Abstract
Tax arbitrage was extensive within the convertible market in Australia. The Treasury sought ways to minimize the tax misclassification issue and in 2001, the Commonwealth enacted the New Business Tax System (Debt and Equity) Bill 2001. This paper investigates whether the new tax rules classify convertibles in accordance to their economic substance rather than their legal form. The findings suggest evidence of stability and consistency within the convertible market post 2001. However, the economic substance of a security depends on the stock price at conversion/maturity. Hence, allocating a tax classification at issuance raises doubts on whether the security can be appropriately classified in accordance to its economic substance. The findings suggest that the non-financial cohort within the equity-like category are non-tax neutral. This category is highly unlikely to convert to common stock, similar to fixed-income securities.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.