Directors Beware: CRA Can Come After You For Unpaid Source Deductions

Understanding Director Liability: When the CRA Comes After You

A corporation, for both general and tax purposes, is recognized as a separate legal entity from its shareholders, unlike a partnership or a sole proprietorship. Consequently, the corporate taxes payable by the corporation are liabilities of the corporation itself and not of the shareholders, officers or directors.

However, there are circumstances in which the Canada Revenue Agency (CRA), after being unable to collect taxes owed by the corporation, may assess the directors as personally liable for the outstanding amounts. Such situations arise in cases involving unpaid source deductions, specifically income tax withholdings, Employment Insurance (EI) premiums, Canada Pension Plan (CPP) contributions and HST/GST remittances. These liabilities form the focus of this article.