The National Rental Affordability Scheme (NRAS) is a private investment scheme targeted at large-scale investors seeking improved returns on their direct property investment.

NRAS provides a substantial annual tax-free incentive per dwelling to investors who build and rent approved dwellings at a rate that is a least 20 per cent below the prevailing market rate, to low and moderate income households.

Approved NRAS investors will be eligible for tax-free incentives not available to conventional, individual residential property investors, with each approved dwelling attracting an annual NRAS Incentive for up to 10 years.

The annual NRAS Incentive is income tax-free, indexed annually to the rental component of the Consumer Price Index (CPI) and is complemented by existing taxation arrangements including depreciation. The Incentive currently comprises:

• an Australian Government contribution of $7,486 per dwelling per year as a refundable tax offset (not-for-profit organisations endorsed as charities by the Australian Taxation Office can choose to receive the contribution as a refundable tax offset or a direct payment)
• a State or Territory Government contribution of $2,295 per dwelling per year in direct or in-kind financial support

NRAS creates a new residential property asset class for property investors and presents a new investment opportunity in the Australian market. It is intended as a commercial investment option for participants while also increasing the supply of affordable rental housing in Australia.

Investors in the Scheme can expect to benefit from the annual tax-free NRAS Incentive for up to 10 years, rental yields and capital gains.

Under NRAS, investors receive a tax free incentive of $9,981 per annum (indexed annually) for up to 10 years for each approved dwelling rented at a rate that is a least 20 per cent below the prevailing market rate.

Compared with a conventional residential investment property, in certain markets, the addition of the tax-free Incentive can provide a better return to the investor than charging market rent. In addition, investors could apply property expenses and non-cash deductions and allowances against a lower (80 per cent of market) assessable rental income which could amplify the negative gearing benefit.

As NRAS aims to encourage large-scale investment in affordable housing, it is not directly available to small-scale, private, individual investors in the rental property market. These investors could become involved by investing in entities that participate directly in the Scheme, for example, through a superannuation fund or property trust or through purchasing individual properties from an NRAS Participant.

The Government is committed to ensuring that the full value of the NRAS Incentive is passed to all investors.

Arrangements between dwelling owners and approved participants are a matter for those parties and cannot be facilitated or prescribed by the Australian Government. Investors should undertake their own investigations and seek independent investment advice to ensure they are satisfied that investing in NRAS is the right investment for their individual circumstances.

The design and quality of NRAS dwellings compare favourably with any other private market non-NRAS dwelling. Typically, they are indistinguishable from other ‘middle-market’ dwellings. Rigorous selection criteria are applied to the location, design and amenity of NRAS dwellings. All dwellings must also comply with State, Territory and Local Government planning and building codes and requirements.

NRAS aims to provide affordable rental housing for the nation’s critical infrastructure workforce as well as other low to moderate income earners.

Income levels for eligible NRAS tenants accommodate a range of low and moderate incomes.

To allow for income increases above CPI, income increases of up to 25 per cent above the initial income limit thresholds for two years after entering an NRAS dwelling are allowed before becoming ineligible for the discounted rent.

Investors no longer wanting to participate in the Scheme can sell their dwelling or cease their participation prior to completion of the 10 year NRAS term without incurring any early exit penalties:

a dwelling can be sold to another investor who undertakes to comply with NRAS obligations
an equivalent dwelling can be offered as a substitute dwelling for the remaining part of the 10-year period

At the end of the 10 year NRAS period, properties revert to full control and ownership of the investor.

The Australian Government has developed an Information for Investors publication specifically designed to provide potential investors with information about the Scheme and how NRAS can become part of an investment portfolio.he National Rental Affordability Scheme or NRAS was launched for the purpose of providing assistance and funding to increase the supply of affordable rental dwellings, reduce rental costs to low to mid income earners and to encourage investment on a large scale to provide more affordable housing.