Introduction
Directors of Canadian corporations can be held personally liable for specific tax debts of the corporation, including GST/HST remittance arrears under the Excise Tax Act and payroll remittance arrears under the Income Tax Act. However, there are critical safeguards in place, such as a two-year limitation period and requirements for due diligence.
This article explores the key aspects of directors’ liability and how to effectively cease being a director to minimize risks.
Resignation as a Director
A director can resign by submitting a written resignation to the corporation, as stipulated by most corporate statutes, such as Ontario’s Business Corporations Act. The resignation becomes effective upon delivery or at a specified later date. Directors should:
- Retain proof of their resignation and delivery.
- Ensure that the corporation updates its records with the provincial registry (though court rulings suggest this is not mandatory for a valid resignation).
Dissolution of the Corporation
If a corporation is dissolved, directors cease to hold their positions, marking the start of the two-year limitation period for liability. Dissolution can occur voluntarily or involuntarily (e.g., non-compliance with filing requirements). Notably:
- Revival of the corporation does not reset the limitation period unless a court explicitly reinstates the directors.
- Dissolution differs from bankruptcy, which does not automatically terminate directorship.
De Facto Directors
Individuals who act as directors without formal appointment may still be considered de facto directors and held liable. Indicators of de facto directorship include:
- Signing documents or participating in management decisions.
- Representing oneself as a director to third parties.
To avoid being classified as a de facto director, individuals should clearly cease any directorial activities post-resignation.
Tax Tips
- Proactive Resignation: Resign promptly if the corporation is in financial distress to start the limitation period. Ensure proper documentation and delivery of your resignation.
- Legal Guidance: Consult a tax professional to verify compliance with legal requirements and avoid being deemed a de facto director.
- Check for Dissolution: If the corporation was dissolved, confirm whether the limitation period has already started
Conclusion
Directors’ liability for corporate tax debts is a significant risk, but proactive steps like timely resignation and diligent documentation can mitigate potential repercussions. Understanding your responsibilities and limitations as a director is crucial to protecting your personal finances. If you face concerns related to directors’ liability, consult a qualified tax professional for guidance.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.
Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.
#NewmarketAccountant #KeswickAccountant #AuroraAccountant #AuroraTax #NewmarketTax #CRAAudit #CRATax #CPA #MahadMohamed #CPAAudit #CPATax #CharteredAccountant #Moody #KPMGTax #TaxHelp #CanadaTax #CRA #USTax #TaxpayerRelief #TaxForgiveness #Mahad #GoodAccountant #BestAccountant #TaxAccountant #RichmondHillAccountant #BarrieAccountant #BarrieTax #MarkhamTax #MarkhamAccountant