When it comes to corporate taxes, directors have several tax responsibilities. In certain circumstances, directors may be held personally responsible for certain tax liabilities of those corporations they serve. This week, we focus specifically on directors liability and the limitations with regard to assessments.
What constitutes a director? According to the general consensus in Canadian courts, any individual who has been properly elected and constituted as a director of a corporation fits into the category. However, there are several cases where an individual who did not necessarily fit into this category was found to be liable for certain corporate tax debts.
Liable for what? According to the Income Tax Act, those considered to be directors can personally be held liable for a corporation’s failure to withhold and remit third-party taxes from certain payments, including payments of salary and dividend, interest and rental payments to non-residents. Such action may result in the director being liable for the total amount that should have been withheld/paid as well as a penalty of up to 20%, plus interest.
Are there any limitations on directors liability assessments? Yes. Due diligence by the director is one, and if the individual was not a director at the time the tax arrears arose that’s another. If the director resigned 2 years prior to the assessment, or if the CRA failed to register its claim within six months of bankruptcy of the corporation, these are other limitations that would be considered.
If you are concerned about your responsibilities or the limitations on directors liability assessments, we can help. Call Tax Solutions Canada today at 1-888-868-1400.