If you are the director of a corporation, your days are likely filled with a variety of tasks, many of which differ with the day, and sometimes the responsibilities can seem endless. Usually these responsibilities are what keep a corporation running smoothly – but what about when they actually have nothing to do with the day-to-day obligations? What about when these responsibilities run into foul tax territory? Today we talk director’s liability.
Typically, directors are not personally liable for the actions or omissions of the corporation that they serve because a corporation is considered to be a separate legal entity. However, there are important (and sometimes costly) exceptions to this rule and directors are often cornered for a corporation’s tax debt and required to pay from their own pockets.
As outlined by the Income Tax Act, directors can be held liable for a corporation’s failure to withhold and remit third-party taxes from certain payments, including payroll deductions, interest and rental payments to non-residents. This also includes the payment of taxes to the Canada Revenue Agency.
In both cases (failure to withhold and failure to remit), directors may be liable to pay the amount that should have been withheld or remitted, and may be subject to a penalty of 10% (or 20% if the corporation’s failure was made knowingly or under circumstances amounting to gross negligence) of the amount, plus interest.
Additionally, a director may become liable if involved with the liquidation of a corporation when the corporation owes a tax debt which was not settled through the liquidation.
Prior to assessing a director for a corporation’s tax liabilities, the CRA must demonstrate that it was unable to recover the amounts from the corporation itself, despite repeated and satisfactory attempts.
If you are sitting in the director’s chair, these amounts can be quite startling – and if you’re on the hook for them, you could be facing a major tax debt and troublesome enforcement action.
What if you no longer work for that corporation? Unfortunately, it is possible to be subject to director’s liability for claims that arise even after you’ve left the position as director of the corporation. That being said, this only applies to those who’ve vacated the seat within the last two years – no action can be brought against a director if it is commenced more than two years after the person last ceased to be a director.
If you are facing a tax debt as a result of director’s liability, obtaining professional assistance is generally the best approach to resolving the issue. At Tax Solutions Canada, we have the experience and knowledge required to help you achieve a satisfactory outcome. Call us today at 1-888-868-1400.