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Edited version of your written advice
Authorisation Number: 1051218991044
Date of advice: 28 April 2017
Ruling
Subject: Main residence exemption
Question 1
Does the granting of an option to another entity to purchase the Taxpayers' main residence constitute a capital gain (CGT) event D2?
Answer
Yes
Question 2
Where an option is exercised, the acquisition of the option and the transaction entered into in exercising the rights and obligations under the option are treated as a single transaction. The Commissioners view is that the date of disposal of an asset under an option is the date the transaction was entered into as a result of the exercise of the option.
Answer
Yes
Question 3
Are the Taxpayers permitted to seek amendment to prior years assessments (with unlimited time to amend) to exclude the Option Fee or Extension Fee received in previous financial years of income in respect of the ultimate sale of their main residence ?
Answer
Yes
Question 4
Is net gain realised on disposal of the Taxpayers main residence not subject to CGT pursuant to section 118-110 of the ITAA 1997?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 20ZZ
The scheme commences on:
1 July 20WW
Relevant facts and circumstances
You purchased a property in 20WW. (The dwelling)
In 20XX, an options Deed was entered regarding the potential sale of the dwelling.
In 20XX you received an option fee
In 20YY you received an extension fee
In 20ZZ you received an extension fee
Settlement for the sale of the dwelling occurred on the 20ZZ
The dwelling was your main residence during your period of ownership.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-40
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 115-25
Income Tax Assessment Act 1997 Section 116-65
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1936 Section 170
Reasons for decision
Question 1
An option granted a purchaser is considered to be a CGT asset. Options are considered as rights to accept an irrevocable offer within a specified time and the acceptance of the offer creates a contract. An option provides the grantee of the option the right to acquire an asset from the grantor of the option at a specified price before a specified date. CGT event D2 happens if a taxpayer grants an option to a person or an entity, or renews or extends an option that has been granted.
Question 2
Where an option is exercised, the acquisition of the option and the transaction entered into in exercising the rights and obligations under the option are treated as a single transaction. The Commissioners view is that the date of disposal of an asset under an option is the date of the transaction entered into as a result of the exercise of the option.
Question 3
Where a taxpayer disposes a CGT asset because another entity exercises an option that was granted in relation to the asset, the capital proceeds from the disposal include any payment received for granting the option. This means that the capital proceeds from the CGT A1 event includes any payment received for granting the option. Therefore, the original CGT event D2 is disregarded.
Where an option is given in one financial year and exercised in another financial year, an amendment to an individual's income tax assessment for the year in which the option was granted will be necessary. For this purpose, the section 170 (10AA) of the Income Tax Assessment Act 1936 provides unlimited time to effect an amendment in the case where there has been an exercise of an option and an option fee was included in a prior year of income.
Question 4
The disposal of a property that is a taxpayer's main residence is not subject to CGT pursuant to section 118-110 of the Income Tax Assessment Act 1997. Therefore the Taxpayers are not required to include any net gain from such disposal in their 20ZZ income tax returns.
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