21 September 2009 Internal T.I. 2009-0331481I7 - Corp Enterprise Continues to Operate After Dissol.

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: Who is liable for taxes on income generated after a corporation's charter has been surrendered or revoked?

Position: Where a corporate enterprise continues to operate after the charter has been cancelled, the individual or individuals running and controlling the business become personally liable for tax debts subsequently incurred by the business.

Reasons: The outcome of continuing to carry on business operations after the cancellation of the corporate charter results in the formation of a proprietorship, partnership, or a joint venture.

September 21, 2009

Liability for Taxes Where Corporate Enterprise Continues to Operate After Dissolution

This is in response to the issues raised by Randy Albertini in his email of July 6, 2009 concerning the tax implications of a corporate enterprise continuing to carry on business after the corporate charter has been cancelled as a result of either a voluntary or involuntary dissolution. In particular he wanted to know who is liable if the company continues to operate and incurs additional tax debts.

Corporate statutes, generally, do not address the issue of liabilities incurred as a result of carrying on business subsequent to a corporation's dissolution. Once a corporation is dissolved it ceases to exist as a person in law. In circumstances of tax debts incurred post dissolution, the liability attaches against the individuals directing and controlling the business. Depending on the facts, these could be former directors, shareholders, officers, or managers.

Where the business is directed and controlled by a single individual, the business effectively becomes a sole proprietorship and liability attaches against the proprietor. In circumstances where the business is directed and controlled by more than one individual the outcome is fact driven with the result that the continued business could either be a partnership or a joint venture. For example, where the former shareholders directing the business are found to share in the profits or losses in a manner not unlike members of a partnership and hold themselves out to be jointly and severally liable for the debts of the business then, in all likelihood, a partnership exists. On the other hand, where indicia of a partnership are not present, the profits and losses of the business should be taxed on the basis of a joint venture, with each participant sharing in the profits and losses of the business in proportion to his or her interest in the property used to carry on the business.

The indicia of a partnership are easier to ascertain after the year-end sharing of the profits and losses of the business with the result that liability for income tax is somewhat easier to ascertain. Conversely, where the failure to remit source deductions were to arise before the year-end sharing of profits and losses, the apportionment of liability would be more difficult. Given the nuances of each fact situation the prudent approach would be to seek a legal opinion based on the individual facts of each case.

Hopefully, these comments have provided the clarification that you were seeking. Should you have any questions or require additional information, please do not hesitate to telephone Richard Aronoff at the number provided above.

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

c.c. Lynn Livingston

Director
Accounts Receivable Division