Director’s Liability for Unpaid GST/HST, Payroll, and Corporate Taxes + CRA Director Liability Canada: How to Avoid Personal Penalties and Protect Your Assets — A Montreal CPA Firm Near You Explains

Understanding director’s liability is essential for anyone who serves as a director of a corporation — including small-business owners, contractors, consultants, physicians, realtors, family businesses, or holding companies. Many directors mistakenly believe the corporation shields them from tax debt. It does NOT. CRA can personally assess directors for unpaid GST/HST, QST, payroll source deductions, EI, CPP/QPP, and certain corporate penalties. This means your personal bank accounts, wages, assets, and refunds may be at risk even if the corporation is failing or already dissolved. This guide explains how CRA director liability works, how to protect yourself, how to respond to assessments, and how to avoid being personally held responsible.

What Is Director’s Liability Under CRA Rules?
Director’s liability allows CRA to transfer a corporation’s unpaid tax debts to its directors personally. This applies when the corporation fails to remit:
GST/HST
QST
CPP/QPP
EI
income tax withholdings
source deductions
Directors can also be liable for penalties and interest. CRA uses director liability to ensure tax withholdings — considered “trust funds” — are always paid.

Taxes That Directors Can Be Personally Responsible For
CRA can pursue directors for:
unremitted GST/HST and QST
unremitted payroll deductions
director penalties
failure to remit non-resident withholding tax
trust-tax obligations
Corporate income tax (regular T2 tax) usually does NOT create director liability, but penalties related to T2 filings may.

When CRA Can Assess a Director Personally
CRA can assess director liability when:
the corporation has failed to remit trust taxes
the corporation is insolvent or closed
CRA attempted collection from the corporation
the director was in office during the period of non-compliance
Director assessments can occur even years after the corporation stops operating.

Two-Year Rule: Important Protection
CRA must assess director liability within:
two years after the individual ceases to be a director
If you resigned more than two years ago — officially, in writing, and properly recorded — CRA CANNOT assess you.
Many directors do not know this rule and get assessed unnecessarily.

How CRA Proves You Were a Director
CRA will use evidence such as:
corporate registries
resolutions
government filings
public databases
emails indicating decision-making power
If your resignation was never legally recorded, CRA will still consider you a director.

Common Situations That Trigger Director’s Liability
corporation fails financially
owner forgets to remit GST/QST
payroll deductions not remitted during cash-flow shortages
audit reassessments the corporation cannot pay
GST/HST from sales used to cover expenses
corporation closes without filing taxes
CRA collects aggressively when trust amounts are unpaid.

Step 1: Respond Immediately to the Director Liability Warning Letter (DLAW)
Before assessing you personally, CRA sends a DLAW. You must respond or risk full personal assessment. This is your chance to:
show you were not a director
show you resigned over two years earlier
present proof of due diligence
work out a payment solution for the corporation
Ignoring this letter results in personal liability.

Step 2: Demonstrate “Due Diligence”
The ONLY legal defense to director liability is due diligence — proving you took reasonable steps to prevent non-remittance. Examples include:
insisting taxes be remitted
reviewing accounting records regularly
seeking financial advice
attempting to secure financing
taking steps to correct non-compliance
CRA and courts interpret due diligence strictly. Evidence must be clear.

Step 3: Challenge the Assessment If CRA Is Wrong
A CPA can challenge director liability by showing:
you were not a director
you resigned earlier than CRA claims
CRA missed the two-year deadline
the corporation made remittances correctly
CRA misapplied the law
director liability must be proven — it is not automatic.

Step 4: File a Notice of Objection to Stop Collection
Once CRA issues a Director’s Liability Assessment (DLA), you have 90 days to file an objection. This stops CRA from collecting while Appeals reviews the case. Without an objection, CRA can garnish your wages and freeze your personal accounts.

Step 5: Negotiate With CRA to Settle Corporate Debts Before Liability Transfers
A corporation may avoid director liability if:
the corporation pays part of the debt
a payment plan is arranged
a voluntary disclosure is filed
Taxpayer relief reduces penalties
Fixing the corporation’s compliance may prevent the director assessment entirely.

Step 6: When to Take the Case to Tax Court
Tax Court is necessary when:
CRA relies on weak or incorrect assumptions
CRA misinterprets resignation dates
CRA claims you were “shadow director”
due diligence evidence is strong but ignored
Many directors win in Tax Court by proving proper governance and reasonable effort.

Penalties Directors Are Often Assessed For
gross negligence on payroll filings
late remittances
failure to file GST/QST returns
source deduction penalties
interest compounded over years
This often makes the corporate debt much larger when reassessed to directors.

How Directors Can Protect Themselves Before Problems Begin
Keep corporate records up to date
Resign formally if leaving the corporation
Ensure GST/QST and payroll remittances are always current
Avoid signing as director for a business you don’t control
Maintain proper bookkeeping and oversight
Directors must actively ensure compliance.

When Bankruptcy or Insolvency Comes Into Play
Personal bankruptcy may discharge director liability for GST/HST and payroll under certain conditions. Corporate bankruptcy does not automatically protect directors — director assessments survive unless properly challenged.

Mackisen Strategy
Mackisen CPA Montreal defends directors against personal liability assessments. We analyze CRA’s claims, verify director status, apply the two-year rule, prepare due-diligence defenses, negotiate with CRA Collections, file objections, and represent clients in Tax Court when necessary. We also help businesses fix compliance issues to prevent future liability.

Real Client Experience
A Montréal director avoided a $95,000 assessment after we proved he resigned over two years earlier. A contractor facing payroll liability won at Appeals when we demonstrated due diligence. A retailer settled GST debt at a reduced amount before liability transferred. A business owner prevented a director assessment entirely by negotiating corporate remittances before enforcement.

Common Questions
Can CRA take my personal money for corporate GST/HST? Yes if director liability applies.
Can I avoid liability if I resign? Yes after two years.
Can CRA garnish my wages personally? Yes under a DLA.
Is due diligence a real defense? Yes — the only one.
Should I respond to a DLAW letter? Always.
Do directors get audited frequently? Yes — especially when corporations owe payroll or GST.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal protects directors from unfair personal liability. We defend your finances, your reputation, and your rights using evidence-driven strategies and expert representation.