Edited version of your private ruling

Authorisation Number: 1012588918407

Ruling

Subject: Assignment of an option

Question 1

Was the assignment of an option to purchase the residential premises a taxable supply?

Answer

No

Question 2

Are you required to remit goods and service tax (GST) on the assignment of the option to purchase the residential premises?

Answer

No

Question 3.

If not, do you have to refund the GST credits to the purchaser?

Advice

Please see the reasons for decisions

Relevant facts:

· You are registered for GST.

· You carry on an enterprise of property sales.

· You entered into an agreement (Agreement) to purchase residential premises (Property).

· The Agreement contained a sale contract for the Property. The Property was not new residential premises.

· The Agreement provided you with an option (Option) to purchase the Property. You provided consideration for the Option.

· Under the Agreement, you could assign the Option to a third party.

· After the Agreement had been made, you entered into another agreement (Assignment) with a third party where you assigned your Option (under the Agreement) to an assignee for an assignment fees (GST inclusive).

· You issued a tax invoice for the assignment fees. The tax invoice described the supply as an assignment of option.

· At the time of your supply (assignment of the Option), the Property was not a new residential premises.

· You advised that you have not reported your supply and you have not remitted the GST credits to Australian Taxation Office (ATO).

Reasons for decisions

The supply of the Property in the Agreement would be an input taxed supply under subsection

40-65(1) of the GST Act as it was not new residential premises.

Supply of Option

Subsection 9-30(2) of the GST Act provides that a supply is input taxed if:

a. it is input taxed under Division 40 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 input taxed under paragraph (a).

As the supply of the Property was a supply of residential premises under subsection 40-65(1) of the GST Act the supply of the Option (right) to purchase the residential premises was also input taxed under paragraph 9-30(2)(a) of the GST Act.

You entered into another agreement (Assignment) and assigned the Option to an assignee for consideration (assignment fees). You collected the GST and you asked the following questions:

Question 1

Was the assignment of the option to purchase residential premises a taxable supply?

The meaning of supply as described in paragraph 9-10(2)(e) of the GST Act includes an assignment or surrender of any rights. Therefore, the assignment of the Option is a supply for GST purpose.

Under section 9-5 of the GST Act, you make a taxable supply if:

(a) you make a supply for consideration

(b) the supply in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia and

(d) you are registered or required to be registered for GST

However, the supply is not taxable to the extent that it is GST-free or input taxed.

You made a supply (Assignment of the Option) to the assignee for consideration. You made the supply in the course of your business in Australia and you are registered for GST. Therefore, the supply satisfied all the criteria in section 9-5 of the GST Act.

Next we have to determine whether the supply was GST-free or input taxed. Based on the information provided, we consider that the supply would not be GST-free. Therefore, we need to determine whether the supply was input taxed.

Assignment

The supply of the Option was a supply of a right to receive a supply of residential premises and would be an input taxed supply under paragraph 9-30(2)(b) of the GST Act.

The Assignment of the Option would also be input taxed under paragraph 9-30(2)(b) of the GST Act as the assignment entitled the assignee the right to purchase the Property. The Property was not new residential premises and would be an input taxed supply under subsection 40-65(1) of the GST Act. Therefore, the Assignment of the Option was not a taxable supply under section 9-5 of the GST Act.

Question 2

Are you required to remit GST on the assignment of the option?

Section 9-40 of the GST Act states:

You must pay the GST payable on any *taxable supply that you make

* is a defined term in the GST legislation

Therefore you are only required to remit GST for your taxable supply.

The Assignment was an input taxed supply under paragraph 9-30(2)(b) of the GST Act as it conferred the rights to the assignee to receive the Property which would be an input taxed supply under subsection 40-65(1) of the GST Act.

As the Assignment was not a taxable supply under section 9-5 of the GST Act, you are therefore not required to remit the GST to ATO.

Question 3

If not, do you have to refund the GST credits to your purchaser?

You advised the assignment fees were GST inclusive and you issued a tax invoice. You have not remitted the GST to ATO.

As the tax invoice was issued in error for an input taxed supply, you are required to contact the assignee to withdraw the tax invoice. You are required to cancel the tax invoice as there is no GST credits entitlement for an input taxed acquisition. The acquisition of an input taxed supply is not a creditable acquisition (paragraph 11-5(b) of the GST Act).

For your information as the GST credits have not been remitted to the ATO, the ATO does not have a position in regard to the GST incorrectly collected. The resolution of the GST incorrectly collected is a contractual matter between you and the purchaser. The ATO cannot provide any advice on the GST incorrectly collected that has not been remitted to the ATO.