NRAS fail experience - be very selective

so, the social aspect of providing rents at 20% below market, to aid community affordability issues is now being trumped by the ATO wanting a slice of the pie?

wood for trees, anyone? i will personally be sending this to Hon Tanya Plibersek (the architect of the NRAS scheme) and see what she has to say about this.

This is why I never invest in anything dependent upon the benevolence of a government - especially one that is running out of money.
 
Done 4 years worth of tax returns over a number of NRAS properties. No issue was raised wrt the above ruling including during a mini-audit.

I requested that the ATO provide me with advice over the phone regarding what I can and can't claim wrt NRAS deductions and provided them with the above private ruling number. They got back to me a few minutes ago and advised that, as feared, any fees incurred in participating in the NRAS scheme (i.e. upfront joining fee, annual audit fees, etc.) are non-deductible as they are not directly associated with the leasing of that particular rental property, and are instead connected with the accursed state gov NANE component.

Truong, might I ask how a "mini-audit" differs from a standard ATO tax audit? Also, did you claim full deductions for the NRAS upfront joining fee and annual audit fees?
 
Last edited:
ATO asked for a whole stack of documents to be provided which I did. The assessment that came back didn't raise any issue. I can only assume that an audit did take place but I’m not sure to what extent, hence “mini”.
 
This is why I never invest in anything dependent upon the benevolence of a government - especially one that is running out of money.

But Aaron, neg gearing relies on Govt benevolence, as does private health insurance, medicare, superannuation contributions etc... where does one draw the line?

It's either legislation drafted into law, or its not. And like any legislation drafted into law, it can change - or not.

All that's happened here is that legislation drafted and intended for institutional investors rather than individual investors, needs an amendment to close off a small issue.

And it is a small issue, affecting the cash flow result by around 10-15% at most, in the majority of cases. An investor still ends up several thousand CF+

Now the issue has been identified, let's just all hold off jumping to any conclusions for a moment; a lobby group has submitted a fix to the minister, so let's just wait and see how that evolves.
 
And it is a small issue, affecting the cash flow result by around 10-15% at most, in the majority of cases. An investor still ends up several thousand CF+

I agree that most investors will ends up several thousand CF+ per year on reasonably well-selected NRAS properties (which is significantly better than other neg geared investments - though inferior to reno-flips in my experience), and am likewise hopeful that the lobby group succeeds in changing the status quo.

However I can't see how the issue we are discussing is a small one from a profit perspective. We saw earlier in this thread that an NRAS portfolio garnering 40k CF+ for 3 properties (2 of which are dual-occupancy/duplexes) suffered a 10k drop in cashflow down to 30k CF+. That's already a hefty 25% tumble on what would certainly be a very well-chosen NRAS portfolio, not to mention my loss of 50% of my profits (4k down to 2k CF+) for what I accept is an average or slightly below-average NRAS investment choice. Not to mention the far worse property choices that have been made by numerous NRAS investors (i.e. on "cheap" inner-city studios or anything with extra-high expenses and dismal after-discount, before-rebate rent returns) with staggering profit losses >65%...

As such, whilst the legislative gap might seem small, unless demonstrated otherwise, the impact of that gap on typical NRAS property cashflows is anything but small. I'm happy to be shown accurate calcs for NRAS properties that result in a mere 15% loss, but I doubt any for-profit business that is a going concern would concede a loss of at least 25-50% in the majority of cases as a "small" issue.
 
I was thinking something similar when I read about the mooted changes to superannuation in the paper recently.

Yes life is full of uncertainty if you look for it. However my gut feeling is that the government is more likely to change the rules on negative gearing or CGT than on NRAS, and yet many of us have been happy to base our strategies on those two going on indefinitely.

If the NRAS money happens to run out, I think there’s more chance they would stop granting new packages altogether rather than cancel/diminish the ones already granted.

All things considered NRAS is on the safer side when compared with other strategies.
 
However I can't see how the issue we are discussing is a small one from a profit perspective. We saw earlier in this thread that an NRAS portfolio garnering 40k CF+ for 3 properties (2 of which are dual-occupancy/duplexes) suffered a 10k drop in cashflow down to 30k CF+. That's already a hefty 25% tumble on what would certainly be a very well-chosen NRAS portfolio,
Just to be clear, that 25% drop in CF is if the "worst case" scenario as linked to in the OP was applied ($8,900) and then was rounded up ($10,000) just to be ultra conservative. On advice from my accountant I expect the actual CF loss to be substantially less than that figure, assuming the problem doesn't get worked out beforehand anyway.

However, your point about the possible loss of CF being significant in relation to some NRAS properties is valid. That is another reason to do the best due diligence you can.(I'm not suggesting you didn't btw)
 
The nras scheme is not based on expenses and the state gov nane payment is not bases on these losses. it issued based on the nras scheme compliancy. the only aspect of this compliancy that contributes to expenses and a possible loss is the 20-25% rent reduction. The loss resultant to this component is apportioned taking into account the refundable tax o offset %. the loss caused by the rent reduction is only subject to your marginal tax rate. it is important to note that without the nras compliancy the property becomes a normal rental.
 
