2008-0289461I7 Netherlands Antilles private foundation

Principal Issues: 1.Is a private foundation created pursuant to the laws of the Netherlands Antilles a trust or a corporation for purposes of the Income Tax Act (the “Act”)?

Position: 1. A Netherlands Antilles private foundation will generally be considered to be a trust for purposes of the Act.

Reasons: 1.In our view, the attributes of a Netherlands Antilles private foundation more closely resemble those of a Canadian trust than a corporation. It is our view that the existence of a separate legal entity clause contained in the Netherlands Antilles law governing private foundations would not, in and of itself, preclude an arrangement from being considered a trust for purposes of the Act.

Author: Argento, Angelina
Section: -

                                                                        October 4, 2010

XXXXXXXXXX                                                HEADQUARTERS
                                                                        Income Tax Rulings
XXXXXXXXXX Tax Services Office                Directorate
XXXXXXXXXX                                                Angelina Argento
                                                                        (514) 283-7895

                                                                        2008-028946

Status of a Netherlands Antilles Private Foundation Under the Income Tax Act

We are writing in response to your memorandum dated August 7, 2008, in which you asked for our views with respect to the characterization for the purposes of the Act of the XXXXXXXXXX (“Foundation”) which was established on XXXXXXXXXX by notarial deed and XXXXXXXXXX.  We apologize for the delay in our response.

Our understanding of the characteristics of the Foundation is as follows. 

1.    The Articles of the Foundation state that it is governed by the law of the Netherlands Antilles.

2.    The fiscal year of the Foundation is XXXXXXXXXX (Article XXXXXXXXXX of the Articles of the Foundation).

3.    The Articles of the Foundation include the following provisions:

*     It has been established for an indefinite period of time (Article XXXXXXXXXX).

*     The purpose of the Foundation is to make distributions out of its assets to such persons and entities as the Foundation Council may determine with the written consent of the Founder, and to provide financial assistance to such persons and entities, with the written consent of the Founder, by means of loans, guarantees, annuity contracts and the like. (Article XXXXXXXXXX).

*     Although the Foundation is not entitled to make profits by carrying on an enterprise, it may seek to achieve its purpose by acquiring, owning, and managing its assets and it is expressly permitted to invest its assets in securities such as shares, bonds and other securities (Articles XXXXXXXXXX).

*     The capital of the Foundation consists of assets contributed by the Founder, as well as other assets acquired from others, the income from those assets and all other legal means. (Article XXXXXXXXXX).

*     The management of the Foundation is commissioned to a council consisting of at least one member.  The Founder shall appoint the Foundation Council members and shall determine the number of members.  (Article XXXXXXXXXX).

4.    As regards the role of the Founder of the Foundation, the Articles of the Foundation provide as follows:

*     Consent of Founder: The written consent of the Founder is required for all of the following acts:

*     To make distributions out of its assets to such persons as the Foundation Council may determine (Art XXXXXXXXXX);
*     To transfer ownership of the assets of the Foundation, in whole or in part for no consideration… to persons designated by the Foundation Council (Art XXXXXXXXXX);
*     To amend the Articles (Art XXXXXXXXXX);
*     To dissolve the Foundation (Art XXXXXXXXXX).

*     Founder’s additional powers: The Founder also possesses the following additional powers:

*     The power to appoint the Foundation Council members and determine the number of members.  The Foundation Council manages the Foundation (Art XXXXXXXXXX);
*     The power to suspend or dismiss a Foundation Council member (Art XXXXXXXXXX);
*     The power to appoint a Supervisor (Art XXXXXXXXXX).

*     Founder’s Authority could be transferred to a Supervisor (Art XXXXXXXXXX).  The Founder can transfer the following authorities to a Supervisor, who shall then exercise the Founder’s transferred authorities:

*     Authority to make distributions out of the Foundation’s assets (Art XXXXXXXXXX);
*     Authority to transfer ownership of the Foundation’s assets (Art XXXXXXXXXX);
*     Appointment of the members of the Foundation Council which manages the Foundation (Art XXXXXXXXXX);
*     Appointment of the Supervisor (Art XXXXXXXXXX);
*     Amendment of the Articles (Art XXXXXXXXXX) ;
*     Dissolution of the Foundation (Art XXXXXXXXXX).

