Rental. National. Affordability. the Questus Residential Investment Fund. National Rental Affordability Scheme and NRAS

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1 and the Questus Residential Investment Fund National Rental Affordability Scheme NRAS A GOVERNMENT INCENTIVE NATIONAL RENTAL AFFORDABILITY SCHEME 105 Railway Road Subiaco WA 6008 PO Box 1533 Subiaco WA 6904 Tel Fax

2 and the Questus Residential Investment Fund This document is a brief summary of the requirements and obligations under the (NRAS) and Questus Residential Investment Fund (QRIF) for an investor of an NRAS Approved Property. All potential investors who wish to acquire an Approved NRAS Property should read the Product Disclosure Statement issued by Questus Funds Management Limited for the Questus Residential Investment Fund and also refer to the Federal Government s website for a copy of the NRAS Guidelines, Regulations and Act at and go to: Our Responsibilities > Housing Support > Programs & Services >. What is the? NRAS is a long term commitment and initiative by the Federal and State Governments to address the shortage of affordable rental housing by offering financial incentives to build and rent dwellings to low and moderate income households at least 20% below market rates. The Government Incentives are tax free incentives, available each year for 10 years to owners of NRAS Approved Properties. The primary focus of NRAS is to: increase the supply of affordable rental dwellings reduce rental costs for low to moderate income households encourage large scale investment and delivery of affordable housing What is an Approved Participant? What is an NRAS Approved Property? The guidelines set out by NRAS include: An Approved Participant has applied for the approval of dwellings with the Department of Social Services (DSS). Questus Funds Management Limited (QFML) is the Responsible Entity for the Questus Residential Investment Fund, and in accordance with the NRAS legislation, has been granted status as an Approved Participant. QFML is the holder of over 3,700 NRAS allocations and is one of the largest Approved Participants in Australia. One that is approved to receive the NRAS incentives for up to 10 years. A property must be rented at a discount at least 20% below the market rent. A property can only be tenanted by an eligible tenant/s. An annual Statement of Compliance must be submitted. Use of specialist housing and tenancy managers to ensure compliance with NRAS. Page 2

3 Investment Benefits Security of Real Property Your Approved NRAS Property may be a house and land package or a completed apartment or townhouse not previously resided in. Questus Funds Management Limited has already made application to the Department of Social Services (DSS) to have approved NRAS properties available for sale and participation in the Questus Residential Investment Fund. Increase in Property Value No Property Management Hassles The value of many asset classes and investments may fluctuate over time. Investments in direct property have generally showed consistent returns and have demonstrated to be less volatile than other asset classes and investments such as listed equities. As your underlying investment is direct real property, you will benefit in any capital growth. Any increase in the value of property has taxation implications. Other Taxation Benefits A significant taxation benefit of an Approved NRAS Property is that the Government Incentives are a refundable tax offset (RTO) and non assessable non exempt income (NANE), which means the income is tax free. Questus has sourced property approvals from the Government to provide an alternative in affordable rental housing. To maintain compliance with NRAS, it is necessary for the Approved NRAS Properties to be managed by an approved Property and Tenancy Manager appointed by Questus Funds Management Limited, so there is no need for you to worry about rent collection or tenancy management. You Own the Property Government Incentives Paid to QRIF $ NRAS National Rental Affordability Scheme All property investments enable the investor the ability to deduct associated costs with managing their property, including but not limited to property management fees, Your Approved NRAS Property insurances, rates, interest costs, as well as specific taxation benefits such as depreciation. By owning an Approved NRAS Property all these taxation benefits are available to you. However, recent taxation rulings have determined that expenses associated with NRAS Rent from Tenant Paid Direct to YOU $ Paid to YOU Government Incentives deriving the NANE are non-deductible. As a result, the portion of expenses able to be claimed by an investor is limited to the proportion of assessable income. You should Investor (You) seek your own independent tax advice to find out what tax benefits are available to you. Page 3

