Taxation of interest on Convertible Notes, page-8

That treatment only applies IF the convertible note is a traditional security. Not all convertible notes are traditional securities. See the below excerpt from that link.




The definition of traditional security is contained in section 26BB ITAA 1936. It specifically precludes a security with an 'eligible return'.

see: http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1936240/s26bb.html

Eligible return is defined in section 159GP. An eligible return includes deferred interest.

see: http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1936240/s159gp.html

So if the traditional security has deferred interest its probably not going to be a traditional security.

As I said above you really should talk to an accountant regarding this, determining whether a convertible note is or is not a traditional security is not straightforward.