*     Person entitled to appoint Supervisor (Art XXXXXXXXXX):

*     Person entitled to appoint a Supervisor shall be a person designated by instrument in writing by the Founder and if the authority has been transferred to the Supervisor, by said Supervisor.

5.    The Foundation Council is XXXXXXXXXX (a resident of the Netherlands Antilles).

6.    As regards the Founder, a letter addressed to the CRA dated XXXXXXXXXX, by XXXXXXXXXX (acting as the taxpayer’s representative) provided, in part, as follows:

“3. Name of founder of XXXXXXXXXX (the Foundation)
XXXXXXXXXX (footnote 1)

4. List of assets contributed by the Founder

XXXXXXXXXX

7.    As regards the Supervisor and the person entitled to appoint the Supervisor:

XXXXXXXXXX

8.    Beneficiaries of the Foundation: The Administrative Rules for the Foundation dated XXXXXXXXXX, and signed by XXXXXXXXXX as the Foundation Council, describe the Beneficiaries of the Foundation as follows:

“The persons and entities to whom distributions out of the assets of the foundation may be made, including distributions of proceeds in the event of dissolution of the foundation may be determined from time to time either revocably or irrevocably in accordance with XXXXXXXXXX of the Foundation, and have now determined that such persons and entities are as follows:

XXXXXXXXXX

9.    Change in Beneficiaries of the Foundation (footnote 3) : On XXXXXXXXXX the Administrative Rules for the Foundation were amended.  This amendment was signed by XXXXXXXXXX (as Supervisor) and XXXXXXXXXX (as Foundation Council).  In particular, the amendment dealt with the persons entitled to distributions from the Foundation and states as follows:

(Article XXXXXXXXXX) “The entities and persons, to whom distributions out of the assets of the foundation may be made, including distributions of proceeds in the event of dissolution of the foundation have been determined as follows:

XXXXXXXXXX

10.   As regards the Foundation Council and the separate legal existence of the Foundation, the notarial certificate (dated XXXXXXXXXX) establishing the Foundation, certifies, in part, as follows:

*     The Foundation is a legal entity, legally existing under the laws of the Netherlands Antilles and has the power to act within the limits of its purposes as set forth in Articles XXXXXXXXXX of its Articles (Clause XXXXXXXXXX);
*     According to Article XXXXXXXXXX of its Articles, the Foundation is managed by a council, consisting of at least one council member (Clause XXXXXXXXXX);
*     XXXXXXXXXX;
*     XXXXXXXXXX.
 

11.   As regards the assets contributed to the Foundation, a letter addressed to the CRA dated XXXXXXXXXX, by XXXXXXXXXX (acting as the taxpayer’s representative) provided, in part, as follows:

“Prior to XXXXXXXXXX, the shares of XXXXXXXXXX were owned by the XXXXXXXXXXTrust.  In XXXXXXXXXX, the shares of XXXXXXXXXX were distributed by the XXXXXXXXXX Trust to the XXXXXXXXXX Foundation.”

12.   A letter addressed to the CRA dated XXXXXXXXXX, by XXXXXXXXXX (acting as the taxpayer’s representative) provided, in part, as follows:

“Relationship between the XXXXXXXXXX Trust and XXXXXXXXXX (the Foundation)
The XXXXXXXXXX transferred property that it held, being (XXXXXXXXXX%) of the shares of XXXXXXXXXX to XXXXXXXXXX (the Foundation) for the benefit of the beneficiaries of the XXXXXXXXXX who are the same as the beneficiaries of the XXXXXXXXXX Trust.”

ISSUE

Is the Foundation a trust or a corporation for purposes of the Act during the XXXXXXXXXX to XXXXXXXXXX taxation years?

OUR POSITION

Characterization of the Foundation for purposes of the Act

In our view, the attributes of the Foundation more closely resemble those of a Canadian trust than a corporation.  Accordingly, the Foundation will be treated as a trust for purposes of the Act during the XXXXXXXXXX to XXXXXXXXXX taxation years.

ANALYSIS

CHARACTERIZATION OF THE FOUNDATION FOR PURPOSES OF THE ACT

Valid Creation of the Foundation pursuant to the laws of the Netherlands Antilles Private Foundation

We reviewed the English translation of provisions of Book 2 of the Netherlands Antilles Civil Code provided by the taxpayer and agree with your conclusion that the Foundation was validly created as a private foundation pursuant to the terms of Article 51 of Book 2 of the Netherlands Antilles Civil Code (footnote 4) .

