If you’re a company director you can be held personally liable for your company’s failure to collect and remit payroll deductions (Canada Pension Plan and Employment Insurance remittances) and HST / GST.
Each year the Canada Revenue Agency (“CRA”) issues assessments against corporate directors when it is unable to collect the payroll deductions or GST/HST that the corporation should have remitted.
The CRA first has to attempt to collect from the corporation, but if they are unable to collect, say for example, if the corporation is insolvent or has gone out of business, then they can come after the directors personally.
There are a few defences to directors’ liability assessments if the CRA decides to come after you. The first is, you were not a director. Under most provincial corporation legislation, you have to consent to being a director in order for you to be a director. If you never consented, then it is possible that you were never a director. I see this situation occur from time to time when someone registered a corporation online and listed a spouse or other family member as a director on the corporation information form without that person even knowing about it.
The second defence is that you resigned from being a director more than 2 years before the CRA raised the assessment against you. There is a 2-year limitation period starting from the date that you ceased to be a director of the corporation for the CRA to issue an assessment against you.
The third defence is the “due diligence” defence. A director of a corporation is not liable for the corporation’s failure to remit payroll deductions of GST/HST if the director exercised the degree of care, diligence, and skill necessary to prevent the failure to remit that a reasonably prudent person would have done in similar circumstances.
Even if you were not formally a director, you could still be held liable as a “de facto” director if you do anything that a director would so such as, signing corporate documents, managing the company, or holding yourself out as representing the corporation when dealing with the CRA (this is not an exhaustive list). Even complying with a CRA request to file tax returns of the corporation could make you a de facto director.
If you’re a director of a company, you should have a system in place for ensuring that the required payroll deductions and GST/HST are remitted to the CRA on time so as to avoid being assessed by the CRA.
If you were not a director, or you resigned as a director more than two years before CRA issued the assessment against you, make sure that you do not do anything in your dealings with the CRA that would make you a “de facto” director. In any case, it is best not to try and sort it out with the CRA yourself. I recommend that you consult with an attorney experienced in handling directors’ liability assessments BEFORE you say or do anything with the CRA.