Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Whether the preconditions in paragraphs 227.1(2)(a), (b), or (c) ITA and 323(2)(a), (b), (c) ETA operate disjunctively.
2. Whether a "liquidation" referred to in paragraphs 227.1(2)(b) ITA and 323(2)(b) ETA relates to proceedings under company law or insolvency law.
3. Whether a proof of claim has to be completed on the prescribed form.
Position: 1. The preconditions operate disjunctively.
2. "Liquidation" refers to proceedings under company law.
3. It is not necessary to complete a proof of claim on the prescribed form.
Reasons: 1. Green v. M.N.R., 90 D.T.C. 1898 (T.C.C.).
2. Paragraphs 227.1(2)(b) ITA and 323(2)(b) ETA.
3. Section 32 of the Interpretation Act.
June 4, 2009
Windsor Tax Services Office HEADQUARTERS
Income Tax Rulings
Attention: Kathleen Sturkenboom, Team Leader Directorate
Appeals Division Lindsay Frank
613-948-2227
2009-031144
Directors' Liability and Proposals
This is in reply to an email from Deborah Clarke, in which she has posed questions on the above-referenced subject.
Specifically, Ms. Clarke has asked:
1. Whether the preconditions, stipulated in paragraphs 227.1(2)(a), (b), and (c) of the Income Tax Act ("ITA") and 323(2)(a), (b), and (c) of the Excise Tax Act ("ETA"), operate disjunctively or jointly.
2. Whether a "liquidation", referred to in paragraphs 227.1(2)(b) of the ITA and 323(2)(b) of the ETA, relates to proceedings under a Business Corporations Act or a proposal under the Bankruptcy and Insolvency Act ("BIA").
3. Whether a Proof of Claim is a formal document, signed by a witness, or a form letter provided by the Agency.
Subsections 227.1(1) of the ITA and 323(1) of the ETA impose liability on a director of a corporation for the corporation's failure to pay source deductions and GST. However, subsections 227.1(2) of the ITA and 323(2) of the ETA provide preconditions to such liability, requiring the Agency to take certain steps to collect the debt incurred by the corporation. The steps are set out in paragraphs (a), (b), and (c), and unless one of the events described therein has occurred, a director is not liable: Green v. M.N.R., 90 D.T.C. 1898 (T.C.C.). Thus, the preconditions in subsections 227.1(2) of the ITA and 323(2) of the ETA operate disjunctively.
Paragraphs 227.1(2)(b) of the ITA and 323(2)(b) of the ETA refer to the voluntary liquidation or dissolution of a corporation. The Canada Business Corporations Act, for example, sets out the procedure to formally dissolve a corporation, and provision is made for payments of all claims against the corporation. To assess a director for an unpaid amount of source deductions or GST, it would be necessary for a claim to have been filed with the liquidator within six months from the date when the resolution to dissolve was passed. In those rare instances where the liability arises after the commencement of proceedings, the claim can be filed no later than six months after the date of dissolution.
Subsection 124(1) of the BIA states that a creditor must file a proof of claim to participate in a proposal or a bankruptcy. A proof of claim is a prescribed form. However, section 32 of the Interpretation Act provides that where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used. When asserting the Crown's priority for the payment of the source deductions amount in a proposal, instead of filing the prescribed form, usually a form letter providing the same information as would be on the prescribed form is issued. By virtue of the Interpretation Act, the form letter is acceptable.
Should you need clarification or additional information, please do not hesitate to call Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
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