If the interest component has "accrued" over the term of the notes instead of being paid, then there is a real possibility that the convertible notes will be qualifying securities and accrued interest and the gain on conversion will be assessable to you. It can be a bit complex to ascertain whether a security is a traditional security or qualifying security (as you will need to go through its terms etc. and convertible notes are generally different from company to company issuing them) so i suggest talking to an accountant regarding the correct treatment of your specific convertivle notes.
