Issue
Does CGT event C2 (in section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997)) happen when a taxpayer exercises an exchange traded option?
Decision
Yes, CGT event C2 (in section 104-25 of the ITAA 1997) does happen when a taxpayer exercises an exchange traded option. However, any capital gain or capital loss made as a result of the exercise of the option is disregarded under subsection 134-1(4) of the ITAA 1997.
Facts
The taxpayer purchased exchange traded options.
Some of the options that the taxpayer purchased were exercised.
Reasons for Decision
An exchange traded option is a type of futures contract entered into on a futures market of a futures exchange, under which a party acquires an option or right which can be exercised at or before a specified time. An exchange traded option gives the party the right to either: • purchase from, or sell to, the other party a specified quantity of a commodity at a price specified in, or determined in accordance with, the contract; or • be paid by the other party an amount of money which reflects the amount by which a specified number is greater or less than the number of a specified index at the time the option or right is exercised. The index may be either the Australian Stock Exchanges All Ordinaries Price Index or a prescribed index.
CGT event C2 happens when the taxpayer exercises the options (paragraph 104-25(1)(e) of the ITAA 1997), however any capital gain or capital loss made is disregarded under subsection 134-1(4) of the ITAA 1997.
Note 1: Table items 1 and 2 of Subsection 134-1(1), and subsection 134-1(2) of the ITAA 1997 set out the effects of the exercise of an option on the cost bases and reduced cost bases of the grantor and the grantee of the option.
Note 2: Subdivision 130-B of the ITAA 1997 deals with rights and options issued to a taxpayer by a company or trust where the taxpayer did not pay or give anything to acquire them.