What is director’s liability?
The CRA has the power to assess directors of a corporation for the amounts owed by the corporation. Anyone who acts in the capacity of a director of a corporation can be assessed for director's liability. Get Farber Tax to assess your situation and help you avoid being assessed for director's liability.
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What is director’s liability?
Many taxpayers believe that a corporation’s tax debt is its own, and they cannot be held liable for amounts owed. Unfortunately, the Income Tax Act and the Excise Tax Act both grant the CRA the power to assess directors of a corporation for the amounts owed by the corporation.
- Who can be held liable?
- How can you defend against a director’s liability assessment?
Anyone who acts in the capacity of a director of a corporation can be assessed for director’s liability. This includes individuals who are named as directors on the corporate registry and anyone who acts as what is known as a ‘de facto’ director, or a director-in-fact. A de facto director is an individual who is not officially listed as a director on the corporate registry but acts in the capacity of a director. They may sign cheques on the corporation’s behalf, appear on official letterhead, or hold themselves out to be a director. It is very important to understand what role you are taking on for a corporation and to be sure you are not acting as a de facto director if you do not intend to be treated as a director.
There are several defenses to a director’s liability assessment.
These defenses include:
- due diligence;
- showing that the individual was not a director; and
- by having resigned two years before the assessment was issued.
If a director can show that they were duly diligent, then they can avoid liability. This defense includes showing that the director took steps to ensure that the tax arrears of the corporation would be paid on time and that they did everything a reasonable person would do to ensure that the corporation would not accrue tax arrears. This defense is very broad and captures a wide range of potential actions a director could take to ensure that the corporation they oversee will not accrue tax arrears.
In addition, if the individual can show they were not a director at the time the tax arrears arose, they can avoid liability, as a director’s liability assessment requires that the individual being assessed actually was a director at the time.
Finally, the CRA is incapable of levying a director’s liability assessment against any individual who ceased to be a director more than two years before the CRA assessed them. This is an important step to take if the individual is intending to leave the corporation for which they are a director.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.