GST Determination on call option fee and the margin scheme

Yesterday the Commissioner published GSTD 2014/2 ‘Goods and services tax: where real property is acquired following the exercise of a call option, does the call option fee form part of the consideration for the acquisition for the purposes of subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999.

In the Determination the Commissioner takes the view that the call option fee does not form part of the consideration for the acquisition of real property for the purposes of s 75-10(2) of the GST Act. This is because the supply of the call option and the supply of the land are two separate taxable supplies and as a consequence of s 9-17(1), the consideration for the supply of the land is limited to any consideration provided in addition to the call option fee.

This means that the purchaser is not entitled to input tax credits relating to the consideration paid for the land (with that consideration going to the margin), but is entitled to credits for the call option fee.

I note that the Determination does not address the case where the parties agree that the option fee is to form part of the consideration for the purchase if it is exercised. The reasoning in the Determination would suggest that in such a case the option fee does not form part of the margin. This is because s 9-17(1) expressly states that the consideration for the supply of the thing on the exercise of the option is limited to any “additional consideration” provided for the supply.

However, s 75-10(2) states that the margin is “the amount by which the consideration for the supply exceeds the consideration for your acquisition…”. Where the parties contractually agree that the option fee is to form part of the price, one could argue that the option fee forms part of the consideration for the acquisition. Whether s 9-17(1) overrides that outcome is an interesting question, particularly given that s 45-5 provides that the special rules (which includes Division 75) override the provisions of chapter 2 (which includes s 9-17(1)) “but only to the extent of any inconsistency”.

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