Personal Guarantees and CRA Tax Debts Can Outlive Your Closed Business
When a small corporation closes, its debts usually fall into three groups, and each one follows a different path afterward. Some stay with the company and fade when it does. Some follow the owner home because the owner signed for them personally. And some follow the owner home because federal tax law says they do. Knowing which group a debt belongs to matters more than the reason the business closed.
That last point is hard to hear for someone whose business ended because of an injury, a shift in tariffs or costs that outran sales. Those reasons are real, and they can matter in a negotiation. But the law rarely treats them as grounds to cancel what is owed.
Debts that usually stay with the company
Incorporating creates a separate legal person. When an Edmonton contractor's corporation owes a supplier for materials or inventory, that is normally the corporation's debt alone. If the company closes without paying, the supplier generally cannot come after the owner's house or savings.
There is an exception. Many supplier credit applications include a line making the signer personally responsible. If you signed one of those, that account moves into the next group.
Debts you signed for
Lenders in Alberta, including ATB Financial and the larger credit unions, almost always ask small business owners for a personal guarantee on a line of credit or loan. A guarantee is a separate contract between you and the lender. It says that if the company does not pay, you will.
That contract does not end when the business does. It survives if the corporation is dissolved, and it survives if the corporation goes bankrupt. Many owners assume they can stop filing annual returns and let Alberta Corporate Registry strike the company off. Being struck off is not a bankruptcy, and it leaves the guarantee fully in place.
Under Alberta's Limitations Act, a lender generally has two years to start legal action from the time it knew, or should have known, about the claim. That window is shorter than many people expect, but it gives no reason to wait things out. Lenders often prefer a negotiated settlement for part of the balance over a personal bankruptcy that could leave them with very little. A lender is more open to that conversation early, while there is still something to talk about.
Debts the CRA can collect from you
Directors are personally liable for payroll deductions the company withheld but never sent in. That includes income tax, CPP and EI taken off employees' cheques. Under section 227.1 of the Income Tax Act, the CRA can collect all of it from the director personally. The Excise Tax Act does the same for GST the business collected but did not remit.
This liability is "joint and several," which means the CRA can pursue any one director for the full amount. Owning 10% of the shares does not limit you to 10% of the debt.
The CRA also has collection powers private lenders do not. It can garnish bank accounts and wages and register claims against property without first suing in the usual way. Interest on overdue amounts is set quarterly, and it has stayed well above the low levels of 2020 and 2021. An unpaid balance grows steadily while it sits.
There are two protections. The CRA has two years to assess a director, counted from the date that person formally stopped being one. A resignation that never reaches the registry can leave that date unclear, so filing the change properly is worth doing. A director can also defend against an assessment by showing they took the care a reasonably prudent person would have taken to make sure the remittances were made. Hardship such as an injury may support a request to reduce penalties and interest through the CRA's relief program. It rarely reduces the tax itself.
Where this meets your mortgage
This is where I see the consequences land. An active guarantee claim, a judgment or a CRA lien shows up when a lender reviews a mortgage application or renewal. It counts against what you can carry, and a registered lien can stop a purchase or refinance outright. Someone who is fully up to date on their mortgage can still find a renewal more complicated than expected.
The owners who come through this in the best shape tend to sort their debts into the three groups first. Then they deal with the guaranteed and tax amounts directly. For some, that means a settlement or a CRA payment arrangement. For others, it means talking with a Licensed Insolvency Trustee about a consumer proposal. Planning the next home purchase around a known, documented resolution is far easier than planning around a debt still waiting to surface.
When a small corporation closes, its debts usually fall into three groups, and each one follows a different path afterward. Some stay with the company and fade when it does. Some follow the owner home because the owner signed for them personally. And some follow the owner home because federal tax law says they do. Knowing which group a debt belongs to matters more than the reason the business closed.
That last point is hard to hear for someone whose business ended because of an injury, a shift in tariffs or costs that outran sales. Those reasons are real, and they can matter in a negotiation. But the law rarely treats them as grounds to cancel what is owed.
Debts that usually stay with the company
Incorporating creates a separate legal person. When an Edmonton contractor's corporation owes a supplier for materials or inventory, that is normally the corporation's debt alone. If the company closes without paying, the supplier generally cannot come after the owner's house or savings.
There is an exception. Many supplier credit applications include a line making the signer personally responsible. If you signed one of those, that account moves into the next group.
Debts you signed for
Lenders in Alberta, including ATB Financial and the larger credit unions, almost always ask small business owners for a personal guarantee on a line of credit or loan. A guarantee is a separate contract between you and the lender. It says that if the company does not pay, you will.
That contract does not end when the business does. It survives if the corporation is dissolved, and it survives if the corporation goes bankrupt. Many owners assume they can stop filing annual returns and let Alberta Corporate Registry strike the company off. Being struck off is not a bankruptcy, and it leaves the guarantee fully in place.
Under Alberta's Limitations Act, a lender generally has two years to start legal action from the time it knew, or should have known, about the claim. That window is shorter than many people expect, but it gives no reason to wait things out. Lenders often prefer a negotiated settlement for part of the balance over a personal bankruptcy that could leave them with very little. A lender is more open to that conversation early, while there is still something to talk about.
Debts the CRA can collect from you
Directors are personally liable for payroll deductions the company withheld but never sent in. That includes income tax, CPP and EI taken off employees' cheques. Under section 227.1 of the Income Tax Act, the CRA can collect all of it from the director personally. The Excise Tax Act does the same for GST the business collected but did not remit.
This liability is "joint and several," which means the CRA can pursue any one director for the full amount. Owning 10% of the shares does not limit you to 10% of the debt.
The CRA also has collection powers private lenders do not. It can garnish bank accounts and wages and register claims against property without first suing in the usual way. Interest on overdue amounts is set quarterly, and it has stayed well above the low levels of 2020 and 2021. An unpaid balance grows steadily while it sits.
There are two protections. The CRA has two years to assess a director, counted from the date that person formally stopped being one. A resignation that never reaches the registry can leave that date unclear, so filing the change properly is worth doing. A director can also defend against an assessment by showing they took the care a reasonably prudent person would have taken to make sure the remittances were made. Hardship such as an injury may support a request to reduce penalties and interest through the CRA's relief program. It rarely reduces the tax itself.
Where this meets your mortgage
This is where I see the consequences land. An active guarantee claim, a judgment or a CRA lien shows up when a lender reviews a mortgage application or renewal. It counts against what you can carry, and a registered lien can stop a purchase or refinance outright. Someone who is fully up to date on their mortgage can still find a renewal more complicated than expected.
The owners who come through this in the best shape tend to sort their debts into the three groups first. Then they deal with the guaranteed and tax amounts directly. For some, that means a settlement or a CRA payment arrangement. For others, it means talking with a Licensed Insolvency Trustee about a consumer proposal. Planning the next home purchase around a known, documented resolution is far easier than planning around a debt still waiting to surface.
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