Director Liability for Unremitted Source Deductions
Most directors think that once the corporation is liable for money owed to CRA, then the corporation is responsible — until they receive their personal assessment notice. The Beta Taxes Professional Corporation will guide directors through understanding and dealing with Director Liability for Unremitted Source Deductions assessment, from understanding exactly what happened, possible defenses, and the way forward.
- Understanding how director personal liability works
- Analysis of your case against the defence that you have
- Collection of evidence that supports your case
- Co-operation with a tax lawyer when required
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Affordable Protection for Director Liability for Unremitted Taxes
The reason for Director Liability for Unremitted Taxes is the fact that under the law, the payroll source deductions are regarded as trust funds. That is the funds withheld from your employees that were never yours to begin with. If your business doesn’t remit these funds and you can’t compensate for that, the CRA has the legal right to make an assessment of your directors, going straight after their personal bank accounts, salary, and other assets.
Beta Taxes provides affordable assistance in such a situation by looking into the exact nature of the arrears and your involvement in them.
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What Section 227.1 Income Tax Act Actually Means for You
Section 227.1 Income Tax Act is the actual section which gives CRA the legal right to make directors personally, jointly and severally responsible for the source deductions that have not been forwarded to the tax authority. These deductions include CPP, EI, and withholding taxes withheld from the salaries of the employees of the corporation. This responsibility is applicable to all individuals who were directors of the corporation at the time the problem arose regardless of whether or not they made the decisions pertaining to payroll.
It is this aspect that makes most directors surprised about their liability since being a director in letter, despite having nothing to do with making the decisions, makes one a target of CRA Director Assessment.
Director Liability Services We Provide
Assessment Review
- Review of CRA's director assessment notice against the corporation's own records
- Verification of whether you were a legal director during the relevant period
- Verification of whether the amount of the assessment equals what the corporation owed
- Detection of calculation errors in the assessment
Due Diligence Defence Case Preparation
- Creation of documentation of steps you took to avoid the remittance error
- Collection of facts showing due care, due diligence and skill
- Creating an evidentiary record for Due Diligence Defence Director Liability case
- Preparation of your case before replying to the CRA
Verification of Director Status
- Verification of whether you were properly appointed as a director or resigned
- Verification whether your power of decision was limited by the shareholder agreement or a receiver
- Verification of whether any procedural reasons make the assessment illegal
- Factual verification of your true director status at the relevant time
Support for Notice of Objection
- Coordination in filing a Notice of Objection against the assessment
- Preparation of documents required in connection with the notice of objection
- Timetable coordination to file the Notice of Objection before deadlines
- Referencing to a tax lawyer for formal representation if necessary
Guidance on Resignation Timing
- Information regarding the impact of a director's resignation on liabilities
- Information regarding the time window for assessment after resignation
- Documentation of resignation date and circumstances of resignation
- Coordinating with the lawyer regarding resignation documentation
Ongoing Governance Advice
- Advice on monitoring procedures to avoid future remittance problems
- Advice on reporting requirements from bookkeepers or payroll providers
- Documentation advice that is supportive of a due diligence stance
- Protection of your position as a director going forward
Why Choose Beta Taxes for Director Liability Support
Discovery
We know your position as a director, the timing of the remittance problems, and your conduct at the time of those issues.
Evaluation
We compare the CRA assessment to the corporate books and your personal actions regarding financial decisions.
Strategy Session
We determine whether a due diligence defense is possible and the documentation required.
Ongoing Support
We assist in preparing for your defense and work with legal professionals if required.
Serving Director Liability Clients Across Ontario & Canada
No matter where your business is located, our team offers you Business Advisory Services through cloud computing technology, regardless of where your location is based. Come visit us personally or at our office in Ontario, Canada, or you can also contact us virtually or from anywhere in Canada-
Case Studies
Advisory for Tech Startup in Mississauga
Problem: A Mississauga-based tech startup faced high corporate taxes due to unclaimed deductions and inconsistent bookkeeping.
Solution: Implemented full-service bookkeeping with Xero, optimized their professional corporation setup, and applied proactive corporate tax planning tailored to startups.
