If you’re planning on resigning as a director of a company, a signed and dated letter attesting to your resignation is key. This is because of two obligations from the Income Tax Act and one from the Excise Tax Act that can become personal liabilities for up to TWO YEARS after you’ve resigned. These obligations include:
- deducting and remitting source deductions for income tax, Canada Pension Plan premiums and Employment Insurance premiums from an employee’s pay (Income Tax Act)
- deducting and remitting withholding tax from certain payments to non-residents of Canada, such as payments for dividends, rents, royalties and, in some cases, interest (Income Tax Act)
- collect and remit GST/HST on the corporation’s sales of goods and service (Excise Tax Act)
Should CRA come after you personally for the corporation’s failure to meet these obligations, evidence to support your date of resignation will come in handy if the two-year period has come and gone.
Liability Follows Function, Not Title
If you were never officially appointed a company director, but nonetheless perform director’s duties, you could be considered a de facto director and held personally liable for the obligations listed above.
Challenging a Claim
If you feel you’re being unfairly assessed, you can challenge the validity of the claim on the grounds that the unremitted amounts were in fact remitted. And if they weren’t remitted, you can raise a due diligence defense if you can demonstrate you took all reasonable steps to ensure the corporation would meet its obligations. To prepare for this possibility, you should document all inquires you make regarding payroll, non-resident withholding and GST/HST remittances during and after your directorship.
If you’re thinking about relinquishing your role as a director and you want to learn more about any potential tax implications, contact a DMCL tax advisor.