Classification of the Foreign Legal Entity: Two-Step Approach

Subsection 248(1) of the Act defines “corporation” to include an incorporated company and a “trust” to include the trustee.  These definitions reveal that the Act does not provide any guidance as to when a particular foreign entity will constitute a corporation or a trust for purposes of the Act.

To determine the status of an entity for Canadian income tax purposes, we must first determine the characteristics of the foreign entity under the foreign legislation creating the entity and then, compare the essential characteristics of that entity with the various legal forms recognized in Canada to determine which legal form most closely matches the form of the foreign entity. This two-step approach has been adopted by Canadian courts (footnote 5) .

The Essential Characteristics of a Valid Corporation under Canadian Law

There is no rule which establishes the weight to be given to one factor; however, we consider the following factors in determining whether or not an entity is a corporation for purposes of the Act (footnote 6) :

*     legal personality and existence separate and distinct from the personality and existence of those who caused its creation or those who own it;
*     the capacity to acquire rights and assume liabilities, and any rights acquired or liabilities assumed by it, must not be the rights or liabilities of those who control or own it; and

*     the issuance of some form of “share capital” as consideration, with or without voting rights.

Separate entity status

Separate legal entity status is no longer considered a distinctive feature of corporations alone.  We have decided in the past that the fact that an entity is a separate legal entity is not in itself determinative and have started to consider other characteristics of the entity. 

The Essential Characteristics of a Trust under Canadian Law  (footnote 7)

Section 104 of the Act states that a reference to a trust is a reference to the trustee or the executor, administrator, heir or other legal representative having ownership or control of the trust property.  Hence, there must be at least a trustee or a legal representative having ownership or control of the trust property. 

Common Law Trust

Pearl Schusheim summarizes the definition of a common law trust as follows (footnote 8) :

“The essence of a trust is that it is a relationship rather than a legal entity…  The relationship is between the trustee, who holds legal title to property, and the beneficiaries, who are entitled to the use and enjoyment of the property and for whose benefit the trustee owns the property.  Although a settlor is initially involved in establishing the trust relationship, typically by transferring property to the trustees, the ongoing relationship is between the trustees and the beneficiaries.

…The trust comes into existence only once the trust property is vested in the trustees and the three “certainties” are met.” 

Sir Arthur Underhill's definition of "trust" under common law was recognized with approval in Andrews Estate v. MNR (footnote 9) :

“an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property), for the benefit of persons (who are called the beneficiaries or cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation.”

In Kingsdale Securities Co. Ltd. v. MNR, (footnote 10)  the court also recognized that trusts are not themselves autonomous legal entities.

Civil Law Trust

Richard Tremblay and Kim Wharram (footnote 11)  summarize the most important characteristics of a civil law trust as follows:

“… articles 1256 to 1298 of the new Civil Code of Quebec… now provide for a comprehensive trust regime that includes provisions for transfers of property to a trustee, and the administration of the trust property by the trustee…  While this trust regime contains many concepts that are similar to common law principles relating to trusts, there are some notable distinctions.  For example, rather than providing for the concept of dual or split ownership of property, as is the case with trusts created under the common law, the Civil Code provides that where a trust is created, a separate and distinct “patrimony” (essentially, a bundle of property) results, in which the settlor, the trustee, and the beneficiary have no real right.  In other words, the trust property is owned by no one.  The beneficiary simply has a personal right to require the trustee to perform his or her obligations under the terms of the trust.”

Three Certainties

A trust is constituted when three certainties exist:  (1) the intention to create the trust is clearly ascertained, (2) the trust property is identified and delivered to the trustee by the settlor of the trust, and (3) the objects of the trust are clear (footnote 12) .   

The three certainties were recognized in Atinco Paper Products (footnote 13) , where it was stated that for a trust to be validly created, three things are necessary:

1.    the words employed must be so couched that, taken as a whole, they ought to be construed as imperative;
2.    the subject matter of the trust must be certain;
3.    the objects, or persons intended to be benefited, must also be certain.

In that case, the trust was not validly created since there was no certainty with respect to the objects of the trusts and the settlor did not define the powers she purportedly conferred on the trustee.

