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What is “Director’s Liability?”

I put my life and savings into my incorporated business and it failed.  Now the tax Agency says I owe for something called Director Liability? I have no money or assets to pay such a debt…what can I do?

This is a fairly common scenario.  Simply stated, Director’s Liability is the liability that can be created against a director(s) in situations where the corporation that he or she directed, failed to pay or remit such taxes as net sales tax, GST/HST amounts collected and payroll source deductions taken. The Canada Revenue Agency and other tax authorities by way of the legislation that they administer views the director(s) as the person(s) responsible to ensure that these monies are sent to the tax authority by their corporations; when they are not, they can be held jointly, severally and solely responsible for the remitting of these amounts.

Your situation may be unique and generally speaking if you lack the ability or resources to pay these amounts immediately or in the future, they do not assess you or make your liable.  If they do decide to make you as a director liable, they will need to take specific steps to do that.

As for your options, these type of liabilities can usually be addressed in a bankruptcy filing or a proposal made under the Bankruptcy and Insolvency Act.  It is best if you promptly seek the guidance and advice of a Licensed Insolvency Trustee in these situations as the Trustee is best able to explain and assist your options.

Can I still make a Consumer Proposal if I owe Canada Revenue Agency Taxes?

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Yes, most amounts owed by you to Canada Revenue Agency (CRA) and various tax authorities can be included in your consumer proposal.

The starting point of your consumer proposal (or an assignment in bankruptcy) is when you make a full disclosure of the totality of your debts.  Creditors will want to know what is owed and how they will share in the proposal.  It is for this reason that if you have taxes owing and/or tax returns & reports that are overdue, that the Canada Revenue Agency and trustee will expect  you to prepare and file all of your outstanding personal income tax returns. Similarly if you operated a sole-proprietorship business, you may also file a consumer proposal and again you will be required to complete and file all of your outstanding business related returns.

The Canada Revenue Agency will not usually give favorable consideration to any proposal where returns and reports are outstanding.

In the end, the Canada Revenue Agency takes a common sense approach to considering your proposal. It seeks to maximize recovery of the amounts you owe (as do all creditors), while recognizing your ability to pay and taking measure of the recovery potential of your proposal versus a bankruptcy filing. The nature of the Canadian insolvency proposal processes is one of recovery and rehabilitation and that said, creditors including the Canada Revenue Agency may request that you agree to certain non-monetary terms and conditions throughout the proposal period. These terms are of equal importance as they serve to show your commitment to take full advantage of this situation and to start anew on a path to reestablishing good money and credit management practices.

The trustee will work in partnership with you, the Canada Revenue Agency and your creditors to prepare a consumer proposal arrangement that is practical for you and beneficial for all of your creditors.  Call Paul J. Pickering Limited to have a no cost discussion about your financial situation and your consumer proposal options.