Neil Armstrong, in a recent News of Note article, summarizes an article by Marshall Haughey (“Issuing Shares for a Promissory Note,” 24 Can. Current Tax, May 2014, p. 85), in which the author concludes that shares supposedly issued for a note might or might not be considered issued for tax purposes. The CBCA and OBCA both prohibit the issue of shares for a note, on which see Ball v MNR, 92 DTC 2123 (TCC). Some provincial authorities, however, appear to have concluded that using a note as consideration does not make the share issue void.
I say it’s better to anticipate the question by never issuing shares for a note.
