Private ruling: Claiming the NRAS refundable tax offset
Published: July 2013
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Are the unit holders entitled to claim a share of the NRAS refundable tax offset, despite the fact that there is no income available for distribution? | A1: No. | Q2: Is the trustee entitled to claim the NRAS refundable tax offset, when the trust has no net income? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Division 380 | Income Tax Assessment Act 1997 Section 380-10 | Income Tax Assessment Act 1997 Section 380-15 | Income Tax Assessment Act 1997 Section 380-20

Reasons for decision: Summary: NRAS is a Commonwealth Government scheme designed to encourage investment in affordable housing by offering tax and cash incentives to providers of new rental dwellings. Entitlement to these incentives is subject to certain conditions being met, including that the rental property is rented to eligible tenants at an amount of at least 20% below market rates. The NRAS incentives offered are annual incentives, comprising of: · A Commonwealth Government incentive made by way of a refundable tax offset, and · A cash payment from the relevant state government, which is non-assessable non-exempt income. Your investments are through a unit trust structure where there is two individual unit holders. | Detailed Reasoning - Entities to which NRAS rent flows indirectly: Section 380-15 of the ITAA 1997 provides for refundable tax offset claims by entities which are indirect recipients of the NRAS rent derived from rental dwellings to which a certificate relates. The rationale is that an entity can claim its share of the offset consistent with its share of rental income from its participation in the NRAS through the trust. An offset claim can arise under section 380-15 of the ITAA 1997 if the following conditions are satisfied: (1) the Housing Secretary has issued a certificate in relation to an NRAS year to a trustee; (2) NRAS rent derived from any of the dwellings covered by the certificate during the NRAS year flows indirectly to the entity in any income year; (3) The income year of the trustee of the trust begins in the NRAS year; and (4) The entity is: (a) an individual ………….. The beneficiary of a trust to whom NRAS rent flows indirectly in a year is not entitled to an offset if the trust has no net income for the year. In such a case the trustee may be able to claim a refund of the offset amount. For NRAS income to flow indirectly to an entity, the beneficiary has a share (whether or not the share amount becomes assessable income in the hands of the beneficiary) of the trust's net income for that year to which paragraph 97(1)(a) of the ITAA 1936 applies. In your case there is no net income in the unit trust, therefore there is no rental income to distribute to the beneficiaries. The beneficiaries do not meet the condition of deriving NRAS rent and therefore cannot claim a refundable tax offset. | Detailed Reasoning - Claim by trustee where trust has no net income: Section 380-20 of the ITAA 1997 provides for refundable tax offset claims by a trustee provided that the Housing Secretary has issued the trustee a certificate under the NRAS and the trust has no net income. In your case the trust has no net income, so provided the trustee has been issued the NRAS certificate by Housing Secretary, they can claim the NRAS refundable tax offset. If the trustee of a trust is entitled to a refundable tax offset because it satisfies these conditions, a beneficiary of the trust is not entitled to an offset in relation to the NRAS rent for the rental dwelling.

Relevant facts: You conduct investments under a unit trust structure. The trust has two unit holders, each of whom has a 50% interest in the trust. | The trust owns two residential investment properties under the National Rental Authority Scheme (NRAS). | The trust incurred a rental loss in the years of income ended 30 June 2011 and 2012 and no income distribution was made to its unit holders, since there is no net income available for distribution. | The trust also received NRAS refundable offsets in the years ended 30 June 2011 and 30 June 2012. | The trust has noted its intention to distribute this offset to its unit holders in the trustee minutes at the end of the financial year, pending the outcome of this ruling. However, it has neither included such distribution in its income tax returns nor instructed its unit holders to include the offset in their respective tax returns for those years.