Corporations and Taxes, part 2
A corporation has reporting periods for which it has to file its GST/HST return.
Shareholder’s liability for a corporation’s debt
As mentioned in part 1 of this blog series, a corporation is a separate legal entity. And since it is considered as such, a shareholder of a corporation is considered to have limited liability. This means that shareholders of a corporation are not responsible for the corporation’s debts. However, limited liability may not always protect shareholders from creditors. There are some instances where a shareholder may be personally liable for the corporation’s debts. An example would be if the shareholder agrees to “guarantee” that a debt will be repaid to a creditor.
This also applies to taxes owing. If a corporation owes taxes and has obtained a loan, and advance under the loan can be intercepted on account of the corporation’s tax arrears. Notwithstanding that the proceeds of the advance have been paid to the receiver general of Canada, the corporation is deemed to have received the advance and is liable to pay the loan back to the lender as such. When a shareholder personally guaranteed the loan, then he or she would be liable jointly with the corporation for the amounts intercepted.
In addition to this, directors of a corporation may also be liable to pay amounts owed by the corporation if it has failed to deduct, withhold, remit or pay amounts as required by the Income Tax Act, the Employment Insurance Act, Canada Pension Plan, Excise Act 2001 and the Excise Tax Act.
Need help with any of your corporation’s accounting and tax matters? Call KD today!
Source: CRA website, www.cra.gc.ca