Selling an Australian Property Through a Put-and-Call Option as a Non-Resident: When the CGT Event Actually Triggers

When a non-resident sells Australian property using a put-and-call option, the capital gains tax event is triggered on the date the option is exercised and a binding contract of sale is formed, not on the date of settlement, and not on the date the option deed was originally signed. This timing detail matters more than most sellers realise, because it determines which financial year the gain falls into, what exchange rate applies, and how the 15% Foreign Resident Capital Gains Withholding is calculated and remitted. ODIN Tax works with Australian expats selling property from overseas as a routine part of non-resident tax return preparation, and option structures are one of the areas where the gap between how a contract is drafted and how the ATO actually taxes it causes the most confusion.

TL;DR

• The CGT event for an exercised put or call option happens on the date of exercise, when the underlying sale contract is formed, under Section 104-10(3) of the ITAA 1997.
• Granting the option itself triggers CGT event D2, but that gain or loss is disregarded once the option is exercised.
• An option that expires unexercised triggers CGT event C2 for the option holder, separate from any property sale.
• Non-residents generally cannot access the 50% CGT discount on gains accrued while they were a foreign resident, though an apportioned discount may still be available for periods of Australian residency, or for gains accrued up to 8 May 2012 on assets acquired before that date. From 1 July 2027, new legislation replaces the 50% CGT discount with cost-base indexation; residents can still use the discount for gains accrued before that date, and foreign residents generally cannot access it. An option structure does not change this outcome.
• From 1 January 2025, Foreign Resident Capital Gains Withholding applies at 15% to all property sale values, with no minimum threshold, so a foreign resident withholding certificate (or FRCGW clearance certificate for Australian tax residents) needs to be sorted out well before exercise.

About ODIN Tax: ODIN Tax is a Registered Australian Tax Agent practice built specifically for Australian expats and non-residents, having prepared returns and CGT calculations for 2,300+ clients across 40+ countries. Property sale structures involving options, deferred settlement and foreign resident withholding come up often enough in this client base that the practice treats them as a distinct area of technical focus.

What Is a Put-and-Call Option in an Australian Property Sale?

A put-and-call option agreement is a contract mechanism that gives one party (usually the buyer, via a call option) the right to require the other party to sell a property at an agreed price within a set period, and gives the other party (usually the seller, via a put option) the right to require the buyer to purchase it. Rather than signing a standard contract of sale immediately, the parties sign an option deed that sets the price and terms, then either party can trigger the actual sale contract later by exercising their option. Developers use this structure often because it lets them lock in land before finance or approvals are finalised, and property owners use it to give a buyer time to complete due diligence without committing to an immediate exchange.

The structure is also used to manage stamp duty consequences when a buyer intends to on-sell or nominate a different purchaser before completion, since a poorly drafted option can inadvertently trigger duty twice. Revenue NSW and other state revenue offices treat option agreements as a distinct category under duties legislation, with specific rules about when duty is assessed and who is liable. That state duty treatment is separate from the federal CGT treatment covered here, and the two should not be assumed to align.

When Does the CGT Event Actually Trigger for an Option Sale?

This is the question that catches most sellers off guard: the CGT event is not tied to when the option deed was signed, and it is not tied to settlement. Under Section 104-10(3) of the Income Tax Assessment Act 1997, a CGT event occurs when a contract for disposal is entered into. For a put-and-call option, the ATO’s position is that this contract only comes into existence when the option is exercised, so the CGT event time is the date of exercise, not the date the original option deed was signed and not the date title transfers at settlement.

Under Section 104-10(3) of the ITAA 1997, the CGT event time for an exercised option is the date of exercise and signing of the separate sale contract. Practically, that means a seller who signed an option deed in one financial year but whose buyer doesn’t exercise until the following year recognises the capital gain in the year of exercise, not the year the option was granted. Settlement might happen weeks or months after that again, but settlement date is irrelevant to the CGT timing calculation. Think of the option deed as a reserved seat and the exercise as the moment you actually claim it: the reservation itself doesn’t commit you to anything, only exercising the option does, and that’s the moment the ATO recognises the transaction.

What Happens If the Option Expires Without Being Exercised?

Building on the exercise-triggered timing above, the treatment flips entirely if the option is never exercised. Granting a put or call option triggers CGT event D2 for the grantor at the time the option is granted, but any capital gain or loss from that event is disregarded if the option is later exercised, because it gets absorbed into the CGT event A1 calculation for the underlying property disposal instead. If the option lapses unexercised, a separate CGT event C2 arises for the option holder, calculated on the option fee paid versus its cost base. These are two distinct CGT events tied to two different outcomes, not variations on a single event, and sellers need to track which one actually happened rather than assuming the deed’s existence alone creates a taxable event.

Can the ATO Treat the Option Deed Itself as the CGT Event?

