lease option, put option

[tj22]

hi all,

I was wanting to know with a lease option, the option payment which actually comes off the price of the house. but is paid to you weekly for 2-4 years depending on how long the agreement is.

is that taxed as income tax because you receive it weekly? or is it only taxed right at the end of the 2-4 year contract as a CGT tax?

has anyone dealt with this before?

 

[Paul@PFI]

It can be affected by the wording of the contract. Typically it represents a contract of sale and would be a CGT cost. The other party may have a unintended CGT issue if the contract is one of a earn out arrangement. ie : Its the first of a series of proposed CGT payments. The CGT event would occur in year one and tax due after 18months - Possibly before settlement.

I'm not a fan of these "clever" ideas as they are often seen as a tax deferral sham by the ATO and result in penalties and interest. Professional tax advice is a must and the legal nature of the option given advice by a tax lawyer. A wrong word here or there can be fatal.