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INCOME TAX ASSESSMENT ACT 1997 - SECT 130.60

Shares or units acquired by converting a convertible interest

  (1)   This table sets out the modification to the rules about * cost base and * reduced cost base that happens if you * acquire * shares, or units in a unit trust, by converting a * convertible interest.

 

Conversion of a convertible interest

Item

In this situation:

The modification is...

1

You * acquire * shares or units in a unit trust by converting a * convertible interest that is a * traditional security.

The first element of the * cost base of the shares or units is the sum of:

(a) the cost base of the convertible interest at the time of conversion; and

(b) any amount paid to convert the convertible interest, except to the extent that the amount is represented in the paragraph   (a) amount; and

(c) all the amounts to be added under subsection   (1A).

The first element of their * reduced cost base is worked out similarly.

2

You * acquire * shares (except shares acquired under an * employee share scheme) by converting a * convertible interest that is not a * traditional security.

The first element of the * cost base of the shares is the sum of:

(a) the cost base of the convertible interest at the time of conversion; and

(b) any amount paid to convert the convertible interest, except to the extent that the amount is represented in the paragraph   (a) amount; and

(c) all the amounts to be added under subsection   (1A).

The first element of their * reduced cost base is worked out similarly.

3

You * acquire units in a unit trust by converting a * convertible interest (except one that is a * traditional security) that was issued by the trustee of the unit trust after 28   January 1988.

The first element of the * cost base of the units is the sum of:

(a) the cost base of the convertible interest at the time of conversion; and

(b) any amount paid to convert the convertible interest, except to the extent that the amount is represented in the paragraph   (a) amount; and

(c) all the amounts to be added under subsection   (1A).

The first element of their * reduced cost base is worked out similarly.

  (1A)   An amount is to be added under this subsection if a * capital gain from the * convertible interest has been reduced under section   118 - 20. This is so even though a capital gain that is made on conversion is disregarded under subsection   (3). The amount to be added is the amount of the reduction.

Note:   For example, a capital gain made on the conversion under section   118 - 20   may be reduced because an amount is included in the owner's assessable income under subsection   26BB(2) of the Income Tax Assessment Act 1936 (about assessing a gain on disposal or redemption of a traditional security) or section   159GS of that Act (about balancing adjustments on transfer of a qualifying security).

  (1B)   The payment to convert the convertible interest can include giving property (see section   103 - 5).

  (2)   You are taken to have * acquired the shares or units when the conversion of the convertible interest happened.

  (3)   A * capital gain or * capital loss you make from converting the convertible interest is disregarded.

Note 1:   The conversion of the convertible interest would be an example of CGT event C2 (about a CGT asset ending).

Note 2:   There are transitional rules for some convertible notes: see section   130 - 60 of the Income Tax (Transitional Provisions) Act 1997 .

Table of sections

130 - 75   Objects of Subdivision

130 - 80   ESS interests acquired under employee share schemes

130 - 85   Interests in employee share trusts

130 - 90   Shares held by employee share trusts

130 - 95   Shares and rights in relation to ESS interests

130 - 97   Application of certain provisions of Division   83A


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