Director’s Liability: Taxes Directors Can Be Personally On the Hook For – A Complete Guide by a Montreal CPA Firm Near You

Many Canadians accept directorships in corporations without fully understanding that

directors can be held personally liable for certain tax debts of the corporation. When a

business fails, becomes insolvent, or falls behind on government remittances, CRA has

the legal authority to pursue directors personally—even years after the corporation has

ceased operations. The most common exposures include unremitted payroll source

deductions (CPP, EI, income tax) and unremitted GST/HST or QST. If CRA determines

that a director did not exercise the proper standard of care, diligence, and skill, it may

assess the director personally for these amounts, plus penalties and interest.

Understanding director liability in Canada is essential for anyone acting as a

director—shareholders, family members, spouses, investors, and silent

partners—because ignorance of the rules does not protect against CRA assessments.

Legal and Regulatory Framework

Director liability arises from specific provisions in Canadian tax legislation:

• Income Tax Act (ITA), Section 227.1 – makes directors personally liable for

unremitted payroll source deductions, including income tax, CPP, and EI withheld

from employees.

• Excise Tax Act (ETA), Section 323 – makes directors personally liable for

unremitted GST/HST.

• Tax Administration Act (Québec) – imposes similar obligations for QST and Québec

source deductions.

• Two-Year Rule – CRA can only assess directors within two years after they cease

being directors, but this clock may restart if they are reinstated.

• Due Diligence Defence – directors can avoid liability if they prove they exercised the

level of care, diligence, and skill that a reasonably prudent person would have exercised

in comparable circumstances.

• Corporate Dissolution does not erase liability; CRA can assess directors if

remittances were outstanding at dissolution.

Director liability applies to de jure directors (legally appointed) and, in some cases, de

facto directors—those who act like directors even without formal appointment.

These rules form the statutory framework for director liability in Canada.

Key Court Decisions

Several important court rulings illustrate how courts interpret director liability:

In Buckingham v. Canada, the Federal Court of Appeal ruled that directors must be

active participants in overseeing remittances, not passive observers. The due diligence

defence requires proactive involvement.

In Balthazar v. Canada, the court confirmed that CRA can pursue directors even years

later, provided the claim falls within the two-year period after resignation.

In Soper v. Canada, the court held that ignorance is not a defence; directors must

inform themselves of the corporation’s financial affairs and ensure remittances are

made promptly.

In Worrell v. Canada, a director was found personally liable because he relied entirely

on the corporation’s accountant and did not verify remittance compliance.

These cases demonstrate that CRA and the courts hold directors to a high standard of

accountability.

Why CRA Targets This Issue

CRA aggressively enforces director liability because payroll and GST/HST remittances

are trust funds, meaning the corporation holds these amounts on behalf of employees

and the government. CRA focuses on:

• companies with unpaid payroll remittances

• corporations that owe GST/HST or QST when they shut down

• directors who resign during a financial collapse

• corporations that repeatedly file late remittances

• situations where directors withdraw funds while remittances remain unpaid

• dissolved corporations with outstanding assessments

CRA’s Director Liability Program routinely traces director appointments, minute books,

provincial corporate registry filings, and financial records to build liability cases.

Because these debts often reach into the tens or hundreds of thousands, CRA uses

director liability rules as a key enforcement tool.

Mackisen Strategy

At Mackisen CPA Montreal, we help directors protect themselves from personal tax

exposure by implementing compliance systems and, when necessary, defending

against CRA director liability assessments. Our strategy includes:

• reviewing payroll remittance history, GST/QST filings, and trust accounts

• identifying unpaid or late remittances and establishing immediate corrective action

• implementing internal controls to ensure timely payroll and GST/QST compliance

• advising directors on their legal duties and due diligence obligations

• preparing resignation documentation when appropriate to trigger the two-year

limitation period

• defending directors against assessments by demonstrating due diligence

• negotiating payment arrangements when corporations face cash flow challenges

• conducting risk reviews for new directors before accepting a board position

Our method ensures directors minimize exposure and maintain strong protection

against CRA enforcement.

Real Client Experience

A director of a struggling restaurant chain was assessed over $180,000 in unpaid

payroll taxes after the corporation closed. Although he relied on the bookkeeper, CRA

argued he failed to exercise diligence. We reconstructed timelines, proved his efforts to

correct filings, and negotiated a reduced assessment.

Another client served as a director “in name only” for a family business. CRA pursued

her personally for unremitted GST/QST. We demonstrated she was not a de facto

director and lacked control over operations. CRA withdrew the claim.

A third client resigned from a failing company but did not document the resignation

formally. CRA assessed him because he remained listed on the corporate registry. We

corrected registry records and argued the two-year limitation had expired, successfully

eliminating liability.

These cases show how proactive planning and documentation are essential for

managing director liability in Canada.

Common Questions

Directors often ask whether they can be liable even if they were not involved in

finances. Yes—courts expect directors to actively supervise remittances.

Others ask whether an accountant’s mistake protects them. No—delegation does not

eliminate liability.

Some ask whether resigning protects them immediately. The two-year clock starts only

after official resignation is properly recorded.

Another question: Can multiple directors be pursued? Yes—CRA can assess any or all

directors jointly and severally.

These questions highlight why understanding director liability in Canada is critical before

accepting or maintaining a directorship.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps

directors stay compliant while protecting themselves from personal tax liability. Whether

you need help implementing compliance controls, correcting remittance issues, or

defending against CRA director liability assessments, our expert team ensures

precision, transparency, and protection from audit risk.