EVERYTHING YOU NEED TO KNOW ABOUT NRAS
The National Rental Affordability Scheme
Topline - As an investor, you "give a little, to get a lot!" A typical scenario the investor gives up $80-$100 per week as a rent reduction, and receives $215.23 per week - (Yes, you read that right! In very round figures give $100 to get $200. NICE!)
As a tenant, obviously you benefit from a significant discount on your accomodation rental costs.
Before going any further, if Labour get in at the Federal election anticipated to most likely be 18 May 2019, they have tabled existing proposals of possibly extending existing NRAS agreements.
PLUS you may well have seen in the press recently, one of Labour's key policies is to deliver another iteration of NRAS for a 15 year period subsidy. (The current one was for 10 years)
So what is The National Rental Affordability Scheme
The NRAS property program (National Rental Affordability Scheme) is designed to stimulate the building of rental homes in growth areas to satisfy a high demand for reasonably priced rental property.
The focus as tenants within the NRAS program are key workers such as nurses, teachers, police officers, fire fighters, ambulance operators and other contributing members essential to our growing society, who need to be able to access housing which is affordable to them.
The Federal Government NRAS program is also designed to provide a method and a potent incentive for Australian property investors to build their wealth and tangible assets with a social impact investment strategy. The NRAS real estate program stimulates the economy and building industry, nationally.
There are strict guidelines for properties to qualify under the NRAS scheme. NRAS properties must be close to transport, schools, shops etc. making NRAS properties desirable for tenants and property investors.
The NRAS initiative is funded for up to 40,000 dwellings, and all new investment properties must be ready for tenancy latest 30 June 2016. Owners of NRAS Properties will continue to get the substantial tax incentives for ten years from acquisition.
For more background info go to NRAS Australia
NRAS offers investors a substantial annual tax-free incentive.
The NRAS Incentive is a funding stream not available to standard residential property investors. The annual income-tax free incentive is currently $11,192 (2018-19) per dwelling, and is indexed each year to the rental component of the CPI - for a period of ten years.
The NRAS program (National Rental Affordability Scheme) is designed to stimulate the building of rental homes in growth areas to satisfy a high demand for reasonably priced rental property by middle income Australian families.
Residential property is a cornerstone of wealth creation in Australia.
The Government has created this substantial annual tax-free opportunity to incentivise the building of new rental properties. Properties with a better return on investment by providing a tax free rebate of $11,192 (2018-19 Indexed by Rental CPI) per annum for a period of ten years. Making this asset class a strong, robust and reliable part of a well structured wealth creation plan.
Vacancy risk is negligible
Compared with a conventional residential investment property, in certain markets the NRAS Incentive can provide a better cash return to investors than the receipt of full market rent. In addition, investors are able to apply property expenses and non-cash deductions and allowances against a lower assessable rental income, increasing the negative gearing benefit.
NRAS can counterbalance the risk and volatility of equity markets and assist in providing a balanced portfolio. It offers great flexibility, with investors encouraged to develop portfolios with diverse dwelling types across different locations.
With more than 1.5 million households eligible to rent NRAS properties, the vacancy risk is negligible.
FAQ - Frequently Asked Questions about NRAS?
NRAS - What happened to Round 5?
Q: How does Round 5 discontinuing impact the incentives I already have as an Approved Participant?
A:Incentives already allocated through the scheme will continue to be paid for up to ten years as long as eligibility requirements are met and homes in the construction pipeline are built according to agreed timeframes and in agreed locations.
Q: What does Round 5 discontinuing mean for me as a current investor in the scheme?
A:If you are an investor in dwellings that are currently rented as part of the scheme, this decision will not impact your existing investment in the scheme. For dwellings not yet delivered, you should discuss the progress of the project with your Approved Participant.In the past, many dwellings have been delivered long after the agreed date and the Department will be withdrawing incentives where insufficient progress has been made.
Q: What does Round 5 discontinuing mean for me as a potential investor in the scheme?
A:Investors can continue to invest in the scheme as there are still a number of dwellings to be delivered through the scheme (around 18,000 dwellings are currently in the construction pipeline).
Q: Can anyone invest in NRAS properties?
A:Yes. NRAS is designed to be attractive to the Australian property investor, subject of course to being able to get finance. You should discuss any the suitability of any investment with an advisor, taking into consideration your equity and income, before you make a committment. Access Commercial Transactions can guide to a suitable expert if you do not have anyone to refer to.
Q: Is NRAS just another name for privately funded housing commission properties?
A:No. It is important to distinguish this program from the Federal Government "Social Housing Program". This is NOT part of that program and attracts totally different tenants. The National Rental Affordability Scheme is designed to address the housing affordability crisis by increasing the supply of private rental housing.
A couple with three children can earn $120,048 pa (rising to $150,060) and still qualify to rent.
