Need help with CRA G.S.T. debt I did not know I had!

[Maxpower]

This is a strange situation and I have been reading for the last week to try and find out how to resolve it but the only info I can find is in tax court judgements which is something I want to avoid if at all possible.

Recently I found out that the CRA is coming after me for a G.S.T. debt owed by a company, a family company, in which I was unknowingly listed as both a director and incorporator even though I never signed the incorporation application or saw the notice of articles (B.C.) or heard any word of director appointments and had nothing to do with the incorporation filing.

When I asked how the company was set up I was told I was a %20 shareholder. If the true incorporator knew the legal meaning of director he never would have listed me due to prior conflicts he had in previous partnerships, he wanted sole control and even though that was the case in reality I am now getting stuck with paying for his mistakes, which I essentially saw coming before I got out of there. I never even knew I was listed as a director since the person that did the incorporation did not inform me he listed me as one nor did I act in any capacity as one, represent myself as one and in no way ever gave my consent to be registered as one.

The company that this is in regards to never filed an annual report with the B.C. registry and must have been dissolved within 1 or 2 years of being incorporated. I left the company after about 6 months because as a shareholder I saw that there was no desire to build a company and instead the goal of the sole de facto director was to suck as much money out of it as possible, I wasn't interested in that at all, so I left after the 1st job. The alleged G.S.T. debt arose around 9 months after I quit. Recently I filed a few years tax returns in order to get a refund due to being in dire straights only for it to be "set-off" against a G.S.T. debt I did not know I had since all of the assessments were directed towards the company I did not know I was a director of and I never received any assessment in my name as an alleged director, therefore, I did not know about the debt. The CRA is now telling me that I have to get the de-facto director to do a limited restoration of the company, which costs about $400, then send in a "Form 10: Notice of Change of Directors" to have my name removed as a director from the notice of articles, which I'm not sure is even possible, especially considering I have been told the company "records" have been lost.

To put it mildly I am suspicious that the above process will just end up being a runaround, if it is even possible to do what they ask, and that if it is possible the CRA will just change the rules in the middle of the process by creating even more ridiculous prerequisites.

I have read through judgements from the tax courts and not knowing you have been listed as a director does apply with the due diligence clause in section 227.1 such as was the case in Cybulski v. M.N.R. and Sheremeta v. M.N.R., because the proper due care of someone who does not know they are a director in regards to G.S.T. remittance is to do nothing, which considering I left the company 9 months prior to the assessed debt definitely applies.

Does anyone have any advice on the best way to deal with the CRA in this matter now that I have hit a brick wall with the collections agency telling me I have to get the company restored through the registry and have my name removed at a cost of over $500 with no guarantee that that will even work?

[Maxpower]

I phoned the CRA today and again they confirmed that if I am removed from the registry as a director of the company the liability that is currently applied to me for unremitted G.S.T. will no longer exist. They said they have heard of other similar cases. Then I phoned the registry and they said if another director, the real director, files for the limited restoration and files "Form 10: Notice of Change of Directors" explaining I never consented to be a director, never acted as one and never knew I was registered as one that there should be no problem amending the registry to remove my name as director completely. They have also heard of similar cases.

Should I attempt to get this in writing from the CRA or just accept what the first CRA representative and the second confirming representative said? The second representative stated that it was CRA policy not to place liability on a director who was improperly registered and then removed.

Anyone know how trustworthy the word of these representatives is? Should I go on the supposition that they are acting in good faith and telling the truth or should I be mistrustful of everything they say? I have never dealt with the CRA before but I have read some horror stories and what I was told happened to the company I was improperly listed as a director of confirms alot of that to me. The only reason there is a G.S.T. debt owing is because the company was doing the first phase of a building and was told the second phase would start a few wakes later. A few weeks later ended up being approx 5 months from what I'm told and in the interim the CRA continued sending G.S.T. assessments as though the company was still working. The person running the company never disputed the assessments so it was definitely partially his fault what happened next, which was the company account was seized making it impossible for it to do the next phase. That non-existent G.S.T. remittance has mushroomed in size since due to interest. Now the directors are liable for a non-existent G.S.T. remittance, forced to pay for something which sunk the company, plus interest, due to not fighting the assessment when it was received. I guess the lesson there is to put any assessments coming from the CRA on an extremely high priority list.

