Roll-on, roll-off

The case concerned an attempt to obtain a share for share exchange when a company was sold in exchange for non-qualifying corporate bonds and then to avoid payment of tax on the gain by ensuring that the bonds became qualifying before they were sold.

The taxpayer acquired loan notes in the acquiring company RG in exchange for his shares in HSP. RG had an option to redeem the loan notes in dollars and therefore the bonds were non-QCBs.

As a result it was possible for the exchange to be carried out as if it was a reorganisation of RG’s capital and therefore for the cost and date of acquisition of the HSP shares to be the cost and date of acquisition of the loan notes and the gain deferred until the loan notes were encashed or sold.

Had the bonds been QCBs these...