I have always seen, interest paid on the note as taxable and separate from the CGT/final income.
But I believe it does depend on the issue date and conversion.
Purchase a note, with a "value" of $100, for $98, pay interest each year. Interest is taxable. This is the return on your investment for this period. The value of the notes may change, based on the interest rate and return, but the "value" remains the same. Mature/conversion - "value" $100 - so this is repayment of the capital that was invested. A) you receive $100 - this $2 gain is assessable to you B) you receive some shares - those shares cost base is equal to the $98 you paid for the note.
It's like a loan, interest on a loan, and the repayment/default at the end is separate.
