House of Representatives

National Housing Finance and Investment Corporation Bill 2018

National Housing Finance and Investment Corporation Act 2018

National Housing Finance and Investment Corporation (Consequential Amendments and Transitional Provisions) Bill 2018

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Chapter 5 - Finance

Summary of new law

5.1 Part 5 of the Bill sets out the arrangements for NHFIC's financial affairs in relation to:

maintenance of adequate capital and reserves;
payment of dividends to the Commonwealth;
borrowings;
guarantee by Commonwealth; and
taxation.

Detailed explanation of new law

Maintenance of adequate capital and reserves

5.2 The Board is required to ensure, according to sound commercial principles, that the capital and reserves of the NHFIC at any time are sufficient:

to meet the likely liabilities of the NHFIC; and
to make adequate provision for default in the repayment of principal, or in the payment of interest or other charges, in connection with loans made by the NHFIC.

[Subclause 48(1)]

5.3 If, at any time, the Board determines:

that the capital and reserves of the NHFIC are not sufficient to meet the likely liabilities and make the required provision; or
that there are reasonable grounds for believing that, at a time in the future, the capital and reserves of the NHFIC may not be sufficient to meet the likely liabilities, and make the required provision;

the Board must, as soon as practicable, inform the Minister in writing of its determination and the reasons for that determination. [Subclause 48(2)]

Payment of annual dividends to the Commonwealth

5.4 Within four months after the end of each financial year, the Board must make a recommendation to the Minister, in writing, as to whether the NHFIC will pay a specified dividend, or not pay a dividend, to the Commonwealth for that financial year. [Subclause 49(1)]

5.5 Within 30 days after receiving the recommendation of the Board, the Minister must give the NHFIC written notice either:

approving the recommendation; or
where the Board has recommended the payment of a dividend - directing the payment of a different specified dividend; or
where the Board has recommended that no dividend be paid-directing the payment of a specified dividend.

[Subclause 49(2)]

5.6 When making a recommendation, approval or direction in relation to whether or what dividend is to be paid, the Board and the Minister must have regard to:

policies of the Commonwealth Government, and the general policy of the NHFIC in relation to the performance of its functions; and
such commercial considerations as the Board or the Minister, as the case may be, considers appropriate.

[Subclause 49(3)]

5.7 The Board may not recommend, and the Minister may not approve or direct, a dividend for a financial year exceeding the NHFIC's profit for that year. [Subclauses 49(3) and (4)]

5.8 The NHFIC must pay to the Commonwealth any dividend approved or directed by the Minister in respect of a financial year. [Subclause 49(5)]

5.9 The period beginning on the commencement of this Act and ending on 30 June 2018 is not to be taken to be a financial year for the purpose of dividends. [Subclause 49(6)]

5.10 It is not envisaged that NHFIC will be in a position to recommend the payment of dividends in its initial establishment phase. Once the corporation has built adequate capital reserves, it is expected to consider paying dividends rather than further accumulating capital.

Borrowings

Borrowings from the Commonwealth

5.11 The Finance Minister may, on behalf of the Commonwealth, out of money appropriated by the Parliament for the purpose, lend money to the NHFIC on such terms and conditions as the Finance Minister determines. [Subclause 50(1)]

Other borrowings

5.12 The NHFIC has broad powers to borrow or raise money. It may:

borrow money otherwise than from the Commonwealth; or
raise money otherwise than by borrowing;

including by dealing with securities. [Subclauses 50(2) and (3)]

Security

5.13 The NHFIC may give security over all or any of its assets:

for the repayment of money and interest on its borrowings; or
for the payment of money (including interest) it is liable to pay in respect of money raised other than by borrowing.

[Subclause 50(4)]

Limitation on borrowing

5.14 The NHFIC must not borrow or raise money other than under the provisions referred to above. [Subclause 50(5)]

Guarantee by Commonwealth

5.15 The due payment by the NHFIC of any money that becomes payable by it to a person other than the Commonwealth is guaranteed by the Commonwealth. [Subclause 51(1)]

5.16 The Treasurer may, by legislative instrument, make a determination revoking the guarantee in relation to money that becomes payable under a contract entered into on or after a particular date. The day on which such a determination comes into effect cannot be earlier than either 1 July 2023 or 60 days after the instrument is registered. [Subclauses 51(2) and (3)]

Example 5.1

NHFIC issues a 10 year bond on 1 January 2019. On 1 July 2024 the Treasurer makes a determination revoking the Commonwealth guarantee for monies payable by NHFIC under a contract entered into on or after 30 August 2024. The determination is registered on the same day.
Holders of the 10 year bond issued on 1 January 2019 still have the benefit of the Commonwealth guarantee for monies owing under it, because these are payable under a contract entered into before the revocation takes effect.
Payments under a bond issued on or after 30 August 2024 would not be guaranteed by the Commonwealth under this example.

5.17 The intent of the legislated Commonwealth guarantee of NHFIC's liabilities is to support market confidence and strengthen its ability to improve housing outcomes. The guarantee was one of the recommendations of the Expert Panel of the Affordable Housing Implementation Taskforce, established to advise the Government on the viability of a bond aggregator.

5.18 The guarantee also recognises that the ability of CHPs to use their assets as security for loans is often complicated by State and Territory interests in the underlying assets. A guarantee will mitigate much of this uncertainty for investors, lowering borrowing costs for NHFIC that can then be passed through to eligible CHPs.

5.19 The Bill provides for the capacity for the guarantee to be potentially withdrawn in the future if it is no longer needed for new contracts. This would be dependent on both NHFIC achieving sufficient maturity and scale and the community housing sector taking on a larger-scale and more prominent role in sub-market rental housing including through partnerships with the private sector and institutional investors.

Exemption from taxation

5.20 For the purposes of section 50-25 of the Income Tax Assessment Act 1997, the NHFIC is taken to be a public authority constituted under an Australian law. This means the NHFIC is exempt from income tax. [Subclause 52(1), note to subclause 52(1)]

5.21 The NHFIC is not subject to taxation under a law of a State or Territory, if the Commonwealth is not subject to the taxation. [Subclause 52(2)]


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