Distinguishing Characteristics of a Canadian Trust versus a Canadian corporation

The description of a trust (footnote 14)  by reference to dual ownership or equity in an international context would have the result of ignoring all civil law arrangements that have adopted the trust idea of the administration of assets for the benefit of others.  On this issue, Professor Waters stated at p. 120 (footnote 15) :

“On the international scene, however, we are concerned with the "trust" idea in civil law as well as in common law, not only does the reference to equity have no meaning, but the relationship between one who has title to property (the fiduciary) and another who derives the benefit from that property is so generalised an element that it describes a range of legally enforced obligations, only some of which accord with the common law lawyer's instinctive notion of a trust”.

The Netherlands Antilles, a civil law jurisdiction, has an instrument called the private foundation which has certain similarities to, as well as fundamental differences from, the common law (in fact equitable) trust.  However, the private foundation created pursuant to the laws of the Netherlands Antilles is similar, in some respects, to the civil law trust. 

In order to characterize a Netherlands Antilles private foundation that displays both corporate and trust attributes, it will be necessary to determine what the distinguishing characteristics of a Canadian corporation are, as compared to a Canadian trust, and the weight that should be attached to each (footnote 16) .  Once that is done, a characterization determination can be made by comparing those characteristics with the attributes of the Netherlands Antilles Private Foundation.

Application of Corporate or Trust Characteristics to the Foundation

Separate Legal Personality

To be classified as a corporation, the Foundation must be created by law and have a legal personality separate and distinct from the personality and existence of the persons who have an interest in the Foundation (i.e. the beneficiaries of the Foundation). 

The Act creates some confusion about the nature of a trust because it treats a trust as a separate legal person.  This, however, is not the legal nature of a trust (footnote 17) .  A trust is a relationship and it has no separate legal personality.  Any dealings with the trust are dealings with the trustee as the person charged with the administration of the trust property in accordance with the terms of the trust (footnote 18)  .

It is our understanding, that a private foundation formed in accordance with the law of the Netherlands Antilles is a legal entity and not a contract.  Furthermore, the Foundation possesses a separate legal existence from the beneficiaries of the Foundation.  Accordingly, with respect to this characteristic, the Foundation differs from the common law trust in that title to the shares of XXXXXXXXXX (i.e. the assets of the Foundation) is not vested in a trustee, but rather is held by the Foundation itself as an autonomous juridical being.  In this respect the Foundation is similar to a corporation. 

However, as noted above, it is our view that the existence of a separate legal existence would not, in and of itself, preclude an arrangement from being considered a trust for purposes of the Act.

Capacity to acquire rights and assume liabilities

A corporation possesses its own capacity to acquire rights and to assume liabilities.  A trust has no capacity to acquire rights or to assume liabilities (footnote 19) .  The beneficiaries of a trust are not, generally speaking, liable for the debts and obligations of the trust or the trustee (footnote 20) .  The trustee is administrator of the trust assets, liable for the debts and obligations of the trust but is typically entitled to indemnification out of the assets of the trust unless there is wrongdoing (footnote 21) .  By the same token, the creditors of the trust have no claim against the personal assets of the trustee (footnote 22) .

It is our understanding that pursuant to the laws of the Netherlands Antilles, the Foundation possesses its own capacity to acquire rights and to assume liabilities. Accordingly, with respect to this characteristic, the Foundation is similar to a corporation.

Liability for the debts and obligations incurred by the Foundation

Any rights acquired or liabilities assumed by a corporation are not the rights or liabilities of those who control or own it.  In other words, as a general rule, shareholders are not liable for the corporation’s debts and obligations.  A trust has no capacity to acquire rights or assume liabilities (footnote 23) . 

To be classified as a corporation, the Foundation must have the capacity to acquire rights and to assume liabilities, and any rights and liabilities assumed by it must not be the rights or liabilities of the Founder or the beneficiaries.

It is our understanding that pursuant to the laws of the Netherlands Antilles, neither the Founder/Supervisor, nor the Foundation Council (the latter being the persons who manage the Foundation) have any personal liability for acts performed in the name of the Foundation or for debts incurred by the Foundation.  The beneficiaries of the Foundation also are not personally liable for any of the debts incurred by the Foundation. In this respect, the Foundation is similar to a corporation.

Issuance of Share Capital

Further support for the position that the Foundation is a corporation, would be the existence of some form of “share capital”.

