New ATX Law Article - Understanding Director’s Liability & Due Diligence

The Tax Court of Canada’s decision in Buckingham v. Her Majesty the Queen was appealed to the Federal Court of Appeal (“FCA”).  The FCA recently released its reasons for judgement.  The courts’ decisions have provided valuable insight and generated discussion within the tax community.  The Canadian Tax Foundation recently published ATX Law’s article entitled The Due Diligence Defence in Directors’ Liability Tax Disputes.  

New Ministry of Finance (BC) Director’s Liability Bulletin

The Ministry of Finance (BC) released a director’s liability tax bulletin that outlines the government’s position regarding director’s liability and the circumstances in which taxpayers may be held personally liable for a director’s failure to remit tax (the “Director’s Liability Bulletin”).  

The Director’s Liability Bulletin includes the following passage related to deemed directors or de facto directors.

If a person who is not a director acts as if they are a director, the ministry may deem that person a director for the purposes of director’s liability.  Director’s liability applies to such a person as if they were a director of record.

The ministry may consider a person to be a director if that person:

1. purports to have the authority of a director,
2. under their own authority, undertakes major actions or transactions for the corporation, or
3. under their own authority, directs the business and affairs of the corporation.

However, a person will not be deemed a director because of actions they take:

1. under the direction of a shareholder, director or officer of the corporation,
2. as a lawyer, accountant or other professional acting solely in their professional capacity, as a trustee in bankruptcy, or
3. as a receiver or secured creditor controlling its interests in the property of the corporation.

If the ministry believes that a person acted as a director, it will request additional information.  If the ministry then decides that the person acted as a director, it will notify the person of its decision.

We recommend director taxpayers (or taxpayers that may be deemed to be defacto directors) to retain a tax lawyer with experience in director’s liability tax disputes to respond to any government requests for additional information and/or to prepare appropriate legal submissions.  

Although the Director’s Liability Bulletin provides a limited explanation of the law surrounding director’s liability, we believe that knowing and understanding the government’s public position is valuable first step.   

Interested readers can read the full Director’s Liability Bulletin here.