Ariella Buxo owns convertible bonds of Lion Holdings Inc. Ariella acquired these bonds at their par value of $100,000. The bonds are convertible into 1,000 shares of the common stock of Lion Holdings Inc. At the time of her purchase of the bonds, the common shares were trading at $95 per share. The bonds are converted when the common shares are trading at a price of $125 per share. The conversion of the bond takes place under the provisions of ITA 51 and will result in:

Question

Quizplus · Accepted Answer

Under ITA 51, the conversion of a convertible bond into shares is not considered a disposition for tax purposes, so no capital gain is realized at the time of conversion.

Ariella Buxo Owns Convertible Bonds of Lion Holdings Inc