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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 130 - Investments  

Subdivision 130-C - Convertible interests    View history reference

SECTION 130-60  Shares or units acquired by converting a convertible interest  

 ITAA 36

130-60(1)  

 View history reference ITAA 36
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.

130-60(1A)  

 View history reference
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).

S 130-60(1A) inserted by No 163 of 2001, s 3 and Sch 1 item 29. For application provisions, see note under Div 974 heading.

130-60(1B)  

 View history reference
The payment to convert the convertible interest can include giving property (see section 103-5).

130-60(2)  

 View history reference
You are taken to have *acquired the shares or units when the conversion of the convertible interest happened.

S 130-60(2) amended by No 163 of 2001, s 3 and Sch 1 item 30, by substituting "interest" for "note". For application provisions, see note under Div 974 heading.

S 130-60(2) amended by No 114 of 2000.

130-60(3)  

 View history reference ITAA 36
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.


 



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