INCOME TAX ASSESSMENT ACT 1936

PART III - LIABILITY TO TAXATION  

Division 3A - Convertible notes  

SECTION 82SA   INTEREST ON CERTAIN CONVERTIBLE NOTES TO BE AN ALLOWABLE DEDUCTION - WHERE LOAN MADE ON OR AFTER 1 JANUARY 1976  

82SA(1)  
Subject to the succeeding provisions of this section, section 82R does not apply in relation to a convertible note issued by a company where:


(a) the loan to the company to which the note applies is, under section 82M , to be treated as a new loan or an approved replacement loan for the purposes of this Division;


(b) the loan was made on or after 1 January 1976;


(c) the convertible note was issued before the expiration of 2 months after the loan was made; and


(d) the terms applicable to the convertible note are, at the time the note was issued and at all subsequent times, such that:


(i) an option is given to the holder or owner of the convertible note (in this Division referred to as the option to convert ) to have allotted or transferred to him or her shares in the capital of the company or of another company;

(ii) no provision is made for the allotting or transferring of shares in the capital of the company or of another company to the holder or owner of the convertible note except in pursuance of the exercise of the option to convert or except in pursuance of a right that, under section 82P , is an approved right relating to the allotting or transfer of bonus shares to the holder or owner of the note;

(iii) the convertible note would not, but for the option to convert and any right of the kind referred to in subparagraph (ii), be a convertible note;

(iv) the earliest date on which the option to convert may be exercised is a date not later than 2 years after the date of offer;

(v) the latest date on which the option to convert may be exercised is a date not later than the maturity date of the loan or, if the date of offer is more than 10 years earlier than the maturity date, a date not later than 10 years after the date of offer;

(vi) the rate of interest payable in respect of the loan is, subject to subsection (5), the same in respect of all periods occurring before the maturity date of the loan;

(vii) subject to subsection (6), the obligations and rights of the holder or owner of the convertible note (including, but without limiting the generality of the foregoing, obligations and rights with respect to the amount payable on repayment, redemption or satisfaction of the loan and the terms on which shares are to be allotted or transferred in pursuance of the exercise of the option to convert) do not vary in his or her favour by reason that he or she exercises the option, or he, she or the company exercises any other right in relation to the note, at a later rather than at an earlier time after the issue of the note;

(viii) the rights of the holder or owner of the convertible note with respect to the amount payable on repayment, redemption or satisfaction of the loan do not vary according to whether or not he or she exercises the option to convert;

(ix) the shares to be allotted or transferred upon the exercise of the option to convert:

(A) are to be allotted or transferred within 2 months after the exercise of the option;

(B) in the case of shares to be allotted, are, upon payment of the amount payable in respect of the allotment, to be fully paid shares or, in the case of shares to be transferred, are, at the time of transfer, to be fully paid shares; and

(C) are to be shares of the same class as shares in the capital of the company that, not later than 6 weeks before the date that is the date of offer in relation to the loan, had been allotted and were fully paid;

(x) the shares to be allotted or transferred upon the exercise of the option to convert are to be shares with respect to which no provision is made (whether by the memorandum, or memorandum and articles, of the company, or other instrument constituting or defining the constitution of the company, or otherwise) for changing or converting them into shares of another class, except for the purpose of enabling, in accordance with any law relating to companies, the consolidation and division of all or any of the share capital of the company or of another company or the subdivision of all or any of the shares in the capital of the company or of another company; and

(xi) the amount payable in respect of the allotment or transfer of a share in pursuance of the exercise of the option to convert is to be paid not later than 1 month after the allotment or transfer, and is to be not less than 90% of the amount that, in accordance with section 82T , is the value as at the valuation date of a fully paid share included in the class of shares in which the share to be allotted or transferred will be, or is, included.

82SA(2)  
Where subsection (1) ceases to have effect in relation to a convertible note by reason of a change in the terms applicable to the note (not being a change resulting from a compromise or arrangement approved by a court), subsection (1) shall be deemed never to have had effect in relation to the note.

82SA(3)  
Where a note is a convertible note in relation to which subsection (1) has effect and the right to exercise the option to convert relating to the note becomes exercisable by a person other than the holder or owner of the note by reason of an assignment of that right, the assignment shall, for the purposes of this section, be disregarded.

82SA(4)  
Where, in relation to a convertible note issued by a company, the company or a director of the company does any act or thing for the purpose of, or purposes that include the purpose of, and having the effect of, causing the amount that, for the purposes of subsection (1), is the minimum amount applicable to a share to be allotted or transferred in pursuance of the exercise of the option to convert relating to the note, to be less than it would otherwise have been, subsection (1) does not have effect in relation to the note.

82SA(5)  


Where, under the terms applicable to a convertible note, the rate of interest payable in respect of the loan to which the note applies is to be varied from time to time (otherwise than with retrospective effect) in accordance with changes, or changes exceeding a specified percentage, in the rate of interest prevailing from time to time:


(a) where the loan is a foreign loan, at a specified place outside Australia in respect of a specified class of transactions; or


(b) where the loan is not a foreign loan, in respect of a specified class of Commonwealth securities;

the term shall, for the purposes of subparagraph (1)(d)(vi), be deemed not to be a term providing for a variation in the rate of interest payable in respect of the loan.

82SA(6)  


For the purposes of subparagraph (1)(d)(vii), the obligations and rights of the holder or owner of a convertible note shall not be deemed to vary in a manner referred to in that subparagraph by reason only that any dividend payable in respect of a share in the capital of a company to be allotted upon the exercise of the option to convert relating to the note, being a dividend payable during the period of 1 year after the allotment of the share, will or may vary according to the time when, in relation to the period to which the dividend relates, the option to convert is exercised.

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