Taxation Determination
TD 94/4
Income tax: do put or call options entered into between a taxpayer and a third party over property owned by the taxpayer, give rise to rights in addition to those described in paragraph 51AD(8)(a) of the Income Tax Assessment Act 1936?
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FOI status:
may be releasedFOI number: I 1216899| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). |
1. No. Rights arising from these options constitute rights in relation to the disposal of the whole or a part of the property under sub-subparagraph 51AD(8)(a)(i)(C).
Example:
A taxpayer X Co., incorporates a special purpose subsidiary company Y Co., whose sole purpose is to finance the construction, ownership and subsequent lease of a commercial building to a tax exempt body for a term of 10 years. To finance the cost of construction, Y Co. borrows money from Bank Co. The terms of the loan stipulate that in the event of default in the repayment of principal or payment of interest by Y Co., Bank Co. has full recourse to all of the assets of Y Co.
Y Co. then enters into an arrangement with a third party non associate of either X Co or Y Co, Z Co. Under that arrangement, Y Co. is entitled to put the property to Z Co at the time an event of default by Y Co. occurs in meeting its loan obligations to Bank Co.
The rights of Bank Co. as against the taxpayer Y Co. are limited in terms of section 51AD(8).
Firstly, Y Co. being a special purpose company, only has assets that comprise the property and the income generated by the use of that property. The rights of Bank Co. as against Y Co. are therefore capable of being limited to the rights in subparagraph 51AD(8)(a)(i) and so subparagraph 51AD(8)(b)(i) applies.
Secondly, any argument that the money that may be paid by Z Co. upon the exercise of the put option by Y Co., is an additional asset of Y Co. to which Bank Co. can have recourse, is fallacious. The rights arising from the put option are merely rights in relation to the property, being rights arising from taxpayer's disposal of the property in terms of sub-subparagraph 51AD(8)(a)(i)(C).
Commissioner of Taxation
13 January 1994
Previously issued as Draft TD 93/D248.
References
ATO references:
NO Public Infrastructure Unit DTD/09
Related Rulings/Determinations:
TD 92/137
TD 92/138
TD 92/141
Subject References:
finance arrangements
non-recourse debt
options
Legislative References:
ITAA 51AD(8)(a)(i)
ITAA 51AD(8)(a)(i)(C)
ITAA 51AD(8)(b)(i)
| Date: | Version: | Change: | |
| You are here | 13 January 1994 | Original ruling | |
| 31 July 1996 | Withdrawn |