Subsection 227.1(1) of the Income Tax Act (Canada) (the “Act”) permits the CRA to assess a director of a corporation for the corporation’s failure to remit source deductions. Subsection 227.1(4) of the Act, however, provides that
no action … to recover any amount payable by a director of a corporation under subsection [227.1(1)] shall be commenced more than two years after the director last ceased to be a director of that corporation.
What happens if a director, who is otherwise potentially liable under section 227.1, fails to resign, but the corporation of which he is a director dissolves involuntarily and more than two years passes before the CRA issues an assessment under section 227.1?
In Leger v. The Queen, 2007 TCC 322, the Court held that, if the corporation that was dissolved is revived, the revival takes effect from the date of dissolution, as per subsection 241(5) of the Ontario Business Corporations Act. As a result, the corporation is revived and, in effect, so are its directors:
[26] It therefore follows that the revival of a corporation is retroactive to the date of its dissolution and that, for all intents and purposes, it is deemed to have never been dissolved. That being so, the Crown’s position that the appellant never ceased to be a director of RSL [the corporation that failed to remit source deductions] after his original appointment on August 18, 1987, is correct. That approach is consistent with subsection 136(5) of the NBBCA [the New Brunswick Business Corporations Act] and with the relevant case law. The appellant’s position as director of RSL was in a state of suspension during the time between RSL’s dissolution and its revival. Since the revival of RSL returned that corporation to the same position as it would have been in if it had not been dissolved, the appellant also returned to his position as director. The appellant never resigned as director of RSL even though it ceased operating in December 1998. There is no evidence that it ceased to exist as a corporation after that date.
[27] Accordingly, the two-year limitation period imposed by subsection 227.1(4) of the Income Tax Act and subsection 323(5) of the Excise Tax Act has not expired and the Minister is therefore not barred from assessing the appellant.
It appears that the taxpayer did not appeal this decision to the Federal Court of Appeal.
