Edited version of private advice

Authorisation Number: 1051852780283

Date of advice: 17 June 2021

Ruling

Subject: Goods and services tax and call option fees

Question

Is the Call Option Fees, as set out in the Call Option Deed between the Parties, to be included in working out your GST turnover for GST registration purposes?

Answer

Yes, the Call Option Fees as set out in the Call Option Deed between the Parties, is to be included in working out your GST turnover for GST registration purposes.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You have an Australian Business Number (ABN: XX XXX XXX XXX) but are not registered for goods and services tax (GST).

You own a property which you rent to an arms-length party on a commercial basis. The rent collected is currently $XX per year.

The property is XX acres and has no residential premises on it. Apart from a shed which is also leased as part of the commercial lease, the property is vacant land.

You have entered into a Call Option Deed with a developer for the sale of the property.

The Call Option Deed defines Call Option Fees to be $XX

Clause 2 of the Call Option Deed states:

Grant of Call Option

In consideration of the Grantee paying the Call Option Fee to the Owner, the Owner grants to the Grantee and the Grantee accepts an option to buy the Property on the terms of this document and the Contract.

Clause 3 of the Call Option Deed states:

Call Option Fee and Additional Amounts

3.1 Payment of Call Option Fee

a)    The Grantee must pay the Call Option Fee to the owner by bank or trust cheque on the making of this document

b)    ...

c)    ...

3.2 First Additional Amount

If the Rezoning has not occurred on or before the date which is X months after the date of this document, the Grantee may, on the date which is X months after the date of this document pay the First Additional Amount to the owner in accordance with clause 3.7

Clauses 3.3 to 3.6 of the Call Option Deed refer to the Second Additional Amount to the Fifth Additional Amount.

The Call Option Deed defines each of the Additional Amounts to be $XX.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-10(2)(d)

A New Tax System (Goods and Services Tax) Act 1999 section 9-17(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-25(a)

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) requires that you must pay the GST payable on any taxable supply you make.

Section 9-5 of the GST Act states:

Taxable supplies

You make a taxable supply if:

a)    you make the supply for *consideration; and

b)    the supply is made in the course or furtherance of an *enterprise that you *carry on; and

c)    the supply is *connected with the indirect tax zone; and

d)    you are *registered, or *required to be registered.

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

(* Items are defined terms in the GST Act)

Section 9-10 of the GST Act defines a "supply" as any form of supply whatsoever. Of relevance, paragraph 9-10(2)(d) of the GST Act provides that a supply includes a grant, assignment or surrender of real property and paragraph 9-10(2)(e) of the GST Act provides that a supply includes a creation, grant, transfer, assignment or surrender of any right.

In your private ruling application, you have asked if the Call Option Fee is capital in nature and therefore should not be included in calculating your GST turnover. In deciding this matter consideration is given to Division 188 of the GST Act.

Division 188 of the GST Act considers circumstances where your GST turnover meets the registration turnover threshold and what supplies may be disregarded when calculating your projected GST turnover.

Paragraph 188-25(a) of the GST Act excludes proceeds from the "transfer of ownership of a capital asset" from the calculation of GST turnover.

Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) provides the ATO view in relation to GST turnover.

Paragraphs 31 to 36 of GSTR 2001/7 discusses the meaning of "capital assets" and paragraph 37 of GSTR 2001/7 discusses the meaning of "transfer of ownership".

In the context of a call option over real property, subsection 9-17(1) of the GST Act recognises that the supply of the option is a separate supply to the supply of the underlying property. As a consequence of subsection 9-17(1) of the GST Act, the consideration for the call option is the call option fee, and the consideration for the supply or acquisition of the underlying property is limited to any additional consideration provided.

In your case, the Call Option Fee being consideration for the Call Option does not constitute proceeds from the "transfer of ownership of a capital asset" as required by section 188-25 of the GST Act. Therefore, the Call Option Fee is not excluded from the calculation of your GST turnover, and you will have to include the Call Option Fees in your calculations of GST turnover for GST registration purposes.