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This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1051241046829
Date of advice: 11 October 2017
Subject: GST on the Put and Call Option
Is the GST applicable on the Put and Call Option only debited in the quarter of receipt of the option fees?
Will the ATO approve the deferment of the GST until received or by the next BAS, whichever is the later?
Yes – but only for the First Option Fee.
Relevant facts and circumstances
X is currently registered for GST and pays their Business Activity Statement on a cash basis.
Subclauses X and Y of the Deed of Put and Call Option executed on Z (“the Deed”) respectively state:
X. This clause only applies if the Grantor is, or becomes registered for GST under the GST Act and otherwise incurs a liability to pay GST in connection with the Option Fee pursuant to this Deed.
Y If the provisions of clause X apply then the Option Fee is a taxable supply.
The option fees are:
● $X plus GST as applicable (payable X.6.2016) (“First Option Fee”)
● $Y plus GST as applicable (payable Y.6.2017) (“Second Option Fee”)
X first sought a ruling on 30 June 2016 (“the Ruling Request”) in relation to, inter alia, whether GST applies to the Options and/or Contract of Sale for the Property.
By written communication dated Y your tax agent asked if the ATO would approve the deferment of the GST until received or by the next BAS, (whichever date is the later) due to a delay in determining the application of GST in this case.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9 and
A New Tax System (Goods and Services Tax) Act 1999 section 40.
Reasons for decision
Applying ATO ID 2005/182 (GST and Supply of a call option over commercial property) the supply of the Property will be a taxable supply under Division 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
The supply is made in the course or furtherance of the entity's enterprise, is connected with Australia and the entity is registered for GST. As such, the supply satisfies the positive limbs of section 9-5 of the GST Act.
The entity's supply is not GST-free under any provision of the GST Act. However, the supply of a call option could be an input taxed financial supply.
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, when certain requirements are met, 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.
Item 11 in the table in subregulation 40-5.09(3) of the GST Regulations 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 commercial property 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 and satisfies the definition of a derivative.
However, regulation 40-5.12 of the GST Regulations provides that the supply of something, or an interest in something that is mentioned in the table in regulation 40-5.12 is not a financial supply.
Item 7 in the table in regulation 40-5.12 of the GST Regulations (Item 7) lists an option, right or obligation to make or receive a taxable supply, except a mortgage or charge mentioned in item 3 in the table in subregulation 40-5.09(3) of the GST Regulations. The call option to purchase real property is an option to receive a taxable supply. As such, the entity is not making a financial supply under subsection 40-5(1) of the GST Act.
Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it grants a call option that entitles the grantee to purchase real property, the supply of which is a taxable supply.
You have advised that X accounts on a cash basis. Paragraph 14 of Goods and Services Tax Ruling GSTR 2000/29 (attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25) states:
14. If you account for GST on a cash basis, you attribute GST on a taxable supply to the tax period in which you receive consideration for the supply, but only to the extent that the consideration is received in the tax period5. This means that if, in a particular tax period, you receive only part of the consideration for a supply, you attribute GST on the supply only to the extent that the consideration is received in that tax period. For example, if in a particular tax period you received $5,000 as part of the consideration for a supply, you attribute 1/11th of the consideration received, that is 1/11th of $5,000, as the GST on the supply for that tax period.
Therefore, GST on the First Option Fee and Second Option Fee is attributable to the periods in which payment is received. If, as specified in the Deed, payment for the First Option Fee was received on X June 2016 then GST on that payment is attributable to the June 2016 quarter (payable by X July 2016). If it was not received until a later date, then it is attributable to the period in which it is received. Similarly, if payment of the Second Option Fee is received on X June 2017 then GST on that payment will be attributable to the June 2017 quarter or such period in which the consideration is received.
The GST on the initial instalment of $K is attributable to the quarterly tax period ending 30 June 2016 pursuant to paragraph 29-5(2)(b).
The GST on the second instalment of $K is attributable to the quarterly tax period ending 30 June 2017 pursuant to paragraph 29-5(2)(b).
Section 29-25 provides that the Commissioner may determine particular attribution rules for taxable supplies of a specified kind (29-25(1)(a)). The Commissioner has made a number of such legislative determinations since 2000 however none would be applicable given the details of this case. As such, normal attribution rules as above will apply.
Paragraph 42 of Law Administration Practice Statement PS LA 2011/15 (Lodgement obligations, due dates and deferrals) states:
42. Reporting periods for tax obligations such as GST and PAYG withholding can be varied in certain circumstances. Generally a change in reporting period will be triggered by one or more of the following:
● a change in eligibility
● a poor compliance history
● a client request.
As explained above, the GST on the payment of $X for the First Option Fee is attributable to the June 2016 quarter. Section 31-8 provides that an entity with quarterly tax periods must lodge their June quarter BAS on or before the following X July. Operations may approve a deferral of the lodgement to a later date. Approval will be in accordance to their specific guidelines.
Section 33-3 provides that payment of the net amount for the June quarter BAS must also be made on or before the following 28 July. Operations may also approve deferral of the payment (either in full or part – payment arrangement) to a later date (approval guidelines in Law Administration Practice Statement PS LA 2011/14).