ATO Interpretative Decision

ATO ID 2013/25

Goods and Services Tax

GST and supply of a put option over GST-free eligible emissions units

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.

Issue

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 put option that entitles the grantee to supply eligible emissions units, the supply of which would be a GST-free supply?

Decision

Yes, the entity is making an input taxed financial supply under section 40-5 of the GST Act

Facts

An entity grants an over-the-counter put option over 'eligible emissions units' within the definition in section 195-1 of the GST Act, which takes meaning from the Clean Energy Act 2011.

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 sell 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 put option satisfies the definition of a derivative.

The supply of the put 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 put 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:

(a)
it is GST-free under Division 38 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 GST-free under paragraph (a).

The granting of the put option is the supply of a right to make a supply of the eligible emissions units. The put option is not the right to receive a GST-free supply.

Consequently, the granting of the put option is not the supply of 'a right to receive a supply' and is not GST-free under paragraph 9-30(1)(b). The entity is making an input taxed financial supply under section 40-5 of the GST Act.

Date of decision:  1 May 2013

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   subsection 9-30(1)
   paragraph 9-30(1)(b)
   section 38-590
   section 40-5
   subsection 40-5(1)
   subsection 40-5(2)
   section 195-1
   Division 38

Clean Energy Act 2011
   The Act

A New Tax System (Goods and Service Tax) Regulations 1999
   regulation 40-5.06
   subregulation 40-5.09(1)
   subregulation 40-5.09(3)

Related ATO Interpretative Decisions
ATO ID 2013/26

Keywords
Goods and services tax
GST derivatives
GST financial supplies
Input taxed supplies
GST options & warrants

Siebel/TDMS Reference Number:  1-44BRUT8

Business Line:  Indirect Tax

Date of publication:  10 May 2013

ISSN: 1445-2782

history
  Date: Version:
You are here 1 May 2013 Original statement
  25 July 2014 Updated statement
  5 May 2022 Archived