- Saved $22K/year in corporate taxes
- Reduced monthly tax preparation time by 10 hours
- Prepared clean, audit-ready CRA corporate filings
Advisory for Tech Startup in Mississauga
Problem: A Mississauga-based tech startup faced high corporate taxes due to unclaimed deductions and inconsistent bookkeeping.
Solution: Implemented full-service bookkeeping with Xero, optimized their professional corporation setup, and applied proactive corporate tax planning tailored to startups.
- Saved $22K/year in corporate taxes
- Reduced monthly tax preparation time by 10 hours
- Prepared clean, audit-ready CRA corporate filings
Advisory for Tech Startup in Mississauga
Problem: A Mississauga-based tech startup faced high corporate taxes due to unclaimed deductions and inconsistent bookkeeping.
Solution: Implemented full-service bookkeeping with Xero, optimized their professional corporation setup, and applied proactive corporate tax planning tailored to startups.
- Saved $22K/year in corporate taxes
- Reduced monthly tax preparation time by 10 hours
- Prepared clean, audit-ready CRA corporate filings
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Industries We Serve With Director Liability Services
testimonials
Our Clients' Results Speak for Themselves
Real success stories from businesses we’ve helped grow.
We Work with Your Preferred Accounting Software 2
I’m a realtor in Canada, and working with Beta Taxes CPA Canada has been a great experience. They have a strong understanding of real estate–specific tax matters, including commissions, expenses, GST/HST implications, and long-term tax planning. Anmol and the team are extremely professional, responsive, and detail-oriented. They not only advised on my tax filing on time, but also provided valuable consultancy to help optimize my tax position and stay compliant. They explain things clearly and genuinely look out for their clients’ best interests.
Milan Bangia
We Work with Your Preferred Accounting Software
I’m a realtor in Canada, and working with Beta Taxes CPA Canada has been a great experience. They have a strong understanding of real estate–specific tax matters, including commissions, expenses, GST/HST implications, and long-term tax planning. Anmol and the team are extremely professional, responsive, and detail-oriented. They not only advised on my tax filing on time, but also provided valuable consultancy to help optimize my tax position and stay compliant. They explain things clearly and genuinely look out for their clients’ best interests.
Milan Bangia
FAQ’s
Frequently Asked Questions
Does CRA have the power to hold me personally liable for non-payment of payroll deductions by my company?
Yes, according to the section 227.1 of the Income Tax Act, if the corporation lacks the financial capacity to pay its source deductions, the directors will be personally liable because corporations are considered having separate legal entities from their owners.
Although I personally was not involved in the decision-making process related to the payroll system - am I liable?
Technically, yes. The liability will apply during the period in which the violation occurred regardless of whether an individual participated in the daily operations of the company. Nevertheless, the personal involvement and action of an individual can affect the due diligence defence.
What is due diligence defence? What is it all about?
It is a statutory defence, where a director is able to prove that he or she has acted with the necessary level of care, diligence and skill, to prevent the violation of tax legislation. Courts will consider your professional experience, actions, warnings and response.
Am I safe, if I stop being a director of my corporation?
Not necessarily and not immediately. CRA has some time to evaluate the director after the resignation (depending on each particular case) in order to assess him for any unremitted payments.
What kind of documentation should I provide to prove my due diligence defence?
Your request for monthly remittance reports, follow up of possible problems and correspondence with your accountant regarding your attempts to fix the problem.
Is there an opportunity to challenge the assessment of the liability of a director?
Yes, usually by submitting the Notice of Objection in a timely manner, and possibly appealing to the Tax Court of Canada if the objection does not succeed.
Is having a position as a director without real powers enough to be held responsible?
Maybe, although some courts decided that some directors were not responsible in case they did not have freedom of choice or were unable to make decisions — for instance, because of the shareholders' agreement stripping their powers, or because the company was effectively managed by a receiver.
Do all directors share the same liability amount, or is it divided among them?
Usually, directors liable for the same time period are jointly and severally liable, which means the Canada Revenue Agency can hold any of them liable for the total sum, but the payments made by other directors offset the liability of others.
Am I obliged to hire a tax lawyer, or can it be done via a CPA?
The first part — we'll take care of it — the second will be organized with our assistance in cooperation with a tax lawyer in case of necessity.
How should I act after receiving an assessment notice as a director?
Don't hesitate and don't delay to contact us — it's better to act immediately before missing any deadlines.
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