DIRECTORS' LIABILITY FOR TAXES : Tax tips

 

A director is jointly and severally liable with his corporation

The Canadian Income Tax Act renders a director jointly and severally liable with his corporation for failure to deduct, withhold or remit income tax, payroll or GST amounts required, along with any related interest or penalty. Legal or accounting fees incurred to challenge a tax assessment are a deductible expense for Canadian income tax purposes.

A director can avoid liability

A director can avoid liability under the Canadian Income Tax Act if he can demonstrate that he exercised the degree or care, diligence and skill necessary to prevent the failure to deduct, withhold or remit that a reasonably prudent person would have exercised in comparable circumstances.

Limitation on action for director’s liability for unpaid source deductions

Subsection 227.1(4) of the Canadian Income Tax Act provides that no action for director liability for unpaid source deductions of a corporation may be commenced more than 2 years after a director ceased to be a director of the corporation.