The nras scheme is not based on expenses and the state gov nane payment is not bases on these losses. it issued based on the nras scheme compliancy. the only aspect of this compliancy that contributes to expenses and a possible loss is the 20-25% rent reduction. The loss resultant to this component is apportioned taking into account the refundable tax o offset %. the loss caused by the rent reduction is only subject to your marginal tax rate. it is important to note that without the nras compliancy the property becomes a normal rental.

Sorry I'm having a lot of difficulty understanding what you're saying. Are you suggesting that the method of apportionment of expenses between taxable income and NANE income is different to the calculations I gave above?
 
nras and nane

What I am trying to present is the fact that nras incentives are linked to a compliance regime. Only one element of this compliance is represented by a loss, this is the reduction in rent by 20 to 25 percent. This element is the only loss attributed to th nane. In other words if there were no incentive payments then all elements of the rental would be the same. The incentives are not paid because you make a loss, they are ONLY paid if you satisfy the compliance activity and are in receipt of an nras certificate indicating that compliance.
 
Last edited:
Margaret Lomas still not sold on NRAS- Property Observer

First let’s get clear exactly what this might mean. There is no such thing as a ‘government income guaranteed’ apartment and many spruikers use this term very loosely to inspire confidence in you and to infer that what they are selling to you is, in some way, iron clad – not true!

I can think of only two scenarios where a spruiker might attempt to trade off on some kind of government backing – Defence Housing Australia (DHA) and the National Rental Affordability Scheme (NRAS).

Where NRAS is concerned I happen to know that the re-sellers are in for around $25k+ in commissions and so do be careful that the property is at market value when you buy it.

Property Observer also reports

Banks baulking at lending on many NRAS properties as selling commissions cloud valuations

The National Rental Affordability Scheme is facing hurdles with many banks refusing to lend to investors buying properties developed under the scheme.

The government sponsored investment scheme allows certain developers to build properties which are then sold to investors who rent it out at 20% below the market rate to eligible renters.

But developers are reportedly selling the properties at a price above what the banks think they are worth.

AVJennings chief executive Peter Summers says companies such as his own are having difficulty settling sales of NRAS properties.

"You can get sales away but they're falling over because of valuation issues," Summers told The Australian.

"I think it's a very good product class for investors but the banks are still a reluctant to lend to NRAS properties.”

Gavin Hulcombe from Herron Todd White says the complexity of the scheme combined with the valuation differences mean banks are unwilling to lend on the properties.

cont..
 
I just wonder if the apportionment has to be done on the whole incentive or just the state govt NANE rebate?

In that private ruling, it states "It is generally accepted that expenses incurred in respect of a rental property are considered to be incurred in the course of gaining or producing assessable income and are therefore deductible."

Since neither the NANE nor the Commonwealth tax offset are considered assessable income, does this mean the apportionment has to be done on the whole incentive rather than just the state NANE rebate? If this is yes, you will see much more loss.
 
Where NRAS is concerned I happen to know that the re-sellers are in for around $25k+ in commissions and so do be careful that the property is at market value when you buy it.

Been thinking about this and it just doesn't hold water.

How is the commission for a seller of an NRAS different from a REA commission on a typical property?????

In both instances there is a commission built into the price and both get paid to agents.

What am I missing here????

Lomas sometimes bleats on but I struggle to see why.

I agree NRAS can be dodgy in areas where they might be part of a unit development, but there are NRAS product in suburbs and regional areas that are stand alone single resi.

Sure you might pay more for the newer product but that would be true for a non NRAS product.

You still pay agent's fees in both cases.

You still get paid rent in both cases.

You will get paid $10K or so per annum for NRAS for 10 years.

After 10 years it is exactly the same as the house next door.

If you wanted a property to be CF+ from day one with 100% finance then NRAS is almost a no brainer.

I guess the ultimate test is comparing it to a non-NRAS next door.
 
No... the ultimate test is compare it to what else you can do with the equity/deposit you have.

Put it all on red at the casino, I guess?

I made that statement with the view that the investor wants to invest into property.

Having two identical properties side by side, one NRAS and one non-NRAS, which would be the best??

Be interesting to see what inbuilt commissions would be in each case.
 
there are NRAS properties available - at cheap entry prices - that are no different to other properties other than you get $10k tax free. the spruikers can bleat all they like but these properties can be great
 
No. There are more than one or two ways to invest into property.

Or into anything, for that matter. The opportunity cost of your 50k deposit could be anywhere from 1% to 99% leveraged in basically anything of your choosing.
 
Or into anything, for that matter. The opportunity cost of your 50k deposit could be anywhere from 1% to 99% leveraged in basically anything of your choosing.
Very often it is deposit + top up!

Again, all I have seen so far are either
- valuation doesn't stack up
- too small 1 bedders (<50 sqm)
- in whoop whoop area

It doesn't mean it can't work for everyone. It can work for a person who has plenty of equity and going to do nothing with it.
 
Back
Top