4 Questus & Questus Residential Investment Fund Who is Questus Limited (Questus)? Questus is an Australian Securities Exchange (ASX) listed Funds and Investment Management Company focused on direct property based investments across Australia. What is the Questus Residential Investment Fund (QRIF)? The QRIF was established by Questus as a means to allow investors who acquire an Approved NRAS Property to receive the various Government Incentives provided for under NRAS. The QRIF is a non-entity joint venture managed investment scheme, and will take care of all the statutory reporting that is required under NRAS for investors to receive the NRAS tax-free incentives. Why do I have to participate in the Questus Residential Investment Fund? As the NRAS incentives can only be paid to an NRAS Approved Participant, your participation in the QRIF ensures management and distribution of your refundable tax offset from the Federal Government and your non assessable non exempt payment from the respective State and Territory Governments. Property Investment Comparison - with and without NRAS Example NO NRAS WITH NRAS House & Land Property Investment $395,000 $395,000 Stamp Duty & Settlement Costs $6,275 $6,275 Total Investment $401,275 $401,275 INCOME Rental Income - Taxable $19,000 $15,200 Government Rental Incentives - TAX FREE Nil $10,661 Total Income $19,000 $25,861 EXPENSES Total Property Expenses, Management Fees, Interest etc $27,660 $28,246 TAX POSITION Total Tax Allowances Available (includes Interest, Depreciation & Property Expenses; less proportion of NANE costs) $35,285 $30,021 Tax Loss (Negative Gearing) $16,285 $14,821 Tax Benefit at Marginal Tax Rate $6,270 $5,706 NET SURPLUS AFTER TAX -$2,390 $3,321 The information included in this example is provided as a guide only and all potential investors should consult their professional advisor. Assumptions: Gearing Level on Property 100%, Current Variable Interest Rate on Loan of 5.5% PA, Market Value Weekly Rent (Before NRAS Discount) of $380, and Investor Marginal Tax Rate 38.5%. NRAS incentive index based on 2014/2015 NRAS Year. Note: The State component of NRAS is paid as a non assessable, non exempt income (NANE). ATO rulings have determined that expenditure associated with deriving the NANE is non-deductible which has been calculated above. Page 4

5 About the NRAS Incentives Why am I entitled to receive the incentives? By purchasing an NRAS Approved Property you agree to rent your property at a reduced market value rent rate of at least 20% to an eligible tenant for a period of up to 10 years. How much are the incentives? The current 2014/2015 NRAS year incentives are $10,661. Incentives are indexed annually to the rental component of the Housing Group Consumer Price Index. When will I receive my incentives? The NRAS year runs from 1 May to 30 April. QRIF is required to lodge the annual compliance report for your property in May of each year. Typically the Federal, State and Territory Government incentives are announced in July, with the State/Territory Government portion generally being available in September. How are the incentives paid? Once the Federal Government have finalised and confirmed the Incentive amounts to Questus, we will write to you detailing the two components of your incentives, along with an invoice for the Questus Annual Management Fee. The two components are: Federal - is a Refundable Tax Offset (RTO) that you will need to submit with your annual tax return to the Australian Taxation Office (ATO). The RTO reduces the amount of tax you pay until it reaches zero and any unused portion is then refundable in cash. State and Territory - is paid as Cash (meaning non assessable non exempt income). The Cash component will be paid by direct deposit into your nominated bank account once received from the relevant State and Territory Government, providing Questus have received payment of your Annual Management Fee invoice. Page 5

