ATO Interpretative Decision
ATO ID 2013/26
Goods and Services TaxGST and supply of a call option over GST-free eligible emissions units
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ATO ID contains references to provisions of the A New Tax System (Goods and Services Tax) Regulations 1999, which have been replaced by the A New Tax System (Goods and Services Tax) Regulations 2019.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.
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 The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts.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.This document has changed over time. View its history.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is an entity 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 acquire eligible emissions units, the supply of which would be a GST-free supply?
No, the entity is not making an input taxed financial supply under section 40-5 of the GST Act. The supply of the call option is GST-free under paragraph 9-30(1)(b) of the GST Act.
An entity grants an over-the-counter call option over 'eligible emission units' within the definition in section 195-1 of the GST Act.
The option is granted for consideration, and the entity makes the supply of the option through an enterprise that it carries on in Australia. The entity is also registered for GST.
Under the option, the holder has the right but not the obligation to exercise the option and purchase the eligible emissions units up until the expiry date.
Reasons for Decision
A financial supply is input taxed under subsection 40-5(1) of the GST Act. Subsection 40-5(2) of the GST Act states that 'financial supply' has the meaning given by the A New Tax System (Goods and Service Tax) Regulations 1999 (GST Regulations).
The provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) of the GST Regulations is a financial supply if the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied.
A 'derivative' is listed at Item 11 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 11). '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 value or price of an option is determined by a number of factors, including the current price of the underlying asset that is the subject of the option. Accordingly, the call option satisfies the definition of a derivative.
The supply of the call option is made for consideration, in the course or furtherance of the entity's enterprise and is 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 is making an input taxed financial supply under subsection 40-5(1) of the GST Act.
The supply of eligible emissions units is GST-free under section 38-590 of the GST Act.
Subsection 9-30(1) of the GST Act states that a supply is GST-free if:
- it is GST-free under Division 38 of the GST Act or under a provision of another Act, or
- it is a supply of a right to receive a supply that would be GST-free under paragraph (a).
The granting of the call option is the supply of a right to receive a supply of eligible emissions units. Therefore, the supply of the call option is also a GST-free supply under paragraph 9-30(1)(b) of the GST Act.
The entity's supply of the call option is both an input taxed financial supply under subsection 40-5(1) of the GST Act, and a GST-free supply under subsection 9-30(1) of the GST Act.
Subsection 9-30(3) of the GST Act provides that where a supply is both GST-free and input taxed, the supply will be GST-free and not input taxed, unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed. Subsection 40-5(1) of the GST Act does not require the entity to choose for the supply to be input taxed.
Consequently, the entity's supply of the call option will be GST-free.
|Date of amendment||Part||Comment|
|25 July 2014||Facts and Legislative References||Deleted references to the Clean Energy Act 2011, which was repealed with a date of effect of 1 July 2014.|
A New Tax System (Goods and Services Tax) Act 1999
subregulation 40-5.09(3) Related ATO Interpretative Decisions
ATO ID 2013/25
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GST options & warrants
GST financial supplies
Input taxed supplies