Q: What are the upsides to NRAS properties
A: The tax free NRAS payments under the scheme can improve the overall cashflow attached to the property making the property at or close to neutral. NRAS properties are advertised at a discounted rent which could make them more attractive to potential renters.
Q: What are the downsides to NRAS properties?
A: (1) Loss of control over the management of the property, the rental charged, and the tenants selected. All of these aspects are determined by the consortium with little or no recourse for the vendor. (2) Limitations with regards to finance. Not all lenders will fund and there are restrictions on lending. (3) Limitations over property selection as you can only select from properties approved under the scheme. NRAS properties are not located in all areas. (4) Increased legal and management costs (5) Restrictions around exiting the scheme (6) Substantial lags before NRAS incentives are paid. You may have to carry the property at discounted market rent for over 12 months before you receive NRAS incentives which will result in a substantial cashflow short fall in the early phase of the property.
Q: Who manages the NRAS Scheme?
A: The Department of Sustainability, Environment, Water, Population and Communities (SEWPaC) is responsible for the ongoing management of NRAS, in consultation with the Australian Taxation Office.
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.
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 $108,169 pa and still qualify to rent.
Q: How much is the NRAS Incentive and how is it paid?
A: The annual income-tax free Incentive is currently (in 2012) $9,981 per dwelling, and is indexed each year to the rental component of the CPI. The NRAS year runs from 1st May to 30th April of the following year. In the current year the Incentive comprises: (a) an Australian Government contribution of $7,486 per dwelling per year (as a refundable tax offset or payment); and (b) a State or Territory Government contribution of $2,495 per dwelling per year (in direct or in-kind financial support). When the scheme was launched in 2008, payments were $8000 , then in 2009 - $8672; 2010 - $9140; 2011 - $9524.
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:Who manages the payments of NRAS Incentives to your bank account?
A: Your Consortium effectively does this. They stand between you and the Government Departments and ensure all parties (especially the tenants) are compliant with the rules. This makes you eligible to receive a SEWPaC certificate which you give to your accountant which in turn allows your tax refunds or as the case may be. The Consortium will charge you an annual fee, probably somewhere around $600 to $800 to do this.
Q: How long do the NRAS incentive payments continue for?
A: The NRAS incentive, 75% is payable either as a grant (i.e.tax cheque) or refundable tax offset by the Taxation Department, and the remaining 25% is paid by the appropriate State Government annually for up to 10 years.
Q: How do I continue to remain eligible for NRAS incentive payments?
A: To remain eligible to receive the incentive, known as the NRAS Incentive, you must rent your property to low and moderate income households at a rate that is at least 20 or 25 per cent below prevailing market rates. Your Consortium arranges (a) for the chosen Real Estate Office to advertise and choose appropriate tenants and to monitor your property, and (b) rental valuations and increases and compliance of all parties.
Q: Who determines the discount rental rate?
A: An independent registered and qualified valuer determines the market rent for your property for years 1, 4 and 7. Between those valuations a desk top' valuation is undertaken.
Q: Can I purchase an NRAS property through my Self-Managed Superannuation Scheme (SMSF)?
A: Generally yes but you may not obtain finance to purchase through a SMSF
Q: Can I manage my NRAS property myself?
A: No. NRAS investors must sign a "Non-entity Joint Venture Agreement" with a Consortium. Basically this means the investor still owns the property but the Consortium manages the NRAS Scheme for them. The Consortium (sometimes in consultation with the investor) will appoint a tenancy and/or property manager to provide services including selection of tenants and periodic assessment of the tenant's ongoing eligibility to rent an NRAS property, as well as property maintenance.
Q: Who arranges the Management Agent for my NRAS property?
A: The consortium or its representative through which you purchase your NRAS property will make suggestions to you.
Q: Do NRAS tenants have any different benefits to ordinary investment property tenants?
A: No. NRAS tenants and landlords are regulated under State and Territory tenancy laws. The same rules regarding evictions, maintenance obligations and responsibilities of tenants apply to NRAS tenants as they do to other tenants in the private market. However experience has shown that NRAS tenants are generally better than non-NRAS tenants as they are renting a property at a preferential rate and therefore are unlikely to jeopardise their current or future eligibility if they have to move.
Q: Does the Government have any claim against my NRAS property?
A: No. The Australian Government has no legal claim over your NRAS property. NRAS dwellings are private property. No Government holds caveats or claims over NRAS properties.
Q: Are NRAS properties any different to normal household properties?
A: The design and quality of NRAS dwellings compare favourably with any private non-NRAS dwelling. Typically, they are indistinguishable from other middle-market' dwellings.
Q: I already have an investment property. Can I apply to NRAS to enter the NRAS scheme with it?
A: No. NRAS properties are subject to special State Government location requirements before they are built. Only NRAS approved properties are eligible for the NRAS incentive.
Q: What happens when I lodge my tax return with my Accountant?
A: When you see your Accountant you give him your NRAS Certificate issued by SEWPaC. He will then lodge your tax return and the certificate number will trigger an NRAS tax offset by the Taxation Department. This will either reduce the overall tax payable, or will be paid to you by the Australian Government by cheque as cash refund if there is no tax debt (or if your tax liability is less than Federal Government's portion of the incentive) for the year.
Q: What happens if the amount to be used as an offset is lower than the NRAS incentive amount?
A: The balance of the incentive after deduction of the amount used for offset will be paid to you by the Australian Government by cheque as a cash Tax Free payment.
Q: Does the Australian Government back the incentive?
A: Yes - Provided your dwelling is approved for the incentive payment the Australian Government is committed to paying the annual NRAS incentive.
Q: How do I receive my payment due from the State Government?
A: By cheque, generally after the end of the financial year, but all State Governments pay on a different date.
Q: Can I sell my NRAS property during the NRAS term?
A: Yes subject to the notification periods required under your agreement with the consortium. The NRAS Incentive stays with the property, not the owner. In most cases NRAS dwellings can be sold without penalty during the 10 year period under the following circumstances: (a) a dwelling can be sold to another investor who undertakes to comply with NRAS obligations; or (b) an equivalent dwelling can be offered as a substitute dwelling for the remaining part of the 10-year period.
Q: Do I have any ongoing obligations to the Government after the expiration of the NRAS 10 year term?
A: No. At the end of the NRAS 10 year period, properties revert to full control of the investor, who has no ongoing obligations to the Australian Government.
Q: Can I buy more than one property?
Q: When do the NRAS incentives begin?
A: When the first tenant moves in. Incentives are then calculated pro-rata for the remainder of the year until April 30. The Government will continue to calculate the NRAS incentive for up to 13 weeks in the case of vacancy.
Q: What happens at the end of the 10 years?
A: You can sell or keep the property. The NRAS payments cease and you charge rent at the normal market rate as you would any normal investment property.
Q: What if the consortium goes bankrupt?
A: You can apply through NRAS to have your incentives managed by another NRAS approved corporation.
Q: Why is the Real Estate Management Fee in the examples on the NRAS Cash Flow page in this website calculated at 10%?
A: 10% of the discounted rent is roughly equivalent to 8% of the market rent. Real Estate Agents will charge between 6 and 8.5% for Property Management Fees.