There are a lot of questions regarding directors’ liability for tax obligations. Directors’ liability is the duties and responsibilities that a director of an organization is responsible for. In an organization, the directors are elected by voting shareholders to manage or supervise the business and the affairs of the company.
There are certain liabilities for which the directors can be held personally responsible. This is particularly true when it comes to tax obligations.
Directors are Liable for Payroll Deductions
Companies are responsible for certain deductions and are required to remit these amounts to the Canadian Revenue Agency. For example, an organization must deduct income taxes and other “payroll deductions” such as CPP contributions and EI premiums.
If a company fails to do this, the directors can be held personally liable and may be required to pay a penalty. This penalty often ranges from between 10% and 20% of the amount that should have been withheld plus interest.
In addition, in situations where a company does not remit the amount withheld to the CRA, the directors can be held personally liable for the entire amount owing plus any interest charges and penalties that may be laid.
Directors are Required to Ensure that GST/HST Obligations are Met
Companies are responsible for collecting and remitting GST or HST, depending on the particulars of the company and its sales. If this does not occur, the directors of the company could be held liable for the entire amount that is owed. In addition, interest and other penalties may be charged.
Directors are Required to Withhold & Remit Certain Amounts from Non-Residents
If payments are made to individuals who are not residents of Canada, a company is required to withhold and remit certain amounts. Again, if the organization fails to do this, the directors can be held responsible for the entire amount owing.
Other Important Information
It’s important to note that those who are not technically directors, but who are performing the roles and responsibilities of directors, can be held to the same directors’ liability standards. This determination is made on a case-by-case basis.
A director can only be held responsible if he or she was a director at the time that the company was required to withhold, remit or deduct the amount. The CRA has two years from the resignation of the director to pursue the situation and commence proceedings. If a director resigns, formal resignation paperwork is required as is proof that the person did not continue to act as a director after his or her resignation.
If a director can prove that he or she took reasonable steps to ensure that the required deductions and remittances took place, this person will likely not be liable even if the appropriate amounts were not withheld or remitted while he or she was a director. However, documentation and proof is required in these situations.
For more information on his topic and how it could apply to you, please call us today for a free consultation: 1-888-868-1400.