3. Nature of the incentives
This section discusses the delivery of the Commonwealth and State and Territory Government incentives to successful applicants (recipients) under the Scheme.
3.1 The National Rental Incentive
The Scheme offers an annual National Rental Incentive for a period of ten years per dwelling. The key elements of the Incentive are:
- a Commonwealth contribution in the form of a refundable tax offset or grant of a specified value; and
- a State or Territory contribution in the form of direct financial support of a specified value or some other support of equivalent value.
At the commencement of the Scheme, the Commonwealth contribution will be to the value of $6,000 per year and the State or Territory Incentive will be to the value of $2,000 per year.
Dwellings will be regarded as new for this purpose if they are increasing the supply of lower-cost rental housing. Newly-constructed dwellings that have not yet been occupied on a residential basis or are being substantially rehabilitated, for example commercial developments such as motels being converted into residential housing will also be considered. Refurbishment of existing rental dwellings will not be considered sufficient, unless refurbishment leads to a net increase in the number of dwellings.
The Commonwealth contribution will be indexed thereafter in accordance with the rental component of the Consumer Price Index (with the base year of 2008-09).
Recipients will be eligible for the Incentive for a full ten years from the date it is first approved to be rented as a dwelling under the Scheme. The Incentive will be apportioned equal to the number of days the dwelling was both registered under the Scheme and made available for rent. Where approval occurs part way through a financial year, a partial entitlement will arise both in the first financial year and in the final financial year in which the ten year period finishes.
FaHCSIA will have the ability to withdraw or cancel registration of dwellings where all of the eligibility requirements for the incentive have not been met, and will adjust grants or refundable tax offsets to recipients.
3.2 Commonwealth Refundable Tax Offset
All recipients of the Incentive, except non-profit organisations endorsed as a charity, will receive the Commonwealth contribution as a refundable tax offset. A tax offset reduces the amount of tax that a recipient is liable to pay for a financial year. The tax offset will be refundable, so that where the amount of offset available to the recipient exceeds the recipient’s tax payable in the financial year, then a cash refund will be paid by the Australian Taxation Office (ATO). Cash refunds will be treated as non-assessable, non-exempt income for tax purposes.
A claim for the refundable tax offset will only be allowed for a portfolio of dwellings that is certified as complying with the Scheme for the particular income tax year. As part of this process, recipients will provide an annual statement of compliance to FaHCSIA by 30 April each year (which could be updated between 30 April and certification if circumstances change). The Minister for Housing or delegate will certify compliant recipients by mid June each year. This will enable the refundable tax offset to be claimed by taxpayers in submitting their annual tax return for the income tax year ending 30 June.
It is expected that more recipients will receive the Commonwealth contribution as a refundable tax offset, especially in the Expansion Phase that is seeking to attract larger-scale involvement by financial institutions.
3.3 Commonwealth Grants
Non-profit organisations that are endorsed as charities by the ATO (and therefore exempt from the income tax system) will receive the Commonwealth contribution in the form of an annual cash grant.
The cash grant will be payable by FaHCSIA by 30 June each year provided that an annual statement of compliance has been provided to FaHCSIA at 30 April each year.
3.4 The State and Territory Contributions
State and Territory Governments have agreed to contribute to the National Rental Incentive through direct financial support of a specified amount per dwelling (initially $2,000) or by some other support of equivalent value. The contribution will be paid or made available within three months after the end of the financial year for which it is being provided.
State and Territory Governments will be required to advise FaHCSIA of the contribution provided to each eligible recipient for each year.
Other forms of contributions will be allowable if they are associated with the construction or renting of the dwelling. Examples include:
- a discount on stamp duty, land taxes or infrastructure charges; or
- the provision of land at discount to market price.
If they wish to do so, State and Territory Governments may provide their contribution for later years in advance but they may not defer contributions. Contributions in advance must equal the minimum contribution in the year they are provided, not the minimum contribution that would have been required in the later year. For example, they may provide their entire 10 year contribution by providing land for the dwelling at a price which is the market value, discounted by 10 times the level of minimum contribution required in the first year.
State and Territory Governments may also choose to increase the value of their contribution, above the minimum of $2,000 per annum.
3.5 Changing the Recipient of the Incentives
Under the Scheme, recipients of the Incentive are generally required to hold each dwelling for 10 years. The recipient may choose to sell a dwelling under the Scheme, with the approval of the Commonwealth, within the 10 year period in these limited circumstances:
- A dwelling can be sold to anyone (including the tenant), provided an equivalent dwelling is offered as a substitute dwelling for the remaining part of the 10 year period, and that the substitute dwelling is of an equivalent type and in a similar location as the dwelling that was sold.
- A dwelling can be sold to another provider who is approved under the Scheme and undertakes to comply with the existing obligations under the Scheme.
Recipients who choose to sell dwellings in circumstances other than those outlined above may be liable to a penalty. In respect of the Commonwealth contribution, the penalty for non-compliance could be a fixed amount per dwelling or an amount equivalent to the amount of tax offset or Commonwealth grant paid. In exceptional circumstances a penalty may be waived (for example, if sale of a dwelling was required under the Commonwealth, State or Territory law).
Penalties in relation to State and Territory Incentives will be a matter for determination and recovery by them, following advice from the Commonwealth regarding non‑compliance.
Where a recipient is acquired or merges with another entity, the new owner assumes all obligations under the Scheme and to existing tenants. In the event that a charitable organisation loses its charitable status, it must continue to meet all existing obligations under the Scheme and receive the Commonwealth contributions as tax offsets instead of grants
Question 1 - The aim of this Scheme is to stimulate institutional investment in affordable rental housing. Do these provisions strike the right balance between flexibility for investors and achieving long term supply of affordable rental housing?