We at Spiteri & Ursulak LLP have years of experience handling director’s liability claims. The most common area of exposure for directors of a corporation is in relation to the Canada Revenue Agency (“CRA”).
A director’s exposure to the CRA is governed by section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act. A director is responsible for the remission of trust monies for the Government of Canada. This means that the director(s) of a corporation will be found liable, both jointly and severally, for any trust funds that were not remitted to the Government.
What are trust amounts?
1. HST/GST amounts (RT account)
2. Payroll amounts (RP account)
The CRA can be very aggressive in their collection action against company directors when a trust debt arises. The CRA will level what is known as a “Director’s Liability Assessment” against all directors of the corporation or company. This means that the CRA will attach the corporation’s debt to the director personally and then seek to register a lien on all property owned by the director.
The defence to a director’s liability assessment is one of due diligence. A director must establish that he or she exercised the degree of care, diligence, and skill necessary to prevent the corporation’s failure to remit, the director will be considered duly diligence and will not be held personally liable for the corporation’s failure to remit. The level of due diligence exhibited by a director is fact specific to each case. There are statutory limits to a director’s liability, being two years from the date the director resigned. At Spiteri & Ursulak LLP, we have handled hundreds of director’s liability assessment and litigated many before the Tax Court of Canada.
Can you be a director without being a director?
Yes. An officer or employee of a corporation that holds themselves out to be a director can be found to be a “de facto” director. The same due diligence defence is available to “de facto” directors as well as defence’s at common law.
If you are subject to a director’s liability assessment, whether a director or “de facto” director, contact Spiteri & Ursulak LLP and speak to an experienced tax lawyer. We have handled hundreds of director’s liability disputes and helped taxpayer reduce or eliminate assessments for source deductions.
**This information is not intended as nor does it constitute tax or legal advice. The information contained herein has been obtained from sources believed to be reliable at the time obtained, but neither Spiteri & Ursulak LLP nor its employees, agents, or information suppliers can guarantee its accuracy or completeness after the date of April 2, 2020.
