Edited version of private ruling

Authorisation Number: 1011733808317

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Ruling

Subject: Call and Put Option

Question 1

Do CGT events D1 or D2 in Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) prohibit you from claiming a discount for holding the option for over a year in this situation?

Answer: No. The disposal of the option is a CGT A1 event.

Question 2

Did you purchase the land or was it never in your ownership?

Answer: No, you did not purchase the land.

Relevant facts

The Assignor (you) entered into a call and put option arrangement for $XX and was entitled to become the purchaser of the land by the given date.

The Assignor agreed to assign unto the Assignee the Assignor's title claim estate and interest in the agreement. The client nominated a third party as its nominee to exercise the call option granted in the put call option between the Grantor (the initial holder of the land) and the client as Grantee for $XXX inclusive of GST.

You advise:

· The Assignor assigned the Assignor's title claim and interest in the agreement to the Assignee on XXX.

· The Assignor entered into the call & put option in XX.

· The Assignor assigned the Assignor's title claim and interest in the agreement to the assignee on XX.

· The Assignor entered into the call & put option in XX.

· The period of the option entered in by the Assignor is X Years X months.

· The Assignee is not a related party to the Assignor.

· The vendor is not related to the Assignor.

· The amount the Assignee paid to the Assignor for the Assignor's title claim estate and interest in the agreement was $XX including GST.

Relevant legislative provisions

Income Tax Assessment Act subsection 104-35

Income Tax Assessment Act Subsection 104-40

Income Tax Assessment Act Paragraph 115-10(c)

Income Tax Assessment Act Paragraph 102-3(1)

Income Tax Assessment Act Subsection 115-25

Income Tax Assessment Act Subsection 108-5

Reasons for decision

All legislative references are to The Income Tax Assessment Act 1997 unless otherwise indicated.

Subsection 115-10 states that certain entities can make a discount capital gain. A trust can make a discount capital gain provided the capital gain is made after 21 September 1999 and the capital gain does not have an indexed cost base.

However, Subsection 115-25(3) lists a number of CGT events that preclude a discount capital gain.

CGT events D1 and D2 are included on this list.

CGT event D1 (Subsection 104-35) happens if you create a contractual right or other legal or equitable right in another entity.

CGT event D2 (Subsection 104-40 (1) happens if you grant an option to an entity, or renew or extend an option you have granted.

In this case CGT events D1 and/or D2 do not apply as an option is a CGT asset as defined in subsection 108-5 and the disposal of an option is an A1 CGT event.

Did the family trust purchase the land?

Section 109-5 states, in general, you acquire a CGT asset when you become its owner.

CGT event A1 states, you acquire an asset when the disposal contract is entered into or, if none, when the entity stops being the asset's owner. (This is in the instance of a non-compulsory acquisition).

In this case the option to purchase the land was acquired, but the option to buy was assigned to another party without you ever purchasing the land. The contract between the assignor and the vendor was left blank at the time it was entered into until such time as the land itself was finally purchased by the assignee.