Director’s Penalties for Unremitted Taxes

Introduction
Understanding director’s penalties for unremitted taxes is essential for business owners, officers, board members, shareholders and anyone serving as a director of a corporation in Canada. Many directors wrongly believe that corporate debts stay with the corporation—but this is not true for certain tax obligations. Under federal and Québec law, directors can be held personally liable for unremitted payroll deductions, GST/HST, QST and source deductions. This means CRA and Revenu Québec can pursue a director’s personal assets if the corporation fails to remit trust funds. This guide explains director’s penalties for unremitted taxes, how liability is assessed, and how to protect yourself as a director.

Legal and Regulatory Framework
Director’s penalties for unremitted taxes arise under:

• Income Tax Act (source deductions)
• Excise Tax Act (GST/HST remittances)
• Canada Pension Plan Act (CPP)
• Employment Insurance Act (EI)
• Tax Administration Act (Québec)
• QPP and QPIP legislation
• corporate law and fiduciary duty principles

CRA and ARQ treat payroll deductions, GST/HST and QST as trust funds: money that belongs to the government, not the corporation.

Directors are personally responsible when the corporation fails to remit taxes it collected or withheld from employees.

Taxes That Trigger Director Liability

1. Payroll Source Deductions

• Income tax withheld
• CPP or QPP
• EI or QPIP

Directors are responsible for amounts withheld but not remitted.

2. GST/HST

If GST/HST was collected from customers but not remitted, directors can be pursued personally.

3. QST (Québec)

Revenu Québec aggressively enforces director liability for unremitted QST.

4. Penalties and Interest

Director liability extends to the full amount, including:

• penalties
• interest
• late remittance charges

These debts are enforceable against personal assets.

When Directors Become Personally Liable

Directors are liable when:

• the corporation fails to remit taxes
• the corporation goes bankrupt or closes
• CRA or ARQ issues formal assessments
• directors did not exercise “due diligence”

CRA may pursue directors for up to 2 years after they resign.

The “Due Diligence” Defense

The only way to avoid director’s penalties for unremitted taxes is to prove due diligence.

This means the director:

• took active steps to prevent the failure
• monitored payroll and GST filings
• intervened when issues arose
• ensured proper accounting systems were in place
• did not allow the corporation to break laws knowingly
• attempted to correct non-compliance

Courts require proof—not verbal claims.

Examples of successful due diligence defenses:

• investigating payroll errors and demanding correction
• firing a bookkeeper who withheld remittances
• hiring a CPA firm to take over compliance
• stopping operations until remittances were made

Understanding due diligence is essential for avoiding director’s penalties for unremitted taxes.

How CRA and ARQ Enforce Director Liability

CRA and ARQ may:

• freeze personal bank accounts
• garnish personal wages
• issue liens on personal property
• intercept income tax refunds
• pursue legal judgment in Federal Court
• initiate collections for 2 years after resignation
• hold multiple directors jointly liable

Revenu Québec is especially aggressive with QST, payroll and CNESST-related liabilities.

Key Court Decisions

Courts consistently uphold director liability:

• Buckingham v. Canada — clarified due diligence requirements
• Quast v. Canada — directors must prove active involvement, not passive reliance
• Cohen v. The Queen — liabilities include interest and penalties
• Québec courts — confirm stricter enforcement for QST and payroll deductions

These rulings show that being a director is a serious legal responsibility.

Common Reasons Directors Are Assessed

• Remittances delayed due to cash flow shortages
• Bookkeeper or accountant errors
• Shutting down operations without paying GST/QST
• Bankruptcy with unpaid trust funds
• Neglecting payroll compliance
• Failing to file GST/QST returns
• Relying on employees or managers without oversight
• Rapid growth without tax controls

Director’s penalties for unremitted taxes occur when directors fail to exercise required oversight.

Mackisen Strategy

Mackisen CPA offers full protection and representation for directors:

• analyzing remittance history
• correcting late GST/QST and payroll filings
• negotiating payment plans with CRA and ARQ
• filing taxpayer relief applications for penalties
• representing directors in liability assessments
• preparing due-diligence evidence packages
• obtaining proof of remittance for defense
• restructuring corporate procedures
• preparing objection and appeal files when necessary

Our team helps directors prevent and defend against personal liability.

Real Client Experience

Examples of director’s penalties for unremitted taxes handled by Mackisen:

• A director of a trucking company faced $150,000 in payroll deduction liability after the company closed. We proved due diligence and removed most penalties.
• A Québec retailer failed to remit QST for several months. ARQ assessed directors personally. Mackisen negotiated a payment plan and reduced interest.
• A tech startup missed GST filings. CRA pursued the director. We filed an objection and proved the director relied on faulty internal reporting.
• A business owner was assessed after bankruptcy. We showed evidence of good-faith efforts to stay compliant and reduced the liability significantly.

These cases show that proper representation makes a major difference.

Common Questions

• Can directors be personally liable for corporate tax?
Only for unremitted source deductions, GST/HST, QST and certain payroll obligations.

• If I resign today, am I safe?
CRA can pursue you for liabilities occurring up to 2 years after resignation.

• Can multiple directors be liable?
Yes—liability is joint and several.

• Does bankruptcy eliminate director liability?
No—trust fund debts survive bankruptcy.

• Can I defend myself by blaming the bookkeeper?
Not unless you can show due diligence.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps directors and corporations stay fully compliant while protecting their personal assets. Whether you're dealing with unremitted payroll deductions, GST/HST, QST, or aggressive enforcement by CRA or Revenu Québec, our expert team provides complete protection, negotiation, documentation and legal-quality defense. When assisting clients with director’s penalties for unremitted taxes, Mackisen ensures that every step is taken to avoid or reduce personal liability.