6 Property & Tenancy Management What does the Property Manager do? The Property Manager is responsible for liaising between you and the Tenancy Manager. They ensure the Approved NRAS Property complies with the scheme and carry out normal property management duties, including maintenance and repairs. What is a Tenancy Manager? A Tenancy Manager is selected by the QRIF in each state or territory and is generally a not for profit or specialist housing organisation. They are responsible for ensuring prospective tenants meet the eligibility criteria set out by NRAS. Who can rent my Property? Tenants for the properties are required to meet the NRAS Income Eligibility Limits, which are reviewed and updated annually in line with the NRAS year. INCOME ELIGIBILITY LIMITS 2014/2015 NRAS YEAR HOUSEHOLD TYPE ANNUAL INITIAL INCOME UPPER INCOME LIMIT One adult $47,289 $59,111 How is the Market Value Rent Rate determined? Two adults $65,378 $81,722 Three adults $83,466 $104,333 The market rent is determined by an Independent Valuation, which is conducted on behalf of and generally payable by the owner of the property. Under the scheme the market rent will initially be set by an independent valuation. In subsequent years it will be determined once a year by either of the following: Rental increases capped by Independent Valuation: at the start of years 4 and 7. Consumer Price Index: at the start of years 2, 3, 5, 6, 8, 9 and 10 it will be determined by the rental growth in the location of the property. Can I manage the property myself? No. To meet NRAS compliance requirements, QFML will appoint a specialist housing and tenancy manager in each state or territory. Sole parent with one child $65,423 $81,779 Sole parent with two children $81,108 $101,385 Sole parent with three children $96,793 $120,991 Couple with one child $81,063 $101,329 Couple with two children $96,748 $120,934 Couple with three children $112,433 $140,541 To maintain eligibility as a tenant in the scheme, the tenant s income can increase above the Initial Income by 25 per cent. A tenant ceases to be eligible when income exceeds the upper income limit in two consecutive years. (These limits are indexed annually on 1 May in accordance with the NRAS Tenant Income Index.) Do I have a say over who the tenants are? Yes, as the owner of the property you may. The property is managed essentially the same way a normal rental property would be. The Tenancy Manager is able to supply the owner with information on the eligible tenant and providing the tenant meets the requirements of the scheme, you may have the final say. Can one of my relatives live in my NRAS Approved Property? Yes, but if you nominate a tenant, they will still be required to go through the same eligibility process with the Tenancy Manager. Page 6

7 General Information Do I own the property I am purchasing? Yes, when you purchase the Approved NRAS Property you will own it. You generally acquire the Approved NRAS Property under a normal offer and acceptance (or sale contract), and will also be required to participate and enter into the QRIF so you can receive the incentives. How do I invest in an NRAS Approved Property? As with any investment, we recommend that you should speak with your own professional financial advisor or contact Questus. What fees do the QRIF charge in relation to receiving NRAS Incentives? Fees you will incur for your interest in the QRIF are: Establishment Fee - $11 per NRAS Dwelling which is a one-off fee. Management Fee - 5.5% of the annual incentive amount. QRIF will invoice Investors for the Annual Fee, which is payable prior to the release of any NRAS incentives. What other costs can I expect to pay for my NRAS Approved Property? When you purchase the property you will incur the normal costs associated with owning an investment property, such as advertising fees, letting, inspection and ongoing management fees, insurance, rates, body corporate or strata levies, and maintenance. Tenancy letting and ongoing property management fees for an NRAS Property are higher than standard residential investment properties due to the level of compliance and tenancy eligibility checks, which will vary from state to state. Property and Tenancy management fees are estimated at 10% plus GST of the Market Value Rent (i.e. 12.5% plus GST of the Gross NRAS Rent). Can I sell my NRAS Approved Property? Yes you can sell your property at any time. The purchaser will be able to participate in NRAS if they wish. You should seek your own independent tax advice when you decide to dispose of the Approved NRAS Property. Can I exit from NRAS and live in my property? Yes you can. QRIF do not charge a fee to exit, however, there may be other fees and charges incurred in relation to the Approved NRAS Property and the Property and Tenancy Manager services provided. Page 7

8 Enquiries to: Telephone Questus Residential Investment Fund ARSN Managed by Questus Funds Management Limited ABN AFSL Issued May 2014 *IMPORTANT NOTICE: The Government Incentives for the 2013/2014 NRAS year are $7,763 per annum and $2,587 per annum from the Federal, State and Territory Governments respectively. The Government Incentives are provided under the (NRAS). The Incentives are in the form of refundable taxation offsets or non-assessable income subject to the conditions of NRAS, with Investors applying for an interest in the Questus Residential Investment Fund (Fund). A purchaser of an NRAS Approved Property will agree to rent the property at least 20% below market rental rates and only rent the property to approved eligible tenants. The Government Incentives are indexed to the rental component of the Consumer Price Index (CPI) each year. The offer for properties which are approved to receive the Government Incentives is made via the Fund. Investors will need to obtain a copy of the Product Disclosure Statement (PDS) issued by Questus Funds Management Limited. Further information regarding the tax free Government Incentives can be found on