Business Owners & Tax Debts-Solutions
Updated: Oct 29
Upcoming Webinar: How to safeguard yourself from undue liability and if you do end up with debts – how to deal with them.
Becoming the Director of a corporation has its risks and if the company runs afoul of not paying monies owed to the government - certain payroll and HST obligations of the corporation. Should such remittances not be made, these liabilities usually become personally owed by one of or all of the Directors of the corporation.
When a corporation finds itself in financial difficulty, tax amounts due to CRA are often diverted from the CRA to more critical creditors, (pay employees, rent etc.) We understand that – keep the doors open and survive to fight another day. The question is does CRA understand or even care about your situation. After all, they have jobs to do and hear stories every day of the year. In our experience, they are reasonable as long as the taxpayer returns calls. Our experience also tells us they won’t or can’t make deals! They want the money and they want it now – forcing the hand of the tax owner.
Section 227.1 of the Income Tax Act puts the onus on directors to avoid this result. The section allows CRA to pursue directors for uncollected or unremitted amounts for source deductions on salaries and withholding taxes. THEY WILL seize assets and certainly put liens on your home and other assets without warning you.
We have had Sheriffs at a client’s home ready to take the TV, lawnmower and other goods!
WE HAVE TO BE CAREFUL!! I have heard from business owners who have received terrible advice from their advisors. Many times the spouse is set up as a Director for some reason and I have even seen investors in a business set as a Director. We also see the home with joint ownership as well. Sometimes the solution is to simply remove that person as a Director. In fact all you have achieved by having multiple directors is creating multiple people with multiple liability to CRA and other creditors.
De Facto Directors
CRA can rule someone a de facto director and therefore the liability can land at that person’s feet. Common law stated that someone who acted like a Director or the spouse once removed as a Director can in fact be deemed a director and therefore be liable.
Two Year Rule:
There is a two year rule that CRA cannot go after someone once they have been removed for two years. This means act now!
Start with the end in mind! We often preach to business owners to do things right from the start and if we meet them when in the middle of a mess – then at least start doing things right. Remove Directors who should not be Directors NOW!! Why wait. Start creditor protecting assets using holding companies and trust NOW!!
There are solutions for Directors who end up with tax, income tax and GST/HST obligations of the corporation. A large part of our business is helping business owners out of these situations. Don’t trust the trustee – they represent your creditor’s interest, not yours. In our next blog we will go through some of the possible solutions. Are they easy to swallow – sometimes not but being under the gun indefinitely is never a good solution.