Section 51.1 — Income Tax Act: Conversion of debt obligation

Where a taxpayer acquires a bond, debenture or note of a debtor (in this section referred to as the “new obligation”) in exchange for a capital property of the taxpayer that is another bond, debenture or note of the same debtor (in this section referred to as the “convertible obligation”), the terms of the convertible obligation conferred on the holder the right to make the exchange, and the principal amount of the new obligation is equal to the principal amount of the convertible obligation, the cost to the taxpayer of the new obligation and the proceeds of disposition of the convertible obligation shall be deemed to be equal to the adjusted cost base to the taxpayer of the convertible obligation immediately before the exchange.