Director’s Liability for Corporate Taxes

Introduction
Understanding director’s liability for corporate taxes is essential for anyone who serves as a director of a corporation in Canada. Many individuals believe that incorporation shields them entirely from personal responsibility, but the law states clearly that directors can be personally liable for certain corporate tax debts, especially when the corporation fails to remit payroll deductions, GST/HST, QST or other trust funds. Directors in Québec face parallel obligations under Revenu Québec’s enforcement rules. Whether a director is active, silent, newly appointed or even resigned, director’s liability for corporate taxes can have severe financial consequences if legal duties are neglected. This guide explains the federal and provincial rules, enforcement mechanisms, court interpretations and steps directors must take to protect themselves.

Legal and Regulatory Framework
Director’s liability for corporate taxes comes primarily from the Income Tax Act, the Excise Tax Act and provincial laws such as Québec’s Tax Administration Act. Directors may be held personally responsible for:

• unremitted payroll source deductions (CPP/QPP, EI, income tax)
• unremitted GST/HST
• unremitted QST in Québec
• certain penalties and interest associated with trust funds
• failure to file information returns (in some cases)

The CRA may assess directors personally when a corporation fails to comply with these obligations and collection attempts against the corporation have been exhausted. Québec’s Revenu Québec uses similar enforcement powers. The law establishes a two-year limitation period after a director resigns, meaning directors can be assessed for liabilities arising during their term for up to two years after leaving. Understanding director’s liability for corporate taxes ensures directors take proactive steps to meet statutory obligations.

Key Court Decisions
Court decisions have shaped the interpretation of director’s liability for corporate taxes. In numerous cases, courts confirmed that directors have a duty of care to ensure the corporation remits payroll and sales taxes. Even directors who were not involved in daily operations have been held personally liable when they failed to act after becoming aware of arrears.

Courts have also ruled on due diligence defenses. Directors can avoid liability if they demonstrate they took all reasonable steps to ensure compliance. However, courts consistently reject claims of ignorance or blind trust in other officers. Decisions involving Québec directors confirmed similar obligations and stressed that resignations must be properly documented to start the two-year limitation period. These rulings underscore the seriousness of director’s liability for corporate taxes and the importance of active oversight.

Why CRA Targets This Issue
CRA and Revenu Québec aggressively pursue director’s liability for corporate taxes because unpaid source deductions and sales taxes represent trust funds collected on behalf of the government. Common audit and enforcement triggers include:

• repeated failure to remit payroll deductions
• late or missing GST/HST filings
• companies in financial distress or bankruptcy
• directors of shell companies used for evasion
• false remittance reports
• patterns of non-compliance in previous years

CRA collections officers may issue director liability notices, garnishments or legal proceedings when taxes remain unpaid. Directors who ignore corporate tax arrears face significant personal exposure. Because unpaid trust funds are considered government property, director’s liability for corporate taxes is enforced strictly.

Mackisen Strategy
Mackisen CPA provides a comprehensive risk-management approach to director’s liability for corporate taxes. Our strategy includes:

• reviewing corporate remittance history for payroll, GST/HST and QST
• analyzing director responsibilities and exposure
• implementing compliance systems to avoid arrears
• creating due diligence documentation to defend directors
• negotiating payment plans with CRA or Revenu Québec
• correcting outstanding filings and assisting with voluntary disclosures
• monitoring resignation procedures to ensure the two-year limitation is properly triggered

We also guide corporations through cash flow planning to prevent future trust-fund arrears. Mackisen ensures directors understand their obligations and have structures in place to prove they exercised due diligence.

Real Client Experience
Many individuals come to Mackisen after receiving director liability notices. One client served as a director for a family corporation but had no involvement in day-to-day operations. CRA assessed them personally for unremitted payroll taxes after the company became insolvent. Mackisen reconstructed communication records, demonstrated due diligence efforts and successfully reduced the assessment.

Another director resigned but did not properly document the resignation. Revenu Québec assessed them four years later. We prepared a legal and factual analysis to challenge the assessment based on incorrect resignation dates.

A professional corporation fell behind on GST/QST remittances due to cash flow issues. Mackisen negotiated a payment arrangement and prevented director-level collection action. Another director inherited tax issues after joining a struggling corporation. We established compliance controls and protected the director from future assessments. These cases demonstrate how essential it is to understand director’s liability for corporate taxes.

Common Questions
Directors often ask whether they are personally liable for all corporate debts. No—director’s liability for corporate taxes applies specifically to trust-fund amounts such as payroll and GST/QST, not general trade debts. Another common question is whether sleeping or inactive directors are exempt. They are not; all listed directors share responsibility.

Many ask whether the due diligence defense is strong. It is strong when directors can demonstrate real, documented efforts to ensure compliance. Québec directors ask whether provincial rules differ. Québec applies similar rules with its own enforcement mechanisms. Understanding these questions helps directors minimize exposure.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When managing director’s liability for corporate taxes, Mackisen provides full compliance reviews, enforcement defense, due diligence documentation and long-term planning to protect directors from personal exposure.