Thanks, that is a very long winded explanation to come up with...

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    Thanks, that is a very long winded explanation to come up with that conclusion.

    '

    Subsection 26BB(4) was inserted into the ITAA 1936 by item 17 of Schedule 1 of the New Business Tax System (Taxation of Financial Arrangements) Act (No 1) 2003 and applies to traditional securities issued after 7:30pm legal time in the Australian Capital Territory on 14 May 2002. Since the notes were issued after this date, the effect of subsection 26BB(4) of the ITAA 1936 is that any gain on the conversion of the notes into shares will not be included in assessable income by subsection 26BB(2) of the ITAA 1936.

    Date of decision: 18 December 2003

    Year of income: Year ended 30 June 2004


    https://www.ato.gov.au/law/view/document?docid=AID/AID20031192/00001

    The example they have given is for a convertible note treated as a traditional security.
    Same conclusion as I had drawn.

    ' There is an eligible return if at the time the notes are issued it is reasonably likely that the value of the shares will exceed the face value of the notes when converted. In this instance there is no such likelihood. As a result, the notes do not have an 'eligible return'.'
 
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