News Category: Business News

31
Dec

Know your Responsibilities as a Director

A director of a corporation may be personally liable for corporate remittances in certain circumstances. A May 5, 2016 Tax Court case provides a discussion where the taxpayer, who is also Director and 50% shareholder of a corporation, was found liable for the corporation’s unremitted payroll deductions and tax.

Director of corporations are held liable if he or she does not exercise a degree of care, diligence, and skill of a reasonably prudent person in comparable circumstances. In this case, the taxpayer was notified from the other 50% shareholder that the business was doing well, although reality was that the company was in financial difficulty and remittances were not being made. The taxpayer then received correspondence from CRA regarding arrears GST and payroll deduction remittances, which led to the taxpayer to discuss with the other 50% shareholder about the need to be diligent and stopping by every two to three weeks to check on matters.

However, the taxpayer continued to depend on the other 50% shareholder for news regarding the health of the company, even after receiving additional correspondence about outstanding source deductions. As such, the Director was found personally liable for corporate remittances. The Court concluded that the taxpayer was not diligent given the taxpayer’s knowledge of the corporation’s financial state and heavy reliance on the assurances provided by the other 50% shareholder. The Court also suggested that a reasonable person would verify if the remittances were being paid independently. The Director was personally liable for unremitted corporate GST/HST and source deductions.

It is important to continue to exercise a degree of care and review source documents to ensure payments to CRA are being made appropriately, especially in times of corporate financial difficulty.

 


Gregory & Associates