Director’s Liability: Avoiding Personal Responsibility for Corporate Tax Debts — CPA Firm Near You, Montreal

Introduction

Many Quebec business owners assume that incorporation shields them from personal liability. But directors can be held personally responsible for several types of corporate tax debts, including unpaid GST/QST, payroll deductions, and certain penalties. When a corporation fails to remit taxes or keep proper records, CRA and Revenu Québec may pursue directors directly. This guide explains director liability, the legal rules that trigger personal responsibility, and how a CPA near you in Montreal can help you avoid costly exposure.

Legal and Regulatory Framework

Under the Income Tax Act, Excise Tax Act, and Quebec Taxation Act, corporate directors are personally liable for: unpaid GST/QST; unremitted payroll deductions (income tax, RRQ, RQAP, EI); penalties and interest associated with these remittances. Directors remain liable for two years after ceasing their role. The liability applies only if directors did not exercise due diligence. Courts look for evidence that directors reviewed remittances, implemented controls, acted promptly when issues arose, and managed finances responsibly. Proper corporate governance, documented oversight, and accurate filings are essential to avoid personal risk.

Key Court Decisions

Courts have consistently held directors personally liable when they ignored signs of financial trouble or allowed taxes to remain unpaid. Judges confirmed that delegating bookkeeping to employees or accountants does not absolve directors of responsibility. Several decisions highlight that directors who funded suppliers or creditors before remitting taxes failed the due diligence test. Courts emphasize that directors must actively monitor payroll and GST/QST obligations, maintain records, and respond quickly when issues arise.

Why CRA and Revenu Québec Target Directors

When corporations face cash flow issues or stop filing, CRA and RQ immediately assess whether taxes remain unpaid. GST/QST and payroll deductions are considered trust funds — money collected on behalf of the government. If the corporation fails to remit them, authorities pursue directors. Red flags include late or missing remittances, repeated payment agreements, payroll inconsistencies, unfiled GST/QST returns, or evidence that corporate funds were used for other expenses while taxes remained outstanding.

Situations That Create Director Liability

Unremitted GST/QST

Not remitting collected taxes is one of the most serious compliance breaches.

Unpaid payroll deductions

Income tax, RRQ, RQAP, and EI withheld must be remitted.

Dissolved or bankrupt corporations

Liability persists for two years even after dissolution.

Delegating financial duties without oversight

Directors must verify filings and payments.

Funding other expenses before taxes

Paying suppliers or rent before remitting trust funds triggers liability.

How Directors Can Protect Themselves

Monitor GST/QST and payroll remittances regularly

Directors should receive monthly compliance reports.

Implement internal controls

Use accounting systems that track remittances and deadlines.

Ensure proper corporate governance

Maintain complete minute books, resolutions, and financial oversight.

React immediately to financial warning signs

Address missed payments, cash flow shortages, and CRA notices promptly.

Resign formally if unable to influence compliance

Liability ends two years after documented resignation.

Hire a CPA

Professional oversight ensures remittances are filed and monitored properly.

Common Pitfalls

Believing liability is limited because of incorporation

Directors have personal exposure for trust funds.

Ignoring early CRA notices

Small issues escalate quickly to director assessments.

Mixing personal and corporate finances

Compromises corporate governance and due diligence.

Missing payroll remittances

This is one of the most aggressively enforced obligations.

Mackisen Strategy

At Mackisen CPA Montreal, we help directors maintain strong compliance oversight by reviewing GST/QST and payroll remittances, implementing internal controls, creating compliance calendars, monitoring financial health, preparing accurate filings, updating minute books, and advising on due diligence practices. If liability has already arisen, we assist in negotiating assessments and restoring compliance.

Real Client Experience

A Montreal director was personally assessed for more than $75,000 in unpaid payroll deductions after the corporation ran into cash flow trouble. We negotiated instalments, corrected payroll filings, and implemented oversight controls for future compliance. Another client faced GST/QST liability after delegating responsibilities to an inexperienced bookkeeper; we rebuilt records, filed missing returns, and prevented further penalties.

Common Questions

Can I really be personally liable for GST/QST?

Yes. These taxes belong to the government, not the corporation.

Does resignation eliminate liability?

Only after two full years and only if resignation is properly documented.

What if my accountant made an error?

Directors are still responsible. Due diligence requires oversight.

Can multiple directors all be liable?

Yes. Liability is joint and several.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps directors avoid personal liability through strong compliance systems, accurate tax filings, and proactive financial oversight. We ensure trust funds are always remitted on time and corporate governance meets legal standards.