GST and supply of a put option over GST-free eligible emissions units

Is an entity making an input taxed financial supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it grants a put option that entitles the grantee to supply eligible emissions units, the supply of which would be a GST-free supply?

Yes, the entity is making an input taxed financial supply under section 40-5 of the GST Act

An entity grants an over-the-counter put option over 'eligible emissions units' within the definition in section 195-1 of the GST Act.

The option is granted for consideration, and the entity makes the supply of the option through an enterprise that it carries on in Australia. The entity is also registered for GST.

Under the option, the holder has the right but not the obligation to exercise the option and sell the eligible emissions units up until the expiry date.

A financial supply is input taxed under subsection 40-5(1) of the GST Act. Subsection 40-5(2) of the GST Act states that 'financial supply' has the meaning given by the A New Tax System (Goods and Service Tax) Regulations 1999 (GST Regulations).

The provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) of the GST Regulations is a financial supply if the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied.

A 'derivative' is listed at Item 11 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 11). 'Derivative' is defined in the GST Regulations to mean an agreement or instrument the value of which depends on, or is derived from, the value of assets or liabilities, an index or a rate. The value or price of an option is determined by a number of factors, including the current price of the underlying asset that is the subject of the option. Accordingly, the put option satisfies the definition of a derivative.

The supply of the put option is made for consideration, in the course or furtherance of the entity's enterprise and is connected with Australia. The entity is registered for GST and as it granted the option, it is a financial supply provider in relation to the supply of the put option (regulation 40-5.06 of the GST Regulations). Therefore, the requirements in subregulation 40-5.09(1) of the GST Regulations are satisfied and the entity is making an input taxed financial supply under subsection 40-5(1) of the GST Act.

The supply of eligible emissions units is GST-free under section 38-590 of the GST Act.

Subsection 9-30(1) of the GST Act states that a supply is GST-free if: (a) it is GST-free under Division 38 of the GST Act or under a provision of another Act, or (b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a).

The granting of the put option is the supply of a right to make a supply of the eligible emissions units. The put option is not the right to receive a GST-free supply.

Consequently, the granting of the put option is not the supply of 'a right to receive a supply' and is not GST-free under paragraph 9-30(1)(b). The entity is making an input taxed financial supply under section 40-5 of the GST Act.

Date of amendment Part Comment 25 July 2014 Facts and Legislative References Deleted references to the Clean Energy Act 2011, which was repealed with a date of effect of 1 July 2014.

Date of amendment | Part | Comment

25 July 2014 | Facts and Legislative References | Deleted references to the Clean Energy Act 2011, which was repealed with a date of effect of 1 July 2014.