For more info go to DSS - NRAS Household Income
Q: What are the differences between NRAS and DHA (Defence Housing Australia)?
A:The major difference is the decade of NRAS annual Tax Free contributions from the Governments (2018-2019 $11,192). There are many advantages of NRAS over DHA. Importantly, investors have the flexibility of opting out the NRAS at any stage if they so chose PLUS investors have the controlling choice of tenant (and in some cases options of property manager) whereas the DHA hold the head lease on the DHA properties.
Q: Are the NRAS scheme incentives tax free?
A:Yes. The incentives are paid as a refundable tax offset this means it reduces your tax bill or if you do not pay enough tax you can receive it as a tax refund. The States contribution is 'non assessable and exempt' for tax purposes. That means if you pay less tax than the offset amount you receive it as a refund.
Q: What happens when the investor lodges their tax return?
A:When the property owner lodges their tax return the incentive is used as a tax offset. This can reduce the overall tax payable or can be received as cash refund if there is no tax debt for the year.
Q: How much is the NRAS incentive worth each year & What is the NRAS payment process?
A:The NRAS Incentive is currently $11,192 per dwelling, and is indexed each year to the rental component of the CPI.
The Incentive comprises:
a) an Australian Government contribution of $8,394.10 per dwelling per year (paid as a refundable tax offset or payment. 2018-19)
b) and a State or Territory Government contribution of $2,798.03 per dwelling per year (in direct or in-kind financial support. 2018-19)
Q: What were previous NRAS incentives worth each year & What is the NRAS payment process?
A:The 2018-2019 NRAS Incentive is currently $11,192 per dwelling, and is indexed each year to the rental component of the CPI.
The previous years incentives:
2018-2019 $11,192 (Year on Year +0.007%)
2017-2018 $11,114 (Year on Year +0.005%)
2016-2017 $11,048 (Year on Year +1.2%)
2015-2016 $10,917 (Year on Year +2.4%)
2014-2015 $10,661 (Year on Year +3%)
2013-2014 $10,350 (Year on Year +3.7%)
2012-2013 $9,981 (Year on Year +4.8%)
2011-2012 $9,524 (Year on Year +4.2%)
2010-2011 $9,140 (Year on Year +5.4%)
2009-2010 $8,672 (Year on Year +8.4%)
Q: When does the NRAS Tax Free incentive contribution actually get paid?
A:Once the Department is satisfied that NRAS conditions have been met, NRAS investors are provided with their annual tax offset certificate for their NRAS property investments. The NRAS year is from 1 May until 30 April each year. Payments are usually made by the Australian Government in July and by the states/territories around September, following the end of each NRAS year.
Q: Does the Australian Government back the incentive?
A:Yes - The Aust. Government is committed to paying the annual NRAS incentive for approved dwellings.
Q: Who determines the 20% discount rental rate?
A:Independent registered and qualified valuers. They determine what the market rent is for years 1, 4 and 7. A 'desk top' valuation is used for the other years.
Q: Why 10% Property Management Fee and What Does It Cover?
A:While investors could shop-around and find Property Management Fees of 6-8% plus GST, these fees often exclude additional charges for a wide range of activities.
Such as Initial letting Fee, Subsequent Letting Fee, Renewal letting Fee, Administration Fee, Tenancy Agreement Preparation Fee, Administration Fee, Promotional and Marketing/Advertising Fee
Generally speaking the Consortiums' business models are to work at scale and provide a high level of certainty about roles, responsibilities and fees. Therefore, decided that our NRAS Model will provide an all-in fee with no extras. The model looks to provide stable longer term renting and, therefore, the fee structure is designed to reward stability not turn-over.
With the inclusive flat-rate Property Management Fee of 10% of the Market Rent plus GST there are no additional charges for re-letting, advertising, correspondence, reporting etc. The fee also covers 2 weeks conditional vacancy cover for each RTA renewal lease period.
Q: Can I sell my NRAS property or remove it from the Scheme and rent it at market rates?
Q: Can I buy more than one property?
A:Yes, we can help you with a strategy if you would like to do so.
Q: Can I sell the property at any time?
A:Yes and the NRAS entitlements goes with the property on what time is left of the 10 years.
Q: When do the NRAS incentives begin?
A:When the tenant moves in and is pro-rated for the remainder of the period until 30 April.
Q: What happens at the end of the 10 years?
A:You can sell or keep the property and the market rent returns to the normal rent.
Q: I've recently been hearing the phrase 'NRAS shovel ready round ' what does it mean ?
A:Call us on 1300 67 27 28 to find out more about the 'shovel ready round' . Applications for this round closed on April 30 2013 and investor opportunities wil be announced on May 31 2013'.
Q: Where can I find out more?
A:Watch the video aboveand contact us on 1300 67 27 28 for information that is specific to your circumstances.
If this FAQ hasn't answered your questions or you still feel you need more information then go here DSS - NRAS FAQ