Private ruling: National rental affordability scheme refundable tax offsets
Date of advice: 20 March 2018
Published: June 2018
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is AB entitled to claim National Rental Affordability Scheme (NRAS) tax offsets in relation to NRAS dwellings? | A1: Yes

Relevant facts and circumstances: AT was the owner and developer of apartments during the 2014/15 NRAS year. AT engaged AP to make application to the Government (relevant Department) to allocate NRAS incentives to the apartments, to enter into management agreements with the subsequent purchasers, and to confirm the apartments as NRAS approved. In 2014, AP issued AT an invoice. The invoice confirmed that NRAS incentives were allocated to the apartments. In 2014 AT entered into an engagement with AP. In 2015 AT entered into an agreement with AP. The agreement confirms that the apartments were NRAS approved, and that AP would pass the NRAS incentive to AT. AP have not passed any Refundable Tax Offset Certificates (NRAS incentives) to AT. TB is the beneficiary of AT, and AB is the beneficiary of TB.

Relevant legislative provisions: Subdivision 380-A of the Income Tax Assessment Act 1997 Section 380-15 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: The National Rental Affordability Scheme is a Commonwealth Government scheme designed to encourage investment in affordable housing by offering tax 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 (low to moderate income earners) at an amount of at least 20% below market rates. The NRAS incentives are provided each year for 10 years, and comprise: ● a refundable tax offset, and ● a state or territory contribution in the form of direct financial support or in-kind contribution, which is non-assessable non-exempt income. Subdivision 380-A of the Income Tax Assessment Act 1997 (ITAA 1997) entitles an entity that receives NRAS rent in an income year to claim the refundable tax offset. Subsection 380-15(1) of the ITAA 1997 entitles a beneficiary who has received rent indirectly through a trust to claim the tax offset Subsection 380-15(1) of the ITAA 1997 states: An entity is entitled to a tax offset for an income year (the offset year) if: (a) The Housing Secretary issues an NRAS certificate in relation to an NRAS year to a partnership or a trustee of a trust; and (b) NRAS rent derived: (i) from any of the NRAS dwellings covered by the NRAS Certificate; and (ii) during the NRAS year; flows indirectly to the entity in any income year; and (c) the offset year of the partnership or trustee begins in the NRAS year; and (d) the entity is: (i) an individual; or (ii) a corporate tax entity when the NRAS rent flows indirectly to it; or (iii) the trustee of a trust that is liable to be assessed an a share of, or all or part of, the trust’s net income under section98,99 or 99A of the Income Tax Assessment Act 1936 for the offset year; or … Note: The entities covered by this section are the ultimate recipients of the NRAS rent because the NRAS rent does not flow indirectly through them to other entities. AT was a member of an NRAS consortium with AP in the 2015 NRAS Year (1 May 2014 to 30 April 2015). The Agreement between AP and AT (the Agreement) related to apartments which were approved as NRAS dwellings. NRAS certificates were issued by the Housing Secretary but were not provided to AT. AT sold the apartments during the 2015 NRAS year. Under the Agreement, AT was entitled to the NRAS incentives (Refundable tax offsets) allocated to the apartments. The ultimate beneficiary of the income (including NRAS rent) of the AT in the 2015 income year was AB (a corporate tax entity), as beneficiary of TB. In accordance with subsection 380-15(1) of the ITAA 1997, AB is entitled to claim the NRAS tax offsets allocated to apartments in the 2015 income year.