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Saturday, January 21, 2012

New Director and Past Non-Remittance

New Director and Past Non-Remittance

A recent technical interpretation (TI 2011-0412471E5, November 4, 2011) confirms that a new director is not liable for interest that accrues on a corporate liability that arose from a former director's failure to remit source deduction amounts.

Generally, if a corporation has failed to deduct or withhold an amount or has failed to remit that amount as required by section 153, subsection 227.1(1) provides that both the corporation and its directors are jointly and severally liable to pay the amount and any related interest or penalties.

In the TI, a corporation with a sole director withholds source deduction amounts under subsection 153(1), but fails to remit them. Following the last remittance deadline, the sole director resigns and is replaced by a new director. The corporation no longer has employees, and thus there are no new withholding requirements except what the previous director was required (and failed) to remit. At issue is whether the new director can be held liable for interest on arrears related to the company's unremitted source deductions that arose before he became a director.

In its analysis, the CRA noted that only a person who was a director at the time the corporation failed to remit the amounts deducted or withheld under subsection 153(1) is jointly and severally liable under subsection 227.1(1). The CRA noted that this provision limits the liability to a person who was a director at the time when the corporation failed to remit. The CRA concluded that a new director is not liable for interest imposed against the corporation under either subsection 227(9.2) or 161(1) for an amount that the corporation failed to deduct, withhold, or remit before that individual became a director.

Jim Yager
KPMG LLP, Toronto

Canadian Tax Highlights
Volume 20, Number 1, January 2012
©2012, Canadian Tax Foundation

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