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Edited version of your written advice
Authorisation Number: 1013001008954
Date of advice: 21 April 2016
Ruling
Subject: Capital gains tax
Question 1
Has CGT event D2 occurred in the financial year ended 30 June 2015?
Answer
Yes.
Question 2
Has CGT event A1 occurred in the financial year ending 30 June 2016?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
1 July 2015.
Relevant facts and circumstances
You acquired property after 20 September 1989.
You entered into a Put and Call Option Deed in relation to the property in the year ended 30 June 2015.
You are the Grantor of the Put and Call Option Deed.
The Grantee exercised their Call Option in the year ending 30 June 2016 resulting in the signing of the Contract of Sale.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 104-10
Income Tax Assessment Act 1997 - Section 104-40
Income Tax Assessment Act 1997 - Section 116-65
Reasons for decision
Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that Capital Gains Tax (CGT) event A1 happens on the disposal of a CGT asset. Subsection 104-10(3) of the ITAA 1997 sets the time of CGT event A1 as:
a) when you enter into the contract for the disposal; or
b) if there is no contract - when the change of ownership occurs.
The Put and Call Agreement is, by its very nature, a contract for the disposal of the property. However, the CGT provisions take the general law as it stands and this means that the date you enter into the contract is the date the contract comes into existence for general law purposes. For example, an agreement can be a conditional contract and might only proceed if a specific condition is fulfilled.
The Commissioner's views on the timing of CGT event A1 with regards to options is clarified in CGT Determination Number 16 Capital Gains: What is the date of acquisition (or date of disposal) of an asset acquired (or disposed of) on the exercise of an option?. It states that where an option is exercised, the date of disposal of the asset is the date the option is exercised and not the date the option was granted.
Application to your circumstances
In this case, it is clear from the wording of the agreement that the intention of the parties was for the agreement not to become binding until either of the options were exercised. Accordingly, we accept that the time the contract was entered into for the purposes of paragraph 104-10(3)(a) of the ITAA 1997 is the date the option was exercised (in the year ending 30 June 2016).
Consequently, CGT event D2 is deemed to have occurred on the date the option was granted in the year ended 30 June 2015. However, because the option was subsequently exercised, the capital gain or loss made from granting the option is disregarded (subsection 104-40(4) of the ITAA 1997). Under the modifications to the general rules for capital proceeds, section 116-65 of the ITAA 1997 provides that if you dispose of a CGT asset because another entity exercises an option you granted in relation to the asset, the capital proceeds from the disposal include any payment you received for granting the option.