Director Liability for Taxes
There are only limited circumstances in which a director can be held personally liable for the debts of the corporation of which he/she is a director (absent some wrongdoing on the part of the director). Two examples are GST/HST and employment source deductions.
When a corporation collects GST/HST on its sales, it is essentially holding those funds in trust for the Government of Canada. The same is true for the source deductions (income tax, employment insurance, Canada Pension Plan, etc.) withheld from an employee’s salary or wages. If a corporation fails to remit the withheld GST/HST or source deductions to the Canada Revenue Agency (“CRA”), directors can be held personally liable to pay these amounts to the CRA on behalf of the corporation.
A director can avoid this liability if they can prove that they took reasonable steps to ensure that the remittances were being made, taking into account what a reasonable person would have done in the circumstances.
As a result, if you are a director of a corporation, you should be taking steps to ensure that the corporation is making its GST/HST and source deduction remittances on a timely basis. If you don’t, it may cost you personally in the end.
If you have further questions about director liability, please contact us.