable. That means, even if you have not paid any tax at all during the year through either the Pay as You Go System or your salary, the entire rebate will still be refunded to you with your Income Tax Assessment.
A word on loan servicability...
Whilst your National Rent Affordability Scheme Credit might improve your cash flow from your investment property, your bank may not see it that way. Whilst this situation may change in the future, currently when calculating your ability to service a new loan, a bank will not consider your National Rent Affordability Scheme Rebate, that is, they will simply see an investment property with rent income 20% below what it should be.