Director’s liability for unpaid corporate, hst or payroll taxes

If you are a director of a company, even if it is a non-profit corporation or a charity, you should be aware of the risks and steps to take to protect yourself. Every year, assessments are issued by the Canada Revenue Agency (CRA) against directors to collect tax debts owing by their companies.

Corporate tax liabilities for which a director can be responsible

Mainly these cover such things as:

  • payroll deductions that were withheld but not remitted to the CRA, or should have been withheld
  • HST that the corporation collected, or should have been collected and remitted
  • normally directors are not personally liable for corporate income tax debt. However, if the director received a benefit, including, for example, a dividend, from his corporation after the tax liability arose, that can change.

What if you’re not legally a director?

If you are not listed in the corporate minute book as a director but, in fact, run the company, or if it is not active but you are the one dealing on it’s behalf, you may be a de facto director. In this case, the CRA could still treat you as being liable.

What if there are other directors?

If there are several directors, the taxman can assess all the directors, or any one of them. If, for example, you were one of three directors, it is not a defence to say that the others should also be assessed and you will pay one-third of the tax liability. The CRA usually treats all directors as being jointly and severally liable. In this case, any one of them can be assessed for all the tax debt.

While the director who has become a CRA target has the right to sue the other directors for their portion of the liability, if they are bankrupt or have no seizeable assets, it may be a waste of time and money.

If you are being pursued by the taxman, some possible defences are as follows:

  1. You were never a director. If you never consented to being a director, then it is possible you were never a director and are not liable. However, as previously noted, by doing the things directors do (managing the company, signing documents on its behalf, or representing it), you may have been a de facto director. If you were neither a director nor a de facto director when the corporation’s tax liability arose, you are most likely not liable. If you resigned before the tax liability arose, you might not be responsible. However, proving that you resigned and did not continue as a de facto director may be difficult.
  2. If you stopped being a director more than two years before you are assessed as being responsible as a director, you likely cannot be held to be responsible. Caveat. If your name was never removed from the public registry of companies after you resigned, proving that you actually resigned could be difficult. You must be able to prove from all the surrounding circumstances and documentation that you really did resign. The worst thing of all is that there is no limitation period. Even if the corporation’s failure to remit GST/HST or payroll deductions happened many years ago, you can still be assessed as being responsible for it. To add insult to injury, in that case, there will be huge interest charges. Make sure your advisor completes the paperwork correctly so as not to remain liable.
  3. Due Diligence – If you are caught in the CRA’s cross hairs, the due-diligence test might be the answer to your problem. The gist of this defence is that a director of a corporation is not liable for the corporation’s failure to remit payroll deductions or GST/HST if the director exercised the degree of care, diligence and skill necessary to prevent the failure to pay same that a reasonably prudent person would have exercised in comparable circumstances. This is usually hard to prove, but, with proper record keeping and affidavits from witnesses, could be the solution.

BEST PRACTICE

If you are a company director, be very sure the company collects and remits the HST and payroll deductions. If you are not running the company, ensure the remittances are actually forwarded to the CRA. If you fear corporate officials are not being candid, formally resign as a director and ensure that your resignation is properly recorded in the government registry of corporations. It may be wise to have your lawyer do the job and get a reporting letter to keep as proof. Then hide in the weeds until two years go by without an assessment being issued against you.

© The foregoing provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your own particular circumstances.

Brigitte DioGuardi

B.A., LL.B

Brigitte obtained her Law Degree from the University of Sheffield in the United Kingdom. Upon her return, she qualified for the Bar and was called to the Law Society of Ontario (formerly the Law Society of Upper Canada) in 2002. She was also a member of the Bar of British Columbia and headed up the Vancouver office of DioGuardi Tax Law.  Fluently bilingual in English and French, Brigitte has broad experience in the areas of:

  • Tax Law, Civil Assessment Negotiation and Litigation, Criminal Prosecution Defense, Unpayable Tax Debt Solutions, Audits, Tax Amnesty.
  • Corporate and Commercial Law
  • Real Estate
  • Wills and Estates
  • Insolvency and Bankruptcy

Tax Law

​If you are one of thousands of Canadians who have failed to file taxes for several years the answer maybe to seek amnesty. Be aware that failure to file for more than one year if you owe taxes is a criminal offence and you may be criminally prosecuted.

The CRA Voluntary Disclosure Program allows taxpayers to come forward and obtain immunity from prosecution and most civil penalties, provided certain conditions are met.

We specialize in lawyer-negotiated tax debt settlements and tax amnesties with federal and provincial tax authorities, offering taxpayers a much-needed resource for the resolution of situations that all too often put personal and financial lives at risk. We stand as your protector, defender, and advocate to ensure that you the taxpayer, receive the best treatment possible. 

We offer solutions for tax problems such as:

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​We offer the following will, estate and trust services for individuals and business-owners:

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We can assist you with all your real estate needs including:

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Tax Debt Relief

With the coronavirus pandemic leaving many in a precarious and dire financial situation, it is essential that you protect yourself financially. If you have a large, unpayable tax bill, we can help. We act in the best interest of the tax debtor. Unlike us, insolvency trustees represent not only you but your creditors (ie- the tax collector). The more tax you pay, the more trustees earn. Our goal through leveraged negotiations, is to reduce your tax debt.

Please consult our blog post Protecting Your Assets from Creditors for more information.

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If you do not already have a certified financial planner, we can provide one or more highly qualified people who can work closely with us to assist you with such matters as:

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We have represented business clients for the last 50 plus years and have supported their legal requirements on an on-going basis by offering the following services:

  • Incorporations and corporate governance
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  • Negotiation and drafting of agreements, professional corporations, minute book maintenance

Brigitte DioGuardi

B.A., LL.B

Brigitte obtained her Law Degree from the University of Sheffield in the United Kingdom. Upon her return, she qualified for the Bar and was called to the Law Society of Ontario (formerly the Law Society of Upper Canada) in 2002. She was also a member of the Bar of British Columbia and headed up the Vancouver office of DioGuardi Tax Law.  Fluently bilingual in English and French, Brigitte has broad experience in the areas of:

  • Tax Law, Civil Assessment Negotiation and Litigation, Criminal Prosecution Defense, Unpayable Tax Debt Solutions, Audits, Tax Amnesty.
  • Corporate and Commercial Law
  • Real Estate
  • Wills and Estates
  • Insolvency and Bankruptcy

Joyce Bruno

EXECUTIVE LEGAL ASSISTANT

Joyce Bruno has worked as executive legal assistant to Paul Dioguardi for 35 years and continues to offer her expertise and experience to the Dioguardi Law firm. Joyce’s role has evolved over the years and has acquired and developed many skills. She is an invaluable asset in case management and ensures the smooth running of our office.

Paul DioGuardi

B.A., LL.B, Queen’s Counsel

Paul obtained his Law Degree from Queen’s University in 1964.  He is a member of the Bars of Ontario, British Columbia and the Turks and Caicos Islands, a British tax free territory in the West Indies. He has over 50 years of experience and was trained at the Ottawa head offices of Revenue Canada and the Tax Litigation Section at the Department of Justice. Paul has had and continues with an extensive career in various areas of law such as:

  • Tax Law, Civil Assessment Negotiation and Litigation, Criminal Prosecution Defense, Unpayable Tax Debt Solutions, Audits, Tax Amnesty.
  • Corporate and Commercial Law
  • Real Estate
  • Wills and Estates
  • Insolvency and Bankruptcy