It is our understanding that pursuant to the law of the Netherlands Antilles, a foundation is formed by deed executed before a Netherlands Antilles civil law notary and is then registered in the Register of Foundations. There are no further formalities and the Foundation does not issue share capital or something else which serves the same function as share capital.  Thus, the Foundation does not possess this corporate characteristic, but is instead, similar to a trust. 

“Acquisition of share capital”

Shares of a corporation can be issued at any time, for any consideration.  However, under most corporate law statutes, a share cannot be issued until the consideration for the share is fully paid either in money, property, or past service that is not less in value than the fair equivalent of the money that the corporation would have received if the shares had been issued for money (footnote 24) . In some provinces (footnote 25) , a company can issue shares that are not fully paid, subject to the company's right to call for payment of the unpaid portion.  Thus, a shareholder of a corporation usually acquires, for a consideration, the shares that entitle him to the profits of the corporation. 

This is to be contrasted with the beneficiaries of a trust who need not provide valuable consideration in order to receive their beneficial interest in the trust. 

In a Netherlands Antilles Private foundation such as the Foundation, the beneficiaries do not pay for their interests in the foundation.  This is similar to the beneficiaries of a trust. 

“No restrictions on transferring shares”

The beneficiary of a discretionary trust cannot transfer his/her beneficial interest to someone else.  This is to be contrasted with the lack of restrictions on the transferability of a share in a corporation.  As a general rule, there is a strong presumption that shares of a corporation are fully transferable without the consent of the other shareholders (footnote 26) .  When the transfer is registered, the transferee becomes a shareholder, and all rights attached to the shares vest in the transferee.  However, the ability to transfer shares can be restricted, provided that such restrictions are set forth in the articles of the corporation and are conspicuously noted on the relevant share certificate.

It is our understanding that pursuant to the law of the Netherlands Antilles, the beneficiaries of a private foundation cannot transfer their beneficial interest in the foundation to someone else. In this respect, the Foundation resembles a trust.

“Right to vote”

Whereas, a shareholder’s interest in the corporation may entitle him to vote or participate in the corporation’s decisions, the beneficiary of a trust never has the right to participate in the decisions of the trust.  In this sense, the Foundation is similar to a trust, since the beneficiaries of the Foundation never have the right to participate in the decisions of the Foundation. 

Conclusion regarding characterization of the Foundation for purposes of the Act

After considering all the factors, in our view, the attributes of a private foundation created pursuant to the laws of the Netherlands Antilles more closely resemble those of a trust under our common and civil law than a corporation.  As such, the Foundation should be treated as a trust for Canadian income tax purposes.  Furthermore, it is our view that the existence of a separate legal entity clause contained in the Netherlands Antilles legislation governing private foundations would not, in and by itself, preclude an arrangement from being considered as a trust for purposes of the Act. 

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access database (LAD) on the CRA’s mainframe computer.  A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases.  The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer.  Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity.  Requests for this latter version should be made by you to Mrs. Céline Charbonneau at (613) 957-2137.  A copy will be sent to you for delivery to the client.

We trust the above comments are of assistance. 

Yours truly,

Olli Laurikainen, C.A.
For Director
International & Trusts Division
Income Tax Rulings Directorate

