NRAS Investment Property

The National Rental Affordability Scheme also known as the NRAS is a government incentive aimed at helping individuals, couples and families who have good jobs but are struggling to pay their rent. By giving a 20% discount, the NRAS makes it possible for people in this situation to rent the kind of accommodation that suits their needs.

The government compensates the owners of the rented properties by providing them with a Tax Credit of $10,661 (2013 was $10,350) per year, which is linked to Rental CPI going forward over a period of 10 years. The NRAS benefit is split into two parts: the Federal Government Contribution and the State/Territory Government Contribution. The State/Territory Government Contribution is paid via either a cheque or direct deposit to the nominated SMSF bank account. The Federal Government Contribution will come through as a refundable tax credit. This Tax Credit could amount to over $100,000 over the next 10 years. Please see the detailed NRAS scale below:

Under the scheme, only newly built residences meeting set criteria qualify as NRAS properties. Criteria include proximity to schools, the availability of public transport and the location of the property. The Tax Credit thus increases the rental yield on NRAS properties.

The refundable tax offset and the cash payment from Federal and the State/Territory Government are  exempt from taxes in the SMSF (Tax Free).

For the SMSF to be entitled to claim a refundable tax offset, both of the following need to be provided and applied:
  • A certificate from the Housing Secretary under the NRAS stating the Refundable Tax Offset
  • Claiming in the Financial year relates to the NRAS year on the certificate
The typicale journal entries on the Financial Statements for NRAS are as follows:

Refundable Tax Offset (Federal Government Contribution):

  • Dr: Income Tax Payable/ Refundable Tax Credit
  • Cr: Profit/Loss Allocation Account

(BGL wiki accounting instruction)

State/Territory Government Contribution:

  • Dr: Cash at Bank
  • Cr: Distribution (show as Tax Free; change tax label to “not applicable, permanent difference”)
Example with a hypothetical rental income of $350pw
  • Entitles the tenant to a discount of $70 (20%)
  • The tax credit of $9,524 divided by 52 weeks comes to $183 per week
  • In this example, the difference you’d notice in your pocket would be a surplus of $113 per week

The NRAS provides a great incentive for SMSFs looking to enter the property market. Most properties would be positively geared right from the start. For a detailed explanation of NRAS, click here.

To see NRAS properties available for purchase with your SMSF, click here.

The decision to set up an SMSF and then to invest in an NRAS is that of a Trustee’s. To execute this, Superannuation Warehouse will set up the SMSF first and then put the Bare Trust and Corporate Trustee structure into place. It’s important to have these structures up and running before the property is purchased because it ensures that stamp duty is not levied twice.

To see examples of the typical structures and processes involved in SMSF property investment, click here. It can be difficult to obtain finance for NRAS property investments with an SMSF so, if you‘re considering this type of investment, remember that you must arrange the finances first.

Lastly, there are many property spruikers operating in the NRAS area. There are big commissions involved when signing clients up into these schemes. The banks are aware of these schemes, so it can sometimes be difficult to get finance. With this in mind, it’s essential that you perform proper due diligence and make absolutely certain that finance is available before you commit to this type of investment.for more infonmation on property investment, please see here

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We are Melbourne based with clients throughout Australia. Our SMSF administration service is mostly paperless. This enable us to charge a fair fee, resulting in a good value-proposition for you.

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has being prepared without taking into account of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.

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