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CRA has the right to pursue directors and former directors personally for certain categories of corporate tax debts arising during the time they were directors. The most common are GST/HST and payroll source deductions. This article focusses on certain tax liabilities of a company imposed under the Income Tax Act (the “ITA”) and the Excise Tax Act (the “ETA”) for which directors of the company can be held personally liable. The Canada Revenue Agency (CRA) can make the director liable in the following cases:
1. Directors liability for payroll deductions
Under the Income Tax Act, (“ITA”) a company is required to withhold/deduct and remit amounts to the Canada Revenue Agency for salary, wages, benefits and payments out of various plans (“Payroll Deductions”).If the company fails to withhold or deduct from remuneration (paid to a resident of Canada) an amount that is required to be withheld, the directors can be held personally liable for a penalty of 10 or 20 percent of the amount that ought to have been withheld and deducted plus any related interest.If the company fails to remit an amount to the CRA that was withheld and deducted by the company as Payroll Deductions the directors can be held personally liable for the whole of the unremitted amount, plus any related penalties and interest.
2. Directors liability for tax obligations on payments to non-residents
A company is required to withhold and remit certain amounts from payments made to non-residents of Canada. If a company fails to withhold or remit the required amount from a payment to a non-resident the directors of the company can be held personally liable for the whole of the amount plus any related penalties and interest.
3. Directors Liability for GST/HST Obligations
A company is required to collect and remit GST/HST under the ETA on taxable supplies made by the company. If a company fails to collect and remit the required amount of GST/HST, the directors of the company can be held personally liable for the whole of the amount that ought to have been remitted plus any related penalties and interest.
4. Liability extends to de-facto directors
A person who is not technically a director of a company can be held personally liable as a director in certain circumstances. A person who is, in fact, exercising the responsibilities of a director can be held to be a de facto director. A person who plays a key role in a company or has ultimate decision-making authority for the company will be at risk of being found a de facto director. The determination of whether a person is a de facto director is fact specific and requires analysis on a case by case basis.
It is the responsibility of every director to comply with his tax obligations to avoid being hauled by the CRA. ATS Accounting, with its expertise in tax preparation, bookkeeping and business accounting, provides services to safeguard the interests of individuals and small businesses in Edmonton and other cities in Alberta that aren’t equipped to put a full-time accountant on their payroll.