- Options are always tricky.
- What applies to GST does not necessarily apply to CGT.
- Assumptions can be very dangerous.
Tony comes to see you about a ‘too good to refuse’ offer he has received from a developer – $5 million GST inclusive for a property he bought for $5,000 in 1970. Tony tells you that he uses the land for his car repair business, which operates out of a building put there soon after purchase. Tony’s family company pays him rent of $65,000 per year which his accountant advised for tax planning purposes. Also, his accountant told Tony that, provided he keeps the rent under $75,000, he will not be required to register for GST.
Tony tells you that Dan, the developer, plans to build 30 residential units and has told him that the sale must be under the GST margin scheme, because otherwise Dan will not be able to use the margin scheme when he sells.
Dan has yet to arrange his finance fully so asks Tony for a call option for which he will pay $500,000. If Dan exercises the option, the amount paid will come off the price. If Dan doesn’t exercise the option, Tony keeps the $500,000.