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  We do not know whether XXXXXXXXXX acted pursuant to the directions of XXXXXXXXXX.
2  However, at this time, XXXXXXXXXX was the Supervisor and per Article XXXXXXXXXX of the Articles of the Foundation, only XXXXXXXXXX could have appointed a new Supervisor.  
3  We did not assess the Canadian income tax consequences of the change in Beneficiaries of the Foundation.
4  However, we question whether, pursuant to the laws of the Netherlands Antilles, a person can be the Founder (i.e. XXXXXXXXXX), if it has no powers and has not contributed any assets to the Foundation.
5  Backman v. The Queen 2001 DTC 5149 (SCC).
6  Interpretation Bulletin IT 343R, “Meaning of the Term Corporation”, dated September 26, 1977, at paragraph 2 and XXXXXXXXXX.
7  Guy Fortin, “Strangers in Strange Lands:  Hidden Traps of Offshore Trusts,” Report of Proceedings of Fifty-First Tax Conference, 1999 Tax Conference (Toronto: Canadian Tax Foundation, 2000), 40:1-68 at 40:2-11.
8  Pearl E. Schusheim, "Trust Basics: An Overview," in Report of Proceedings of the Fiftieth Tax Conference, 1998 Conference Report (Toronto: Canadian Tax Foundation, 1999), 32:1-31 at  32:2.
9  Andrews Estate v. MNR (1966), 42 Tax ABC 303, at 309.
10  Kingsdale Securities Co. Ltd. v. MNR [1975] CTC 10 (FCA).
11  Richard Tremblay and Kim Wharram, “Partnerships, Trusts, and Other Entities: Treaty Benefits”, in Brian Arnold and Jacques Sasseville , eds,  Special Seminar on Canadian Tax Treaties: Policy and Practice (Kingston, ON: International Fiscal Association (Canadian branch), 2001)  14:1-86 at 14:42 and 14:43.
12  John R. Owen, “Foreign Entity Classification and the Character of Foreign Distributions,” in Report of Proceedings of Fifty-Seventh Tax Conference, 2005 Tax Conference (Toronto: Canadian Tax Foundation, 2006), 20:1-46 at 20:41.
13  Atinco Paper Products Ltd. v. The Queen, 78 DTC 6387 (FCA).
14  Guy Fortin, “Strangers in Strange Lands:  Hidden Traps of Offshore Trusts,” Report of Proceedings of Fifty-First Tax Conference, 1999 Tax Conference (Toronto: Canadian Tax Foundation, 2000), 40:1-68 at 4-5.
15   D.W.M. Waters, The Concept Called "The Trust" (1999) vol 54, no. 3, Bulletin for International Fiscal Documentation.
16  See Marc Darmo, “Characterization of Foreign Business Associations” in International Tax Planning, (2005), vol. 53, no. 2 Canadian Tax Journal,  481-505 at 494, which suggests this approach to characterizing a foreign business association that displays both partnership and corporate attributes.
17  John R. Owen, “Foreign Entity Classification and the Character of Foreign Distributions,” in Report of Proceedings of Fifty-Seventh Tax Conference, 2005 Tax Conference (Toronto: Canadian Tax Foundation, 2006), 20:1-46 at 20:43.
18  John R. Owen, “Foreign Entity Classification and the Character of Foreign Distributions,” in Report of Proceedings of Fifty-Seventh Tax Conference, 2005 Tax Conference (Toronto: Canadian Tax Foundation, 2006), 20:1-46 at 20:43.  Kingsdale Securities Co. Ltd. v. MNR [1975] CTC 10 (FCA).
19  Kingsdale Securities Co. Ltd. v. MNR [1975] CTC 10 (FCA).
20  John R. Owen, “Foreign Entity Classification and the Character of Foreign Distributions,” in Report of Proceedings of Fifty-Seventh Tax Conference, 2005 Tax Conference (Toronto: Canadian Tax Foundation, 2006), 20:1-46 at 20:43.
21  John R. Owen, “Foreign Entity Classification and the Character of Foreign Distributions,” in Report of Proceedings of Fifty-Seventh Tax Conference, 2005 Tax Conference (Toronto: Canadian Tax Foundation, 2006), 20:1-46 at 20:44.
22  John R. Owen, “Foreign Entity Classification and the Character of Foreign Distributions,” in Report of Proceedings of Fifty-Seventh Tax Conference, 2005 Tax Conference (Toronto: Canadian Tax Foundation, 2006), 20:1-46 at 20:44.
23  Kingsdale Securities Co. Ltd. v. MNR [1975] CTC 10 (FCA).
24  See, for example, s. 27(3) of the Business Corporations Act (Alberta), subsection 23(3) of the Ontario Business Corporations Act and subsection 25(3) of the Canadian Business Corporations Act.  See also Ball v. Canada (Minister of National Revenue) 92 DTC 2123, where the subscriber in question had purchased shares through a stock option plan, which were paid in part with a promissory note. The Tax Court of Canada held that the shares associated with the promissory note were a nullity. According to the Court, "shares are not issued until fully paid" and in the absence of full consideration "an individual has only a piece of paper indicating his right to acquire certain shares upon payment therefore."
25  Such as Nova Scotia.
26  See Marc Darmo, “Characterization of Foreign Business Associations” in International Tax Planning, (2005), vol. 53, no. 2 Canadian Tax Journal, 481-505 at 500.

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