In a June 22, 2017 Tax Court of Canada case(Grant vs H.M.Q., 2014-1399(IT)G), at issue was whether the director of a corporation could be held liable for $66,865 in unremitted source eductions, related penalties, and interest six years after the corporation went bankrupt. The taxpayer presented various defenses.
According to IC89-2R3, Director’s Liability, CRA must issue an assessment against the director within two years from the time they last ceased to be a director. The taxpayer argued that since he was forced off the property and denied access by the Trustee in bankruptcy more than two years before the assessment he would not be liable. However, the Court determined that only once one is removed as director under the governing corporations act will such liability be absolved. In this case (under the Ontario Business Corporations Act), bankruptcy does not remove directors from their position. As the taxpayer never officially ceased to be a director, the two-year period had not commenced and, therefore, had not expired at the date of assessment.
Liability can be absolved if the director can show due diligence. In this case the director argued that he was waiting for large investment tax refunds to fund the liability and also entered into a creditor proposal so as to enable the corporation to continue in order to pay off the liability. However, the Court noted that diligence was required to prevent non-remittance rather than simply diligence to pay after the fact. As there was insufficient proof to demonstrate diligence at the prevention stage, this argument was also unsuccessful.
With All Due Dispatch
The taxpayer argued that the issuance of the assessment 6 years after bankruptcy was inordinate and unreasonable, thereby contravening the requirement to assess with all due dispatch (Subsection 152(1)).The Court, however, found that this requirement related to the assessment of a filed tax return or objection as opposed to the assessment of director liability. In particular, the provision governing the charging of director liability provides that “The Minister may at any time assess any amount payable” (Subsection 227.1(1)).Therefore, this defense was also unsuccessful.Technical arguments were also made relating to the bankruptcy procedure; however, the same result was reached in those cases as well. The Minister’s assessment of liability to the director was upheld.