The draft Ruling states, at para 7:
"The issuer of a convertible note that can be converted at any time, at the issuer's discretion, into a share that is an equity interest in the issuer, will not have an effectively non-contingent obligation to provide financial benefits for the purposes of paragraph 974-20(1)(c), unless that option to convert should be disregarded in light of the full consideration of the pricing, terms and conditions under which the note was issued."
As a result of the release of TR 2007/D11, draft Taxation Determination TD 2004/D76 (Income tax: for the purposes of Division 974 of ITAA 1997, does an issuing company have an effectively non-contingent obligation to provide a financial benefit by way of periodic interest returns on an interest bearing convertible note from the time that it can be converted at the issuing company's option into ordinary shares in that company?) was withdrawn with effect from 28 November 2007.
For a copy of TR 2007/D11, go here
For a copy of TD 2004/D76W, go here