National Rent Affordability Scheme (NRAS) Rental Properties
The National Rent Affordability Scheme or NRAS is a government scheme designed to ensure that rent remains affordable for working families. It differs from the concept of “Social Housing” as the NRAS tenant can earn up to $125,960 per year as opposed to $58,292 for social housing tenants, so the focus is on service industry workers, over 55’s and families. Rents are set by the rental market not by the department of housing.
What are the benefits?
The benefit of buying a NRAS property over other residential property is the government incentive. In the first 10 years of holding an NRAS property the government will provide you with an incentive $10,350 per annum as at 2013-14 tax year. This amount reduces your tax payable and is indexed against the Housing Group Consumer Price index each year. Because this amount is a tax offset, meaning that it reduces your tax payable by this amount, it also means that the full $10,350 is tax free.
What are the conditions?
There are some restrictions on where you can buy, however our team can guide you through the process. The most notable condition is that the rental property must be rented to “eligible renter” and the rent must be 20% lower than the market rent. This sounds like a lot, but when you consider that if you rent a property at $400 per week, then a 20% rent reduction is $80 per week then add back the refundable NRAS payments of $199 per week, you are still $119 per week better off.
Example of an NRAS Property inside Superannuation
Let’s assume that you and your partner together have $200,000 in super and you are both under 50 so you can only contribute $25,000 each to your superannuation fund by way
of employer contributions.
Since most NRAS properties purchased are between $250,000 and $400,000, let’s assume you buy and NRAS property for $325,000.
You will need a 30% deposit (assume $100,000) due to the rules surrounding borrowing inside superannuation, so you have borrowed $200,000.
The market rent in the area is $400 per week. So the reduced NRAS rent
will be $320 per week. You invest any leftover cash after the
purchase in shares or term deposits returning 5%.
Looking at this example if you invest in traditional investments you will return 4.25% after tax, but with an NRAS property, you have more than doubled your return to 9.22%.
What other advantages are there to buying property inside a Superannuation Fund?
All ordinary income of a superannuation fund is taxed at 15% while capital gains are only taxed at 10%. When you compare this to the 23.25% that an individual pays on capital gains tax this is big tax savings. It gets even better! When you retire your superannuation fund goes into “Pension Phase”. While in pension phase your superannuation fund pays 0% tax. So the Capital Gain from holding the NRAS property is effectively taxed at 0%, making it a tax-free gain.