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Conversion of notes to shares

Last updated 5 October 2009

If you convert a convertible note acquired from a company before 20 September 1985 and do not make any further payment to the company on the conversion, the shares you receive are treated as if you acquired them before 20 September 1985. Therefore, any capital gain or capital loss is disregarded.

In all other cases, the shares acquired by the conversion of a convertible note on or after 20 September 1985 will be subject to CGT and the shares are taken to be acquired when the conversion happens.

You may have acquired a convertible note before 20 September 1985 and paid or given something in relation to the conversion. In this case, the cost base of the shares received as a result of the conversion will include the market value of the note at the time of conversion and what you paid or gave.

You may have acquired the convertible note on or after 20 September 1985 and, as a traditional security, the capital gain or capital loss you made on the conversion of the note was already included as income or deductions. In this case, the cost base of the shares is the market value at the time of the conversion.

If you acquired the convertible note on or after 20 September 1985 and it was not a traditional security, the cost base of the shares will include the amount you paid to acquire the note and any amount you paid in relation to the conversion.

QC27417