A related but distinct question is whether the option structure can ever be disregarded entirely in favour of an earlier trigger date. ATO administrative practice notes that if an irrevocable put and call option has no real exercise conditions and effectively functions as a disguised sale, the execution of the option deed itself may be treated as the CGT event rather than the later exercise date. This matters because some option agreements are drafted with option periods so short, or conditions so nominal, that they resemble a standard contract of sale wearing an option deed’s clothing. A non-resident seller relying on the exercise-date timing to manage which financial year a gain falls into should make sure the option terms genuinely give the counterparty a real choice, not just a formality, or the ATO may look through the structure to the earlier date.

How Does Foreign Resident CGT Withholding Apply to an Option Sale?

Once the CGT event timing is settled, the next question for a non-resident is withholding. From 1 January 2025, the Foreign Resident Capital Gains Withholding rate is 15% and applies to all Australian property sale values, following the removal of the previous $750,000 threshold. That means every property transaction now falls within the withholding regime regardless of price, which is a meaningful change from the earlier rules many expats remember. In practical terms, the purchaser’s solicitor or conveyancer withholds 15% of the purchase price at settlement and remits it to the ATO unless the vendor provides a valid clearance certificate confirming Australian tax residency.

For a non-resident vendor selling through an option structure, the practical complication is timing: the CGT event may crystallise at exercise, but the actual withholding obligation attaches to the settlement of the sale contract that exercise creates. Vendors need to apply for their foreign resident withholding certificate (or confirm clearance certificate status, for residents) well ahead of settlement, because processing isn’t instant and a delay can hold up the transaction. Because the CGT liability is fixed by the exercise date but the cash withheld is calculated at settlement, sellers sometimes assume the two events are the same thing. They aren’t, and confusing them leads to under- or over-reporting the timing of the gain on a non-resident tax return in Australia.

Does the CGT Discount Apply to Non-Residents Selling Through an Option?

Generally no, and this is one of the most commonly misunderstood points among expats structuring a sale. The 50% CGT discount that Australian tax residents can access on assets held longer than 12 months is generally not available on capital gains accrued while a person is a foreign resident. However, foreign residents can still receive an apportioned CGT discount for any period during their ownership of the asset when they were an Australian resident, and there is separate transitional relief for gains accrued up to 8 May 2012 on assets acquired on or before that date. Using a put-and-call option doesn’t change any of this. Sellers who assume the option mechanism might somehow expand discount eligibility because of a delayed contract date are working from a misunderstanding of how CGT discount rules interact with residency status, not contract structure.

Frequently Asked Questions

Does signing the option deed trigger CGT immediately?
Generally no. CGT event D2 arises on granting the option, but that gain or loss is disregarded if the option is later exercised, and CGT event A1 for the property itself only arises at exercise.

What if the option is never exercised?
CGT event C2 arises for the option holder when the option lapses, calculated on the option fee, separate from any property-related CGT.

Do I need a clearance certificate or a foreign resident withholding certificate?
Australian tax residents apply for an FRCGW clearance certificate to avoid the 15% withholding. Non-residents apply for a foreign resident withholding certificate if they believe a lower withholding rate is appropriate, though approval isn’t automatic.

Does an option structure help avoid the 15% withholding?
No. Withholding attaches to the settlement of the contract formed at exercise. The option structure changes timing mechanics, not the withholding obligation itself.

Can I still get the 50% CGT discount if I held the property for years before granting the option?
Not on the portion of the gain accrued while you were a foreign resident. An apportioned discount may still apply for periods when you were an Australian resident, or for gains accrued up to 8 May 2012, but the option structure itself has no bearing on this.

What exchange rate applies to the sale proceeds?
The exchange rate applicable on the CGT event date, meaning the exercise date, is generally what’s used to convert foreign currency transactions, which is another reason the exercise date matters for accurate reporting on a non-resident tax return in Australia.

Should I get my tax structured before signing the option deed?
Reviewing the option terms and withholding obligations before signing, rather than after, gives more room to plan the reporting year and organise the necessary certificates in time.

About ODIN Tax

ODIN Tax is a Registered Australian Tax Agent practice built exclusively for Australian expats and non-residents, part of ODIN alongside Odin Mortgage. The practice has prepared tax returns and capital gains calculations for 2,300+ Australian expats across 40+ countries, with particular depth in non-resident CGT, Foreign Resident Capital Gains Withholding, and tax residency determinations, areas where generalist accountants without expat specialisation often produce incorrect outcomes. ODIN Tax is headquartered in Hong Kong, working from the same time zones and lived reality as its client base, and holds a 4.9/5 Google rating from 400+ verified reviews. This article is general information only, not personal tax advice, and any decision involving an option sale, CGT timing or withholding certificates should be discussed directly with a Registered Australian Tax Agent based on the specific contract terms involved.

If you’re selling Australian property through a put-and-call option and need clarity on when your CGT event actually falls, or need help lodging your non-resident tax return, get in touch with the team at ODIN Tax.