Introduction – GST/HST Director’s Liability Under Section 323 of the Canadian Excise Tax Act
Under certain provisions, a corporate director may be liable for a corporation’s unremitted Goods and Services Tax/Harmonized Sales Tax (GST/HST). Section 323 of the Excise Tax Act grants the Canada Revenue Agency (CRA) the power to purse a corporation’s director for its unremitted GST/HST. Specifically, if the corporation failed to remit GST/HST, subsection 323(1) of the Excise Tax Act confers a tax liability on “the director(s) of the corporation at the time the corporation was required to remit or pay.” In addition, subsection 323(1) of the Excise Tax Act provides that the directors “are jointly and severally, or solidarily, liable, together with the corporation, to pay the amount and any interest or penalties relating to, the amount” of remittance that the corporation is required to make.
However, a director’s liability for a corporation’s GST/HST debt is limited by the provisions of section 323 of the Excise Tax Act. First, a director’s liability, under subsection 323(2) of the Excise Tax Act, will only arise if one of the following conditions are met:
- The CRA registers a certificate for the corporation’s GST/HST arrears with the Federal Court, obtains a writ of execution, and ensures that the sheriff attempts to enforce that writ by seizing the corporation’s assets. Yet execution for that amount returns unsatisfied in whole or in part.
- The corporation has commenced liquidation or dissolution proceedings or has been dissolved, and the CRA files a proof of claim for the corporation’s GST/HST debt within “six months after the earlier of the date of commencement of the proceedings and the date of dissolution.”
- The corporation has assigned itself into bankruptcy or a creditor has obtained a bankruptcy order against the corporation, and the CRA files a proof of claim for the for the corporation’s GST/HST debt within “six months after the date of the assignment or bankruptcy order.”
Second, pursuant to subsection 323(5) of the Excise Tax Act, there is a two-year limitation period on a director’s liability for a corporation’s GST/HST debt. As such, the CRA can not assess a director for a corporation’s GST/HST arrears “more than two years after the person last ceased to be a director of the corporation.”
Third, pursuant to subsection 323(3) of the Excise Tax Act, a director may avoid a liability claim by exercising due diligence. That is, a director is not liable for a corporation’s GST/HST debts if “the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.”
Needless to say, director’s liability under section 323 of the Excise Tax Act is a complex area of law that requires detailed analysis and advice from an experienced Canadian tax lawyer. Consider contacting our Certified Specialists In Taxation Canadian tax lawyer for appropriate tax guidance with respect to director’s liability claims and corporate GST/HST reassessments.
Pro Tax Tips – Tips for Keeping CRA’s Collections Officer Away from Personal Assets
Corporate directors of a corporation with GST/HST arrears may become liable for those GST/HST debts. Directors may limit their exposure by resigning and thereby starting the two-year limitation period, pursuant to subsection 323(5) of the Excise Tax Act.
The following recommendations may help keep the CRA Collections Officer away from the attempting to collect the personal assets of small business owners and directors:
- Business address – small business owners and directors should avoid using their home address as their business address. In particular, small business owners who have an operating business and a business location, that is not their home address, should use that address for all communications and correspondence with the CRA. When CRA’s Collection Officer issues direction to the Sheriff to prepare an assets report, will attend the business address that CRA has on file. Maintaining a business address, that is not their home address will allow the Sheriff to prepare an assets report of only the assets located at the business address.
- Payment arrangement – small business owners and directors should retain a knowledgeable Canadian tax lawyer to attempt to enter into a payment arrangement with CRA’s Collections Officer in order to satisfy the corporation’s debt. To minimize their exposure to a director’s liability claim, under subsection 323(1) of the Excise Tax Act, corporate directors should ensure that there are sufficient assets in the corporation to fulfill their payment arrangement obligations. Payment arrangements can sometimes be made by way of post-dated cheques.
- Sufficient funds – business owners and directors who enter into a payment arrangement with the CRA should ensure that there are sufficient funds in the corporate account to meet the payment arrangement obligations. If a post-dated cheque returns due to non-sufficient funds, CRA’s Collections Officer will consider other options to collect the debt including seizing accounts receivable or bank accounts.
- CRA filings and payments – during the payment arrangement period, business owners and corporate directors should ensure that their corporate tax filings and payments, including GST/HST, income tax and payroll, are up to date.
- Interest relief – business owners and directors should ask their Canadian tax lawyer if it is possible to apply for interest relief during the payment arrangement period. If the interest relief request is approved, the total outstanding debt will decrease.
- Making additional payments – during the payment arrangement period, business owners and directors who are able to make additional payments should do so. Making an additional payment stops the interest from accruing on the additional amount paid.
- Transparency – business owners, when advised by their Canadian tax lawyer, should be transparent and honest with CRA’s Collection Officer. If CRA’s Collection Officer suspects or obtain undisclosed information, he or she may become concerned and may consider other options to collect the debt.
- Communication and correspondence – business owners and directors, after confirmation from their Canadian tax lawyer, should provide CRA’s Collection Officer with any information requested that they have in their possession and they should meet any applicable deadlines that are associated with providing supporting and additional information. Further, business owners and directors should remain civil and polite during their communications with CRA’s Collection Officer.
Understanding the director’s liability provisions under the Excise Tax Act and the CRA’s collection procedures, powers and limitations is crucial for small business owners and directors to ensure that their corporation meet their tax obligations proactively. If you have questions regarding CRA’s collections procedures and limitations or for inquiries regarding director’s liability, contact our Certified Specialists In Taxation Canadian tax lawyer for appropriate tax guidance.