ATO Interpretative Decision

ATO ID 2005/183

Goods and Services Tax

• This ATO ID contains references to provisions of the A New Tax System (Goods and Services Tax) Regulations 1999, which have been replaced by the A New Tax System (Goods and Services Tax) Regulations 2019. This ATO ID continues to apply in relation to the remade Regulations.

  A comparison table which provides the replacement provisions in the A New Tax System (Goods and Services Tax) Regulations 2019 for regulations which are referenced in this ATO ID is available.

  History: ATO ID amended on 15 August 2005 to amend reference from subsection 9-30(2) of the GST Act to paragraph 9-30(2)(b) of the GST Act.

  With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Issue

Is the entity, a supplier of real property, making an input taxed financial supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it grants a call option that entitles the grantee to purchase real property, the supply of which would be an input taxed supply of residential premises?

Decision

Yes, the entity is making an input taxed financial supply under section 40-5 of the GST Act. The grant of the call option is also an input taxed supply under paragraph 9-30(2)(b) of the GST Act.

Facts

The entity is a supplier of real property and is registered for goods and services tax (GST). The entity grants the purchaser a call option to purchase residential premises for a specific amount up until a specified date. The purchaser paid 5% of the purchase price of the property to enter into the call option. The purchaser may sell the call option to another entity.

The supply of the real property would be an input taxed supply of residential premises under subsection 40-65(1) of the GST Act. The supply of the call option is connected with Australia and is made in the course or furtherance of the entity's enterprise.

Reasons for Decision

Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act defines a financial supply as having the meaning given by the A New Tax System (Goods and Service Tax) Regulations 1999 (GST Regulations).

Subregulation 40-5.09(1) of the GST Regulations, provides that the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations is a financial supply if:

(a)

the provision, acquisition or disposal of that interest is:

•

for consideration

•

in the course or furtherance of an enterprise, and

•

connected with Australia, and

(b)

the supplier:

•

is registered or required to be registered for GST, and

•

is a financial supply provider in relation to supply of the interest.

Item 11 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 11), lists a derivative. A derivative is defined in the GST Regulations to mean an agreement or instrument the value of which depends on, or is derived from, the value of assets or liabilities, an index or a rate. The entity grants the purchaser a call option to purchase residential premises for a specific amount up until a specified date. The purchaser paid 5% of the purchase price of the property to enter into the call option. Therefore, the call option is an agreement the value of which is derived from the value of an asset, the property. Accordingly, the call option satisfies the definition of a derivative.

The supply of the call option was made for consideration, in the course or furtherance of the entity's enterprise and was connected with Australia. The entity is registered for GST and as it granted the option, it is a financial supply provider in relation to the supply of the call option (regulation 40-5.06 of the GST Regulations). Therefore, the requirements in subregulation 40-5.09(1) of the GST Regulations are satisfied and the entity's supply is an input taxed financial supply under subsection 40-5(1) of the GST Act.

In addition, under subsection 9-30(2) of the GST Act a supply is input taxed if:

a)

it is input taxed under Division 40 of the GST Act or under a provision of another Act, or

b)

it is a supply of a right to receive a supply that would be input taxed under paragraph (a).

The supply of the call option is a supply of a right to receive a supply of residential premises which would be input taxed under subsection 40-65(1) of the GST Act. Therefore, the supply of the call option is also an input taxed supply under paragraph 9-30(2)(b) of the GST Act.

Accordingly, the entity is making an input taxed financial supply, under subsection 40-5(1) of the GST Act, and an input taxed supply under paragraph 9-30(2)(b) of the GST Act, when it grants a call option which entitles the grantee to purchase real property, the supply of which is an input taxed supply.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   subsection 9-30(2)
   subsection 11-15(4)
   Division 40
   subsection 40-5(1)
   subsection 40-5(2)
   subsection 40-65(1)
   Division 70

Related ATO Interpretative Decisions
ATO ID 2005/182
ATO ID 2005/184

Keywords
Goods and services tax
GST property & construction
GST residential premises
GST rights and real property
Input taxed supplies
GST financial supplies
GST derivatives

Siebel/TDMS Reference Number:  3986150

Business Line:  Indirect Tax

Date of publication:  1 July 2005

ISSN: 1445-2782