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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051269718828

Date of advice: 4 September 2017

Ruling

Subject: Capital Gains Tax – Real Property - Options

Question

Is the capital gain you made on the revocation of the options disregarded?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The arrangement that is subject of the private ruling is described below. This description is based on the following documents. These documents form part of, and are to be read with this description. The relevant documents are:

You are not an Australian resident for tax purposes.

You acquired options to purchase Australian Property (the options).

You paid an amount of money for these options.

You signed a marketing agreement to market the real property (the marketing agreement).

You paid an amount of money in commission and marketing fees in relation to the marketing agreement.

You incurred legal fees.

You entered into two Deeds of Revocation to revoke both the options and marketing agreement.

You agreed to receive a sum of money in relation to the two Deeds.

You did not receive the monies agreed to in the Deeds of revocation; subsequently you commenced legal proceedings in court to recover the amount.

A legal Judgment was issued relating to a legal challenge and you settled a further legal challenge by signing a Deed of settlement for a further amount of money.

You made a capital gain.

You received a part payment in relation to the settlement agreement.

You will receive further payments in relation to the settlement agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-25

Income Tax Assessment Act 1997 section 104-35

Income Tax Assessment Act 1997 section 855-10

Income Tax Assessment Act 1997 section 855-15

Income Tax Assessment Act 1997 section 855-20

Reasons for decision

Summary

A capital gain made by a foreign resident as a result of the revocation of call options and a Deed of settlement that relates to real property, cannot be disregarded.

Detailed reasoning

Capital gains tax for non-residents

A non-resident can only make a capital gain or loss if a CGT event happens to an asset that is taxable Australian property. The term 'taxable Australian property’ is defined in the table in section 855-15 of the ITAA 1997 and covers five categories of assets.

Broadly, these categories are:

In your case you purchased options to acquire multiple apartments located in Australia. The apartments are taxable Australian real property. As your options were to purchase taxable Australian real property, your option is also taxable Australian property, as per item 4 above.

You entered into two Deeds of Revocation to revoke both the options and marketing agreement. This cancelled your ownership of the options to acquire the apartments. As this was a cancellation of an intangible asset GGT event C2 occurred at the time of revocation.

As the capital proceeds from the ending of the asset are more than the assets cost base you have made a capital gain on taxable Australian property. As a non-resident, you are subject to CGT when CGT event C2 happened to taxable Australian property that you own.

Accordingly, you are required to lodge a tax return in Australia including the amount of capital gain.

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