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Are You Personally Liable When You Resign as a Director?
A director of a corporation is personally liable under the Excise Tax Act ("ETA") for the failure of the corporation to remit goods and services tax ("GST"). However, in a subsection of the Act, there is a time limit on this liability whereby a director will not be held liable for unremitted GST two or more years after ceasing to be a director. Taxand Canada looks at the Snively V The Queen decision and the impact on personal liability for Canadian directors.
In Snively, the director in question ("Appellant") was the sole shareholder and director of a corporation. In 2002 the corporation was facing difficulties and the Appellant decided to wind down the company and sell its assets. The Appellant resigned as officer and director, which was filed with the corporate records. No new director was appointed, and the corporation carried on without a director. The company became inactive but was never fully dissolved. Two years later the Corporation was reassessed for failing to collect and remit GST. The Appellant appealed to the TCC and argued that he was not personally liable, as following his resignation as director, his actions had been carried out in the capacity of a shareholder / authorised signing officer.
The TCC ruled against the appeal on the basis that the Appellant was a deemed director.
The decision in Snively v The Queen ("Snively") makes it more difficult for an individual to rely on the subsection of the Act, and this decision may have broader ramifications on directors' liability in general, and beyond the ETA. According to the TCC, an individual may still be a deemed director of a corporation even after formally resigning from that position.
Directors of Canadian corporations are exposed to personal liability under a host of different statutes. Conceivably, the ruling in Snively can be extended to these other statutes where "director" is not defined. In addition, this ruling is troubling for the small, private corporation with few active shareholders. It is very difficult for such shareholders to distance themselves from their corporation, and activities normally performed by directors.
Read the full article from Taxand Canada to understand more
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