Private ruling: National rent affordability scheme tax offset
Published: February 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the arrangement between the company and trust a National Rent Affordability Scheme (NRAS) consortium? | A1: Yes. | Q2: Is the trust entitled to the NRAS tax offset under Division 380 of the Income Tax Assessment Act 1997? | A2: No.

Relevant facts and circumstances: The trust intends to purchase a unit. The seller, a company, is the approved participant under the NRAS and has been granted an allocation of units by the Housing Secretary. On settlement of the purchase contract, the trust intends to lease back the unit to the company under a head lease arrangement. Under the arrangement, the company must actively seek to sublet the unit to an NRAS eligible tenant under residential tenancy agreements for less than 80% of the market rent. On behalf of the trust, the company will provide necessary NRAS administrative and compliance services, with a view to obtain the NRAS incentive for the benefit of the trust. The company will pay the trust rent equal to the rent actually received by the company under a residential sublease. The trust is entitled to all income from the unit under the agreement. The trust is registered for GST, but will enter an agreement with the company as an investor.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 380, | Income Tax Assessment Act 1997 subsection 380-10(1), and | Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision: Summary: Under subsection 380-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a member of a national rent affordability scheme (NRAS) consortium is entitled to a tax offset for an income year if certain conditions are satisfied. An NRAS consortium is a consortium, joint venture or non-entity joint venture established by a contractual arrangement that facilitates the leasing of approved rental dwellings under NRAS. 'Consortium' is not defined by the ITAA 1997, so its ordinary meaning must be considered. The Macquarie Dictionary (third edition) defines consortium as: …an association or union… And further defines 'association' and 'union' as: Association : …an organisation of people with a common purpose and having a formal structure… Union : …a number of persons, societies, states, or the like, joined together or associated for some common purpose… In your situation, it is accepted the arrangement described constitutes an NRAS consortium. As stated above, under subsection 380-10(1) of the ITAA 1997, a member of an NRAS consortium) consortium is entitled to a tax offset for an income year if certain conditions are satisfied. One of these conditions is that the member derives NRAS rent. NRAS rent is defined in subsection 995-1(1) of the ITAA 1997 as, 'rent derived from a rental dwelling under the National Rental Affordability Scheme for an income year'. ATO ID 2009/146 describes an arrangement where parties to a non-entity joint venture participating in NRAS did not derive rent under the NRAS. In this situation, the dwelling owners were parties to a non-entity joint venture. The dwelling owners leased their rental dwellings to another party to the non-entity joint venture. That party then subleased the rental dwellings to the eligible NRAS tenants. The rent derived under the NRAS was the rent derived by the other party and not the dwelling owners. As the dwelling owners did not derive NRAS rent, they did not have an entitlement to the NRAS tax offset. | Detailed Reasoning - Application to your circumstances: In this case, the trust intends to purchase a property from a company that is an approved participant under the NRAS scheme. The trust will then lease the property to the company under a head lease arrangement. Under this arrangement, the company must actively seek to sublet the property to an eligible NRAS tenant. This arrangement is similar to the circumstances outlined in ATO ID 2009/146. The company will be deriving NRAS rent from the eligible tenants and the trust will be deriving ordinary rent from the company. Therefore, the trust is not entitled to the NRAS tax offset.

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