Tax Tips & Pits by Trail Times Columnist Ron Clarke.

Little known risks associated with director’s role

“It’s important to know there are risks associated with being a director …”

Are you currently or are you thinking about becoming a director of a corporation, charity or not-for-profit? It’s important to know there are risks associated with being a director on these types of organizations. To be clear, these are organizations registered and listed with the provincial or federal governments.

The often touted risk is that of liability. Fortunately many if not all the typical libelous risks can be mitigated if not eliminated for directors through insurance the organization engages. As a director, ask about the coverage.

At the same time, debt is a risk that can’t typically be eliminated by an insurance policy. Monies owed to lenders will be recoverable through the preauthorized assignment of assets of the organization itself or by guarantees from other organizations or persons. As a director, don’t sign personal guarantees.

What about monies owed to government?

It is within the authority of Canada Revenue Agency (CRA) to pursue the assets of directors of organizations for the payment of delinquent amounts owing for corporate taxes, payroll source deductions, GST, BC PST, and any interest and penalties levied on these amounts.

In order for CRA to be able to pursue directors’ assets, a director must have received a benefit from the organization, for example dividends paid to the director. Further, CRA has the right to choose which director or directors to assess the amount owing.

Historically, CRA chooses the wealthiest director or directors to assess for payment. Typically then, other directors contribute funds to the director being assessed, but in some cases, the paying director ends up having to sue the other directors to receive a contribution from them for the amount assessed.

Feeling safe from risk because you are not a registered director?

Interestingly, a person not officially registered as a director can still be considered a director in a court of law. Depending on the level of involvement in running the organization, it may be determined that a person is by definition, a de facto director and in such a case, is as equally liable as a registered director.

If you are not a director but you are in a key management operations role, be sure CRA payments are remitted and if they can’t be, make the directors aware of that fact. Keep an electronic and paper trail.

If you are a director, do your best to be informed of the financial position of the organization, and in particular the status of government accounts. Speak up and ask questions. Keep notes.

If you are not sure if you are a director, check the organization’s minute book or check the Public Register of Companies.

If you personally receive a Notice of Assessment for the organization, file a Notice of Objection with CRA within 90 days. After that you may lose your right to appeal.

And remember, this isn’t just the corporate world. This includes directors on registered charities and not-for-profits.

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.

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