1 May 1998 GST/HST Interpretation 11620-1, 11630-1 - Director's Liability - Period for Assessment

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GST/HST Rulings and Interpretations
Directorate
Policy and Legislation Branch

This is further to your E-Mail of March 27, 1998, regarding the time limit for assessing an amount for which a director of a corporation is liable under section 323 of the Excise Tax Act (ETA).

Facts

The net tax of a corporation that is a quarterly filer was assessed for reporting periods covering January 1, 1991, to July 31, 1993. The results of the assessment were posted to the corporation's reporting period of May 1, 1993, to July 31, 1993, and the corresponding notice of assessment was dated July 6, 1994. For purposes of our discussion, we will assume that it was only the net tax for this last reporting period that was assessed. The return for this reporting period was due on August 31, 1993, and was filed on September 8, 1993. The corporation never paid the assessment.

Assessments were consequently issued to the directors of the corporation on September 17, 1997, under section 323 of the ETA. It is your view that these assessments may have been statute-barred because they were issued after the expiration of the time limit under section 298 of the ETA for assessing the corporation's net tax for the reporting period.

Interpretation Requested

You have requested what the time limit is for making an assessment of an amount for which a director is liable under section 323 of the ETA.

Interpretation Given

As you know, subsection 323(1) of the ETA provides that where a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3), the directors of the corporation at the time the corporation was required to remit the amount are jointly and severally liable, together with the corporation, to pay that amount. The Minister may assess the director for this amount under subsection 323(4) of the ETA and, where the Minister sends a corresponding notice of assessment, sections 296 to 311 apply, with such modifications as the circumstances require. Subsection 323(5) further provides that an assessment under subsection 323(4) shall not be made more than two years after the person last ceased to be a director of the corporation.

In our view, the only time limit for assessing a person in respect of a liability under subsection 323(1) of the ETA is established under subsection 323(5) of the ETA. The time limit for assessing the net tax of the corporation under subsection 298(1) of the ETA does not apply to a director's liability assessment as this subsection only applies to assessments under section 296 of the ETA.

We agree with your interpretation that the four-year time limit to assess the corporation in this case would have expired on September 8, 1997. Subsection 298(1) of the ETA provides that an assessment of net tax of a person for a reporting period shall not be made under section 296 of the ETA more than four years after the later of the due date of the return for the reporting period (August 31, 1993) and the day the return is filed (September 8, 1993). However, because this time limit was not applicable to the assessments issued to the directors, those assessments were not statute-barred when they were issued. Of course, the assessments would have been statute-barred under subsection 323(5) of the ETA had they been issued more than two years after the respective directors had last ceased being directors of the corporation.

We note that an amount must be payable under section 323 of the ETA in order for it to be assessed under subsection 323(4) and that a person is not liable under section 323 unless one of the three conditions outlined in subsection 323(2) has been met. To the extent that an assessment of the net tax remittable by the corporation must first have been made in order for one of these conditions to apply, the ability to assess under section 323 does depend on whether an assessment has been made within the time limit under subsection 298(1) of the ETA, albeit an assessment of the corporation.

The reference in subsection 323(4) of the ETA to sections 296 to 311 applying, with such modifications as the circumstances require, ensures that an assessment issued under this subsection is subject to the same general assessment, objection and appeals provisions as other assessments under Part IX. This reference could just as simply have been to Subdivision d of Division VIII of Part IX with essentially the same result.

You enquired whether the Income Tax Act (ITA) has a provision that parallels subsection 323(4) of the ETA. It is our understanding that the equivalent provision is subsection 227(10) of the ITA which provides that where the Minister sends a notice of assessment of an amount assessed under section 227.1 of the ITA, Divisions I and J of Part I of the ITA are applicable with such modifications as the circumstances require.

Should you require any further information regarding this matter, please do not hesitate to contact me at (613) 952-8813.

Patrick McKinnon
A/Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

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Tax Avoidance and Legislative Recommendations Division
Audit Directorate
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