23 July 2010 Internal T.I. 2010-0358761I7 - paragraph 227.1(2)(b) and subsection 227.1(4)

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: Proving a claim against a director of a company that failed to deduct or withhold an amount required pursuant to subsection 227.1(1).

Position: It is necessary for a claim to have been filed with the liquidator within six months from the earlier of the date of the commenced of the proceedings, which is typically the date when the resolution to dissolve was passed, and the date of dissolution.

Reasons: Paragraph 227.1(2)(b) and subsection 227.1(4)
Section 32 of the Interpetation Act, R.S.C., 1985, c. I-21

									July 23, 2010

	Hamilton TSO						HEADQUARTERS
	Revenue Collections and Client Services		Income Tax Rulings
		  Directorate
	Attention: Patti Northey, Assistant Director 	Richard Aronoff
									(613) 941-7239

									2010-035876

Assessing a Director Pursuant to Paragraph 227.1(2)(b)

This is in response to David Fraser's email of February 25, 2010 where he inquires as to:

1) what is meant by "proving a claim" in paragraph 227.1(2)(b) where the corporation has commenced liquidation or dissolution proceedings or has been dissolved; and

2) in respect of the limitation under subsection 227.1(4), is it necessary to raise the assessment within two years of when a director last ceased to be a director, or will certification of debt suffice to keep the option open after the limitation period expires.

Paragraphs 227.1(2)(b) refers to the voluntary liquidation or dissolution of a corporation. These proceedings can be pursuant to a provincial or federal statute, depending on whether the corporation is provincially or federally incorporated. The Canada Business Corporations Act, for example, sets out the procedure to formally dissolve a corporation, and provision is made for the payment of all claims against the corporation. To assess a director for an unpaid amount of source deductions, it would be necessary for a claim to have been filed with the liquidator within six months from the earlier of the date of the commencement of the proceedings, which is typically the date when the resolution to dissolve was passed, and the date of dissolution.

A claim form may be prescribed under the provincial or federal statute pursuant to which the corporation is dissolved. However, it should be noted that section 32 of the Interpretation Act, R.S.C. 1985, c. I-21 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. The Department of Justice will need to be consulted to determine whether similar provisions are included in the provincial legislation.

Where a director ceases to be a director, the assessment must be raised within the two year limitation period prescribed in subsection 227.1(4). Certification of the corporate tax liability does not operate to avoid the statutory bar. As an aside, please note that certification would not even meet the requirements of paragraph 227.1(2)(a) which require that execution must be returned unsatisfied in whole or in part.

Should you have any questions or require clarification, please do not hesitate to contact Richard Aronoff at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate

c.c. David Fraser
Revenue Collections Division
Hamilton TSO