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Amounts owing to the Crown with respect to taxes are the most common of the liability claims. Unremitted source deductions which consists of income taxes, employment insurance and Canada Pension Plan premiums from employee wages is the liability that the Crown has been very aggressive in collecting in recent years. The Crown is also being more aggressive in the collection of other taxes such as unpaid sale taxes and the ever controversial Goods and Service Tax (GST).
A common scenario in creating director's liability is that a business that is struggling financially is using the unremitted source deductions as capital to keep the corporation in business rather than close the doors. However, when the corporation realizes that the unremitted source deductions is not enough capital to keep the operations going, the company goes out of business. Canada Revenue Agency (CRA) has a statutory right to go after the directors for unremitted source deductions plus interest and penalties.
For CRA to successfully claim against a director it must meet certain requirements under the Income Tax Act. CRA must file a certificate in respect of the corporations tax liability and CRA must attempt to have execution against the corporation and the execution must be returned unsatisfied. In the case of a liquidation in bankruptcy, CRA must prove its claim within 6 months of the date of bankruptcy. If these actions have not been met by CRA then the director has no liability.
CRA also has only 2 years to attempt to collect the liability from the director. If the 2-year period passes then the director escapes any liability for the unremitted deductions. In order to attempt to collect from the director, it must be established that the funds could not be collected from the corporation or from the Receiver or Trustee in bankruptcy.
CRA has first priority on all assets of a bankrupt company. If a company files a bankruptcy CRA has priority over all other secured creditors even those who had security on the assets of a company prior to CRA having a debt owed, such as a General Security Agreement by a banking institution. This priority is given to CRA through the Income Tax Act. If the company continues to go forward in a receivership CRA must be paid for any arrears in crown taxes.
There are only a few defenses available to a director in order to avoid payment of the liability. In order to be liable you must be a ‘director in law” at the time the source deductions were not remitted. For example, the individual may not have been properly appointed as a director or may have resigned prior to the failure to remit.
If the above exemptions do not apply then the only defense is the “due diligence” defense as set out in the Income Tax Act. This defense provides that the director is not liable for the corporation's failure to remit source deductions where he/she exercises the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would exercise in a similar situation.
In determining if a director has acted with due diligence the court will look at a variety of factors such as, the capability of the person, their business knowledge, education and the actions taken by the director to prevent the failures. The courts have stated that there is a positive duty to take action to prevent the failures.
To prevent failure the director should familiarize himself with the withholding and remittance requirements. Ensure that an appropriate system is in place to withhold and remit all taxes and require on a timely basis written reports to ensure that the remitting procedures are being done correctly.
It is human nature especially for most entrepreneurs to do anything to find away to keep the doors of their company open. This determination sometimes leads to the careless use of unremitted source deductions and other government taxes to fund the operations. The courts have said where a corporation reaches the point where it cannot issue a remittance cheque for fear that it won't be honored it is time to close down the business. Thus, the mere decision or will of the entrepreneur to keep the doors open may result in the director reducing his/her ability to rely on the due diligence defense.
Performance bond, the most required surety bonds among the customers or applicants. Performance bonds are issued in almost every surety bonding company or by the insurance company. Performance bonds are also forms part of the different kinds of surety bonds issued by the state bonding company. Performance bond fetches more demand among the customers, because it ensures the guaranteed obligations to the obligee and the subcontractor. Performance bonds are issued as per the statutes of the state and federal government. Performance bonds compiles with all statutes, rules, regulations of the state and federal government.
Performance bonds fetch more demand among the applicants and ensure the guaranteed performance and it meets the requirements of the applicants processed. Performance bond provides assured obligation of the contractor to the obligee with regards to completion of contract within time and money and ensures the subcontractor regarding the complete payment for the labor and material supplied by the subcontractor to the contractor. Performance bonds are the most required surety bonds among the customers and it is issued almost in every part of the state with regards to the requirement and statutes.
Generally in the surety bonds, performance bonds fetch more demand among the applicants. Compared to the other surety bonds issued over the state, performance bonds obtain more demand among the applicants. Performance bonds are more useful to the contractor, obligee and surety and also for the people involved in it. The applicant can obtain performance bond from the bonding company for the required needed and to ensure assured obligation or performance. Performance bonds are issued to assure the guaranteed obligation of the contractor with regards to the contract to the obligee with in the stipulated time and money.
Performance bond not only guarantees the obligee, but also the subcontractor who supplies labor and material for the contractor. Generally, performance bonds are largely used in construction business or real business or for any contracts. Performance bonds are more important and essential surety bonds among the customer and the applicant can obtain the required surety bond from the required bonding company for the required surety amount. Generally, surety bonds are sold by the insurance company or by the bonding company. Performance bonds are issued to the people who are engaged in business activity or in any contracts.
Performance bonds are considered as most important surety bond and the contractor is necessarily required to be obtained in some states as per the laws. When the applicant obtains the performance bond from the bonding company, they are required to compile with the statutes of the state where the performance surety bonds are issued. Performance bonds meet the requirements of the applicants and compiles with all statutes of the state and ensures assured obligation and payment to the obligee and subcontractor.