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  • Options

    The acquisition of an option to acquire an asset subject to this withholding measure from a foreign resident would be subject to the 12.5% withholding unless the vendor provides the purchaser with a valid declaration or another exception or exclusion applies. However, where the market value of the option being acquired is less than $8 no withholding applies and no Purchaser payment notification form is required to be submitted by the purchaser.

    Where the option involved is a put option, the grantee is not required to withhold an amount because the grantee of a put option has acquired a right to sell, not an option to acquire, the underlying asset.

    Where a purchaser acquires the asset as a result of exercising an option, the amount to which the 12.5% withholding applies is the amount paid for the asset and the market value of any property they gave for the option (or to renew or extend the option), but excluding what the purchaser already paid for the option.

    When an option contract is entered before 1 July 2016 but exercised after that date

    When the option was granted has no bearing on the foreign resident capital gains withholding implications. It is the time of exercise of the option that is the relevant point at which the grantee must consider whether the foreign resident capital gains withholding provisions apply to the amount they are paying the grantor.

    Where the option is exercised on or after 1 July 2016 and the asset being acquired is a CGT asset subject to the withholding rules, then the withholding provisions do apply to the first element of the cost base of that relevant asset (we accept this is the purchase price of the asset where there is an arm’s length transaction). This is the case even when the option was granted prior to 1 July 2016 or where the option contract doesn't consider foreign resident capital gains withholding.

    The withholding is avoided if the vendor provides the purchaser with a valid clearance certificate or declaration, or another exception or exclusion applies.

    A purchaser that withheld in accordance with their federal income tax obligations would be protected by sub-section 16-20(2) of Schedule 1 to the TAA. This provides that a purchaser's liability to pay the purchase price is reduced by the withholding amount paid to the Commissioner.

      Last modified: 07 Nov 2019QC 48972