Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)CHANGE OF TITLE - TAX LAW IMPROVEMENT BILL (No. 1) 1998 - SENATE - Explanatory Memorandum.
Chapter 2.21 - Options
Overview
This segment covers the rules in Division 134 for the treatment of options.
Part A summarises these rules.
Part B identifies provisions of the 1936 Act not rewritten.
A. Summary of the new law
Division 134 has rules for modifying the cost base or reduced cost base of an asset where an option that relates to it is exercised. These apply if an option is granted to acquire or dispose of a CGT asset.
The Division applies if consideration is paid or given for the option and the conditions outlined in Subdivision 130-B are satisfied. Broadly, these deal with the situation where
an equity holder is issued rights to acquire a share, unit or option at no cost.
The second element of the cost base or reduced cost base for the CGT asset includes the amount paid for the grant of the option. [section 134-1, item 2]
The cost base or reduced cost base for the asset is the amount paid for the exercise of the option, reduced by the amount received for the grant of the option. [section 134-1, item 2]
The first element of the cost base of the CGT asset is the amount paid for the exercise of the option plus the amount paid for the grant of the option. [section 134-1, item 1]
This Subdivision does not apply to the grantor of an option to dispose of a CGT asset. This situation is covered by section 116-70 which sets out how capital proceeds are treated.
B. Provisions of the old law not rewritten
The following provisions of the existing law have not been rewritten:
| Provision | Subject | Reason for omission |
|---|---|---|
| 160ZZC(4) | Option relating to property not owned. | The situation outlined in this subsection is covered by CGT event D2. |
| 160ZZC(9) | Option granted before 20 September 1985 binding the grantor to dispose of a CGT asset. | Dealt with as a transitional provision. |