Government $109,228 tax free incentive is now available

Financial Planning Advisors

If you enjoyed the Rudd Government $900 tax free payment and you thought the First Home Owners Grant (which peaked at $36,500) was generous, then how does a Government tax free payment of $109,228 sound?

Tax Offsets and Tax Free incentive payments estimated at $109,228 per property are now available through the National Rental Affordability Scheme (NRAS) to investors who purchase new investment properties. The incentives have previously been made available to large institutions but are now accessible to individual property investors.

NRAS is set to change the property investment landscape for at least the next 10 years. The incentives will turn many property investments from a negative cashflow position to positive cashflow. As such, there will be many people who will find property investment attractive for the first time, and many existing investors who will want to restructure their property investments.

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When the NRAS incentives are combined with existing tax deductions the tax savings can be substantial. In one example we’ve seen a 79% tax saving was estimated for a young couple with two children buying their first investment property.

Under NRAS, the Australian Government aims to stimulate the supply of new affordable rental dwellings by up to 50,000 by June 2012 through providing incentives to:

  • increase the supply of affordable rental dwellings;
  • reduce rental costs for low to moderate income households; and
  • encourage large scale investment and innovative delivery of affordable housing.

NRAS investors are eligible to receive a National Rental Incentive for each approved dwelling where it is rented to eligible low and moderate income households at 20% below market rates. According to the most recently available Australian Bureau Statistic figures the average household income of a tenant renting from a private landlord was $78,104. Households earning up to $125,960 are eligible to rent NRAS approved properties so an “average tenant” will most likely be eligible for an NRAS property.

For very many investors giving up the 20% rental income in exchange for tax free incentives will mean turning a negative cashflow investment into a positive cashflow investment. As a result many people who have been unable to enter the property investment market because of the negative cashflow demands of investment property will now become property investors for the first time.

The Scheme offers annual incentives for 10 years. The two key elements of the Incentive are:

  • A Commonwealth Government Incentive indexed for 10 years and currently at $6,855 per dwelling per year as a refundable tax offset or payment; and
  • A State or Territory Government Tax Free Incentive indexed for 10 years and currently at $2,285 per dwelling per year.

The incentive is indexed annually at the CPI rate for rent which has been an average of 3.9% over the last 10 years. The most recent CPI increase for rent was 5.4%.

The current incentive indexed at 3.9% gives a total 10 year incentive of $109,228.

It is important to note that the Australian Government incentive is a tax offset not a tax deduction. A tax offset is of greater benefit because it is a direct reduction in the tax payable whereas a tax deduction is a reduction in the taxable income which is then taxed. The State Government incentive is also tax free.

This is a genuine win, win, win situation. Investors get real and substantial financial benefits, tenants get more affordable rental properties and the Government achieves its social policy goals without doing the work themselves.

The NRAS package including an on-line choice of properties across many locations throughout Australia is available from Onyx ( Onyx has been providing strategic property and finance advice to property investors across Australia for nearly a decade.

Important Notes

This information has been prepared by Onyx Domain Pty Ltd.  Neither Guidance Financial Services Pty Ltd or Financial Wisdom Ltd recommend or endorse Onyx Domain Pty Ltd and it is essential that any person, corporation or other entity, conducts their own research and due diligence before proceeding to engage their services.

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives and should NOT to be construed as legal, professional or financial product advice. You should obtain a Product Disclosure Statement and consider obtaining personal financial advice from an Australian Financial Services Licensee, or representative thereof before making the decision to acquire, vary or dispose of any financial product.

Whilst all reasonable efforts are made to ensure that the information contained herein is accurate and reliable the parties make no representation or warranty regarding the correctness or reliability of the information provided.


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About the Author

Paul Benson is a Certified Financial Planner with the Financial Planning Association of Australia, and a Self Managed Super Fund Specialist with the Self Managed Superannuation Association. He is also a member of the Responsible Investment Association of Australasia, and the Ethical Advisors Co-op. He is the proud owner of Guidance Financial Services, a boutique financial planning practice based in Essendon, not far from the Melbourne CBD. Guidance currently manages around $100 million in investments on behalf of their clients, providing bespoke financial planning strategies.

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