[kcowan]

CRA are telling the truth. The real director just has send them a letter stating that you were never a director. This will remove your liability. But I see that the real director is not trustworthy having listed you in the first place. So he cannot send such a letter stating that you were never a director. I think you will remain as a director and share in any liability that ensues.

I have had similar issues with the CRA even when I had ceased to be a director. Once the CRA got the documentation of that cessation, they left me alone. The process also applies to remittances for income tax of employees, where directors are jointly liable for them.

[MoneyGal]

What kcowan said.

You are factually listed as a director of this company on the company's articles of incorporation. You need to get yourself un-listed as a director, then you will not be liable for the unremitted GST.

[Robillard]

Just as a side note, I would mention that it is the CRA's standard practice, where an assessed delinquent tax liability exists, to collect on the outstanding liability by seizing refunds or other amounts that you might otherwise be owed by the government. I worked with a client once who was reassessed for corporate income tax, and the CRA collected on or withheld GST rebates and T4 overpayments to satisfy part of the corporate tax liability.

[Maxpower]

CRA are telling the truth. The real director just has send them a letter stating that you were never a director. This will remove your liability. But I see that the real director is not trustworthy having listed you in the first place. So he cannot send such a letter stating that you were never a director. I think you will remain as a director and share in any liability that ensues.

I have had similar issues with the CRA even when I had ceased to be a director. Once the CRA got the documentation of that cessation, they left me alone. The process also applies to remittances for income tax of employees, where directors are jointly liable for them.

As far as this situation goes the problem wasn't trustworthiness it was negligence. At the time the better position for him would have been to place himself as sole director. A sole director with a very large majority shareholder position would have been in a much better position to control the outcome of the company than he would have been if what he sent in to the registry was actually implemented on the business end. And there was no way he foresaw the current outcome.

Part of the problem is that the place he had the incorporation done, a registry search company, also did not know the procedure and informed him it was necessary to have a president, vice president and secretary which may have been the case in the B.C. Company Act that was in force in 2004 and before but it is not the case in the B.C. Business Corporations Act which is what he should have been following, that may have been one of the underlying reasons more than 1 director was listed at all, due to thinking they were a necessity. From talking to him he has confirmed that he had confounded shareholder with director, not knowing that director had a specific legal meaning, and if he actually knew the legal rights and powers of directors at the time he listed me as a director he never would have done it due to conflicts with prior partners and the fact that listing me as a director could have potentially diluted his power to run the company however he wanted.

The completing party, who would in many cases be a lawyer, also kind of screwed up because he is not supposed to send in the "Notice of articles" or the "Incorporation application", both of which are purely digital forms that are never signed and instead appear to be a digital semi-confirmations of the signed legal documents: the "Incorporation agreement" and the "Articles", unless he has seen all the signatures on the latter legal forms and because of that he did not completely fulfill his responsibilities as the completing party. Also best practices as far as directors goes would be to have a signed confirmation or at least direct verbal confirmation from each director before submitting them to the registry on the "notice of articles". On the other hand it is hard to put much blame on him when it was and probably still is, from what I have read anyway, common practice for less diligent lawyers to just date those legal papers to the incorporation date and get the signatures afterwards with the directors consent generally being nothing more than an afterthought due to the assumption that a directors meeting will be held.

I am not resolving myself of responsibility in all of this because with hindsight I clearly see that I should have inquired more than just asking how the company was set up and accepting the answer that I was %20 shareholder and not doing much more than that. It was naivety at its worst. In having to deal with this I've gotten what I deserved.

[Maxpower]

What kcowan said.

You are factually listed as a director of this company on the company's articles of incorporation. You need to get yourself un-listed as a director, then you will not be liable for the unremitted GST.

Thanks for the replies. I am still not sure about how much faith I should put into what the CRA officers say I should do due to hearing alot of horror stories. I am also wondering if the CRA has ulterior motives for insisting the company be reinstated. I have never received an assessment in my own name and instead they are claiming that their collection action against me is derivative to the corporate assessment and I do not really even know if that is allowed, it sounds extremely unusual to me. Especially considering that the very 1st CRA representative I talked to, at the local office, said "Now why did they do that?!" and since then that department will no longer takes my calls at all. The entire situation is bizarre because it has come right out of left field and I have zero documentation regarding it, and now, strangely, the CRA is giving me advice on what to do to remove my alleged personal liability. That alone makes me very suspicious. They are not in the business of helping people remove debts owed to CRA and instead it is the exact opposite, their job is to collect as much of them as they can regardless of liability and stupid family mistakes. Mistakes they readily spend large sums of money to fight in court.

