Hi allWe are looking at a range of NRAS properties.We understand that generally, if a property is rented at less than market rental, negative gearing benefits and depreciation may be treated as proportunal by ATO. ie If rental is 80% of market rate, then taxation benefits flowing from the investment are also 80%.All NRAS documentation we've seen, has the usual disclaimer in respect of seeking ones own financial advice and so on (and appropriately so), but also generally indicates 'may be eligible for negative gearing benefits'.We have been unable to find any information as to whether these benefits are discounted to the same extent as the rent.Some we've asked have said they claim and haven't had a problem with ATO. Well meaning, but of course, if you jump off a building there is no problem until you land.Others simply say there is not a problem. The various PC number crunching programs dont discount depreciation or negative gearing benefits from what we can discern with the couple of programs we have. Is there anything folks are aware of in legislation, or on the ATO site or anywhere at all that makes it clear that tax benefits are not discounted to reflect the percentage market rental rate?We dont want to be writing any huge cheques 4 to 6 years down the track, any assistance in nailing down the information (aside from a PBR) would be greatly appreciated.Many thanksRob
Although I haven’t investigated these, the only discounting which occurs is the rent otherwise there would be little in the way of government or other incentives for investors to want to consider them as an investment.
Many thanks Scott
And we agree – athough many would fall back to just cash flow neutral or marginally negative if it was 80%.
The non-profits andthose folk who got into the differing Heads of Agreement arrangements must have thought he same thing, before the ATO ruled against the arrangements, and the Govt needed workarounds ahead of a legislative fix.
We know that the discounting of market rent is already something that the ATO has views on in respect of deducable benefits – particularly, we think, if a family member.
Just trying to find something that sets that aside for the purpose of NRAS.
Rob, there have been plenty of threads on this before. You would probably need to get a QS to maximise your depreciables. Also you’d avoid Sydney/melbourne/brisbane/gc as land prices make these unviable.
Thanks Scott
Actually none of the threads say anything other than éligible'. Outside og NRAS, we understand if we knowingly rent for below market rental and costs are apportioned at the same percentage, as we understand it. I can find nothing that says the costs etc associated with NRAS would not be discounted by ATO to 80%.
You may also need to check if there are other hurdles to jump eg must have qualified as eligible for NRAS status & applications have been approved.
There's no mention of a "discounted" effect on neg gearing , proportional to the relative NRAS discount, anywhere on the ATO website, or in any of the ATO's NRAS literature.
http://www.ato.gov.au/businesses/content.asp?doc=/content/00179876.htm&page=1&H1The ATO doesnt appear to discriminate between NRAS and non NRAS investment properties, so unless an accountant or tax professional can demonstrate otherwise, I would imagine that all costs and/or losses associated with the ownership of an investment property should be treated the same as any other investment property deductions.
In the case of NRAS investment properties, as you know, you're receiving 20 or 25% less rental than you would otherwise receive for full market rental, so you'll actually make a larger loss than if you had a non NRAS property which carried the same debt and interest repayments, but generated full market rental. That should equate to a larger deduction, and a larger net benefit via negative gearing. Call the ATO and ask them???
http://www.ato.gov.au/individuals/content.asp?doc=/content/66031.htm&page=3&H3
http://www.ato.gov.au/individuals/content.asp?doc=/content/00237831.htm&page=3&H3
http://www.ato.gov.au/individuals/content.asp?doc=/content/00237831.htm&page=9&H9
I am currently looking at NRAS properties and would be very interested to know if someone receives any official word from the ATO on this.
I dont think theres anything to report here… NRAS properties are rented at 20 or 25% below market rental, and that entire "loss" is able to be deducted. Theres nothing to indicate otherwise in any ATO literature. So unless someone can demonstrate otherwise, claim the entire loss as a deduction. No need to assign "proportional" losses, in line with the NRAS rental discount as far as I can see.
Many thanks to all for the comments. The tree and olive investors thought some of the same things
Of our two trusted accountants, both raised the same concern in precisely the same way.
Our DD is almost concluded and we are hoping very much that the assumption a lot of folk appear to have is correct. Conversations we have been having with the relevant folk have been interesting and helpful, though none have confirmed tax treatment either way.
We'll have our DD resolved shortly though.
Again, many thanks to all.
DD concluded .. and, we've passed on buying one of these.
We understand that the State Government portion of the 'rebate' is treated differently to the Federal Government component, this is called non-assessible non-exempt (NANE) income.
Its covered it seems by Section 8-1 (2) of the ITAA.
That sections says one cant deduct losses for NANE income.
Sooooo .. in our case .. the allowable deductions would have needed to be apportioned between the assessable income and the NANE income ( a small percentage – but another small percentage amongst many – and it seemed to be a small percentage of a big chunk).
When we looked at those numbers in terms of percentage hit on costs and depreciation claims – and considered the way in which the rental movement for NRAS bounces from market to CPI then market then CPI again, stacking up the real world rental market movement against the NRAS discount rental, extra percentage in management costs (because its an NRAS) – it just didnt get there in terms of everything else available on the market at present.
(Which may be why we're seeing a few popping up for sale as folk stack up the CPI moving rental with market – those we've seen back on the market have generally only been 12 to 18 months old).
Ah well .. now we know at least
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