House of Representatives

Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan Mp

General outline and financial impact

National Rental Affordability Scheme : Refundable tax offset and other taxation issues

The National Rental Affordability Scheme (NRAS) is designed to encourage large-scale investment in affordable housing. The NRAS offers tax and cash incentives to providers of new dwellings on the condition that they are rented to low and moderate income households at 20 per cent below market rates. The National Rental Affordability Scheme Bill 2008 establishes the NRAS.

The National Rental Affordability Scheme (Consequential Amendments) Bill 2008 (the Consequential Bill) amends the Income Tax Assessment Act 1997 (ITAA 1997) to enable entities participating in the NRAS to claim a refundable tax offset in their annual tax return, or through lodgment of a short form application by not-for-profit entities who would not ordinarily lodge a tax return. In addition, it amends the ITAA 1997 to ensure that state and territory contributions to entities participating in the NRAS, whether in cash or in-kind, are non-assessable and non-exempt income for taxation purposes, and to ensure that there are no capital gains tax consequences from the receipt of incentives under the scheme.

Date of effect : The NRAS commences on 1 July 2008. These amendments apply to income tax assessments for the 2008-09 income year and later years.

Proposal announced : The NRAS was announced on 13 August 2007 during the 2007 Federal election. The measure was also announced in the 2008-09 Budget on 13 May 2008. A detailed proposal was released by the Minister for Housing for public consultation on 2 May 2008 in a paper titled National Rental Affordability Scheme - technical discussion paper . A prospectus calling for expressions of interest in the scheme was released by the Treasurer and the Minister for Housing on 24 July 2008.

Financial impact : The amendments in the Consequential Bill, together with the National Rental Affordability Scheme Bill 2008, have a total fiscal cost of around $622.6 million over five years (including administration costs).

Impact on fiscal balance

Expense

Compliance cost impact : Compliance costs for entities participating in the NRAS could vary depending on the type of entity participating in the scheme. For most entities, these costs are likely to be low. The design of the law has sought to minimise compliance costs.