Before I do anything I am obviously going to have to get some documentation from the CRA and talk to a lawyer, the whole thing is way too strange to just do what they suggest without verifying for myself, somehow, that their collection actions is legitimate.

[MoneyGal]

You should get independent advice, absolutely. However, the situation you've described is not actually bizarre. Corporate directors can be held personally responsible for the unpaid tax and other debts of the corporation, including HST. Random link from google: http://www.dpclaw.ca/blog/should-you...logy-start-up/

Here's the actual information circular from CRA which provides the legislative authority to hold directors personally responsible for the unpaid tax/other debts of the corporation: http://www.cra-arc.gc.ca/E/pub/tp/ic...ic89-2r2-e.pdf

Googling "corporate director responsible for unpaid HST" brings up hundreds of links. Reading these may be a better use of your time than reading tax court judgements.

[Maxpower]

You should get independent advice, absolutely. However, the situation you've described is not actually bizarre. Corporate directors can be held personally responsible for the unpaid tax and other debts of the corporation, including HST. Random link from google: http://www.dpclaw.ca/blog/should-you...logy-start-up/

Here's the actual information circular from CRA which provides the legislative authority to hold directors personally responsible for the unpaid tax/other debts of the corporation: http://www.cra-arc.gc.ca/E/pub/tp/ic...ic89-2r2-e.pdf

Googling "corporate director responsible for unpaid HST" brings up hundreds of links. Reading these may be a better use of your time than reading tax court judgements.

In the CRA circular you linked to it states:

21. If a director does not reply within the time set out in
the proposal letter, the Agency may issue an assessment
without further notice.

But what they are telling me is that the notice of assessment directed at the company gives them the ability to enforce collection action against me personally.

They have not directed a notice of assessment at me personally. The assessment against the company would attach to the companies assets but I do not see how a notice of assessment directed at ABC Ltd. can be used as an excuse to proceed with collection action against 1 individual. For one thing it does not give me the ability to file an objection to the assessment as an individual separate from any other directors.

I am starting to wonder if they may be telling me outright lies so I will restore the company therefore restarting all the directorships exactly as they were when the company was dissolved which would allow them to get around the 2 year statute of limitations, which is definitely over by now, so they can assess everyone just like they wish they had of from the start, which is exactly what they probably should have done.

If they had of already assessed me and the objection period was over there is absolutely no way they would be telling me how to remove that liability, so why on earth is the CRA so vociferously trying to show me an out, one that involves restoring a company? To me that is definitely bizarre. If they had a certain legal standing right now they would be telling me there is nothing I can do because the objection period has lapsed. Instead they want me to do the one thing that would allow them to directly assess anyone that was a director when the company was dissolved and coincidentally that is also the only thing, according to them, that will remove my liability. That is an odd coincidence so I am definitely skeptical and I'm certainly not doing anything without some paperwork and an appointment with a lawyer. Up until today they had me convinced enough that I was seriously considering it, but now I it is becoming clear that that is an extremely bad idea without more info from them. Also as I said above my first contact with them seems very strange, especially now that I am wondering if they are attempting to use me to restore a company in order to accomplish their ends.

[MoneyGal]

The VERY FIRST sentence of that circular states:

This Circular outlines the consequences which
corporate directors may face, when the corporation, of which
they are a director, fails to deduct, withhold, remit, or pay
certain amounts of money held in trust for the Crown. Under
these circumstances, corporate directors may be held
personally liable pursuant to section 227.1 of the Income Tax
Act (“ITA”), section 323 of the Excise Tax Act (“ETA”),
section 81 of the Air Travellers Security Charge Act
(“ATSCA”), subsection 295(1) of the Excise Act, 2001
(“EA2001”), and similar provisions of the Canada Pension
Plan, and the Employment Insurance Act.

/quote

They don't need to levy a NOA against you personally. You are personally liable for the unpaid corporate debt. This is not the same as a personal liability for unpaid personal taxes.

Good luck in your search for advice.