Director’s Penalties for Unremitted Taxes (GST/PST): Understanding Your Risks

Most business owners believe incorporation protects them personally — but this protection disappears the moment GST/HST or payroll source deductions remain unremitted. CRA treats these amounts as trust funds, and under federal and provincial law, directors can be held personally liable for unpaid GST/HST and PST (provincial sales taxes). For many corporations, unremitted trust taxes are the fastest path to bank freezes, wage garnishments, and personal financial exposure. This guide explains exactly what director’s penalties are, when they apply, how CRA assesses them, and how to defend yourself if CRA targets you personally for corporate tax debt.

What Are Director’s Penalties for Unremitted Taxes?

Director’s penalties apply when a corporation fails to remit:
GST/HST collected from customers
provincial sales tax (PST/RST/QST where applicable)
amounts assessed due to incorrect remittances
related interest and penalties
CRA considers these funds government property. Directors are personally responsible for ensuring they are collected and remitted on time.

Why Directors Are Personally Liable for GST/PST

Unlike corporate income tax, which belongs to the corporation, GST/HST and payroll source deductions are trust funds — collected from customers or employees and held temporarily by the business. When a corporation fails to remit these funds:
CRA views it as misappropriation
the corporation’s limited liability protection does NOT apply
directors become personally responsible
CRA aggressively enforces trust tax compliance.

When Director’s Liability Applies

Directors become personally liable when:
the corporation fails to remit GST/HST
the corporation fails to remit QST or PST (in applicable provinces)
returns are filed late or not filed at all
CRA cannot collect the tax from the corporation
directors knew or “should have known” the remittances were outstanding
CRA exhausts corporate collections first — then targets directors.

How CRA Assesses Directors Personally

CRA must prove:
the director was legally a director during the relevant period
the corporation did not remit the required taxes
CRA attempted to collect from the corporation
the director did not exercise due diligence
Once assessed, CRA can garnish wages, freeze bank accounts, and pursue personal assets.

The Due Diligence Defense

Directors can defend themselves by proving they exercised due diligence, including:
setting up proper accounting systems
reviewing GST/PST filings regularly
hiring qualified accountants
responding to CRA notices
ensuring remittances were made on time
correcting errors quickly once discovered
This is the strongest legal defense against director’s liability.

When the Two-Year Rule Protects You

Directors are only liable for trust taxes within:
two years of resignation
If you resigned more than two years before CRA’s assessment, CRA cannot pursue you personally — but only if the resignation was properly documented with the corporate registry.

Warning Signs CRA Is Preparing to Assess Directors

CRA may:
request minute books
request director lists
request personal contact information
issue repeated GST/PST demands
freeze corporate bank accounts
escalate collections due to non-remittance
delays longer than 90 days often signal director-level enforcement.

Common Situations Leading to Director’s Penalties

cash-flow shortages
using GST/HST to cover business operating expenses
new businesses without bookkeeping systems
rapid growth without remittance tracking
incorrect sales-tax classification for digital/e-commerce businesses
misinterpreting place-of-supply rules
GST/PST returns filed with incorrect numbers
These issues occur frequently in restaurants, construction, trades, retail, and online businesses.

Consequences of a Director’s Liability Assessment

CRA may:
freeze personal bank accounts
garnish personal income
seize tax refunds
seize CPP/OAS (in certain cases)
register liens against personal property
CRA collects aggressively because trust taxes involve government money.

How to Defend Against a Director’s Liability Assessment

1. File a Notice of Objection Within 90 Days

This pauses collections for income-tax–based reassessments and allows you to dispute CRA’s claim.

2. Prove You Were Not a Director

Provide resignation documents, corporate registry updates, or minute book extracts.

3. Argue Due Diligence

Show your efforts to ensure compliance:
emails
payment reminders
meeting notes
policies
accountant invoices

4. Challenge CRA’s Corporate Collection Attempts

CRA must first attempt to collect from the corporation before pursuing directors.

5. Prove Taxes Were Remitted or Paid

Bank records can contradict CRA’s assumptions.

6. Apply for Taxpayer Relief (Interest/penalties)

Partial interest cancellation is possible if hardship or extraordinary circumstances exist.

Special Notes for Quebec Directors (Revenu Québec)

Revenu Québec is often more aggressive than CRA. Directors may be liable for:
QST
source deductions
CNESST
Provincial trust debts
Revenu Québec frequently moves directly to RTPs and garnishments.

How to Avoid Director’s Penalties in the First Place

maintain strict GST/HST and PST remittance schedules
monitor cash flow
avoid using trust taxes as operational funding
review remittances monthly
respond to CRA and RQ mail immediately
implement internal controls
separate corporate and personal finances
Directors should actively monitor tax compliance — silence is considered negligence.

Mackisen Strategy

At Mackisen CPA Montreal, we defend directors from GST/PST liability by proving due diligence, reconstructing records, disputing incorrect CRA assumptions, filing strong Notices of Objection, and negotiating payment arrangements. We ensure CRA follows legal procedures and does not overextend director-level enforcement.

Real Client Experience

A Montreal retailer avoided $42,000 in director’s liability after proving the accountant failed to submit GST remittances without the director’s knowledge. A construction company director had personal garnishments removed after showing CRA failed to exhaust corporate collections. A restaurant director eliminated penalties by demonstrating documented due diligence.

Common Questions

Can CRA take my personal money for GST debt? Yes. Can I avoid liability if I resign? Yes—but only if two years have passed. Can penalties be removed? Sometimes—via Taxpayer Relief. Will CRA pursue directors aggressively? Absolutely for trust taxes.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal protects directors from unfair GST/PST liability through strategic dispute resolution, evidence reconstruction, legal argumentation, and proactive compliance planning.