A few weeks ago we provided a primer on director’s liability, and since that time we have received a number of follow up inquiries regarding defenses against this common and troublesome issue faced by many in positions of responsibility. With that in mind, this week we aim to cover some of the defenses against director’s liability and how you can protect yourself if the CRA comes knocking on your door.
Director’s liability for certain obligations include payroll deductions, tax obligations on payments to non-residents and GST/HST obligations. When these obligations are not met, for whatever reason, a director may be on the hook for a substantial sum.
Potential defenses against director’s liability:
- In the case of tax obligations and your liability as a director, sometimes time is on your side. A director can only be held liable for tax obligations if he/she was a director at the time the company was required to deduct, withhold, remit or pay the amount. If you have not started in the position yet or if you resigned prior to the time that the company failed to meet its tax obligations, you should not be personally liable for that failure.
- Due Diligence. Here you may be able to defend yourself by showing that you took the appropriate steps to ensure that the company would make its proper and required deduction remittances.
- Well documented resignation. The Canada Revenue Agency must commence proceedings within two years of when the director last ceased to be a director, so documentation of your resignation as a director is extremely important. However, it is important to note that a formal resignation may not be helpful if you continued to act as a de facto director after the date of formal resignation.
- Object to the tax assessment. If the company failed to dispute the amount, a director can do so, and if successful, then the director’s own liability can be avoided.
- Director position incorrect. If you can successfully demonstrate that you did not consent to be a director and thus did not participate in a director’s role and all that it entails, you may be able to dispute an assessment on the basis that you were not a director of the company.
- Failure on the part of CRA to attempt to collect. Since the CRA is required to prove that an attempt to collect from the corporation was unsuccessful prior to going after a director, proving that the CRA did not attempt collection against the company in question may negate any liability on the director’s behalf.
If you are facing a tax debt as a result of director’s liability, call Tax Solutions Canada today. We can help you better understand your options and the best approach to take to fight the order for payment. 1-888-868-1400.