Tax consequences of Put/Call options

[Terryw]

HI

I was just thinking about put/call options being used to buy and sell property.

I know the granting of an option is a CGT event, D2, but what if an option agreement is signed, but the actual contract of sale is not signed until exercising the option.

If someone enters into an option agreement to purchase a property what is the relevant date of acquisition of the property for CGT purposes - date of the option contract or date of the contract of sale?

Thanks in advance.

 

[Lofty]

Hi Terry

My wild guess would be that that CGT would be calculated from the date of the put/call option and from the date of the Contract of Sale in the case of the call option.

Cheers, Paul

 

[Mry]

The date of the option being exercised, as the contract that creates the obligations to effect the disposal is considered to be the date of the property disposal. However, you do want to make sure that the option is capable of expiring with no ramifications, otherwise there will be questions as to whether it was a true put/call agreement. There are other factors that may effect the timing of the event such as the length to exercise the option that also have to be considered.

 

[Terryw]

thanks Mry and Paul too

Take this example

X signs a put/call option to purchase a unit off the plan. date of option contract is 01 June 2010. After a while he exercises his option and enters into the contract of sale on 01 June 2011. He then sells the unit on 02 June 2011.

Will he get the 50% CGT discount?

I don't think he will because the date of acquisition will be the date of the contract of sale, s109-5(2) A1 ITAA 1997.

This means having entered into a put/call agreement instead of a contract of sale straight away results in loss of the 50% CGT discount.

What do you think?

I am not sure what you (Mry) mean by the put/call option expiring with no ramifications as I don't think they work like this - the put requires the person to purchase with no way out.

Thanks again.