In The Trustee for the Whitby Trust and Commissioner of Taxation  AATA 343 the Tribunal found that an option fee of $2m paid by the taxpayer should not be included in the acquisition cost of real property when applying the margin scheme in Division 75 of the GST Act.
The taxpayer contended that the option fee was provided to obtain an interest in the real property. Further, the Deed of Option stated that the option fee was paid as partial consideration for the property and it was an express them of the Deed of Option that the purchase price was $28m.
The Tribunal agreed with the contention of the Commissioner that there were two separate supplies under the GST Act, the supply of the option (a bundle of rights) from the owner to the taxpayer for consideration of $2m and the supply of the land for consideration of $26m. The Tribunal agreed with the construction adopted by the Commissioner in GSTD 2014/2, being that the supply of an option is a separate supply to the supply of the underlying asset.
The Tribunal agreed with the Commissioner that a plain reading of s 9-17 of the GST Act makes it clear that when there is an option fee paid, the consideration for the supply of the freehold interest in land is limited to the consideration paid in addition to any option fee. The Tribunal also concluded that the fact that the Option Fee provided that the $2m option fee “forms part of the Purchase Price” and that the “Purchase Price” was stated to be $28,000,000 (inclusive of the Option Fee)” was of no moment. The drafting of the Option Deed did not defeat what was occurring, in substance and for the purposes of the GST Act. The taxpayer could not effectively “contract out” of what, as a matter of fact and law, happened.