ST/QST Rules for Directors: Personal Liability, Reporting Obligations, and Audit Risks in Quebec

Introduction

Directors of corporations in Quebec face unique GST/QST responsibilities that many underestimate. When sales taxes are not collected, not remitted, or filed late, Revenu Québec (RQ) and the CRA can legally transfer the debt directly to the director — even years later. This makes GST/QST one of the highest-risk tax areas for directors, particularly for SMEs, real estate companies, restaurants, transport services, construction firms, and startups.

This guide explains the rules, the legal basis for director liability, key court decisions, audit triggers, how to protect yourself, and why involving an experienced CPA firm is essential for avoiding personal exposure.

Legal and Regulatory Framework

Under both the Excise Tax Act (ETA) and the Quebec Tax Administration Act (TAA), a company must collect, hold in trust, and remit GST/QST on taxable supplies. When the corporation fails to remit amounts due, RQ and CRA may pursue the directors personally under:

• ETA, s. 323 (GST Director Liability)

• TAA, s. 24.0.1 (QST Director Liability)

• Business Corporations Act (Quebec), ss. 119–123 (duty of care, diligence)

Directors may become personally liable for:

1. Unremitted GST/QST

2. Penalties and interest

3. Source deductions (if combined with payroll issues)

4. Amounts assessed during an audit or net-worth review

5. Amounts arising from false invoices or fictitious ITCs

However, the law offers a defence: directors are not liable if they exercised due diligence, meaning they took reasonable steps to prevent the failure.

This defence is possible — but only with strong documentation.

Key Court Decisions

1. Smith v. The King, 2020 TCC — Director personally liable for inaction

The court held a director liable for all unremitted GST because he ignored repeated warnings from the accountant and relied on “verbal assurances” from partners. The judge ruled that “hope is not due diligence.”

2. Morin c. RQ, 2019 QCCQ — Failure to monitor finances triggers liability

The director argued he was not involved in operations. The court rejected this: a passive director remains liable unless he can prove ongoing monitoring and oversight.

3. Pomerleau Construction, 2022 — Documentation saves the director

The court accepted due-diligence defence because the director had:

• monthly financial reports

• written instructions to the controller

• proof of follow-up emails

• CPA-reviewed filings

This case shows how proper documentation prevents personal assessments.

4. RQ v. 9341-XXXX Québec Inc., 2018 — Misclassified sales

Directors were held liable when zero-rated and exempt revenues were incorrectly reported, leading to major net GST/QST adjustments.

These cases show the same principle: directors must actively ensure compliance — not assume someone else is doing it.

Why CRA and Revenu Québec Target Directors

Directors are targeted because:

1. GST/QST are trust funds.
The government assumes the corporation collected the taxes and therefore owes them.

2. Many SMEs fail or shut down before paying.
Director liability is the government’s way of getting the money back.

3. RQ uses aggressive audit tools:

• Bank summons under s. 40 TAA

• Net-worth assessments

• Supplier cross-verification

• Mandatory director questionnaires

4. Red flags that trigger scrutiny:

• Late or missing GST/QST filings

• Large ITCs relative to revenue

• Cash businesses

• Restaurants and retail

• Real estate assignments

• Sudden drop in sales tax remittances

• Amended returns with high refunds

• Directors resigning during audit period

When these appear, auditors quickly consider transferring liability to directors.

Mackisen Strategy: How to Protect Directors From Personal Liability

Our CPA firm applies a structured approach used in complex GST/QST audits and director defence files.

1. Establish documentary due diligence

We help ensure directors have the required evidence:

• monthly tax compliance reports

• review logs

• written approvals for remittances

• accountant correspondence

• board resolutions on tax oversight

Without documentation, there is no defence.

2. Conduct a GST/QST Compliance Scan

A full review of:

• registration status

• taxable vs exempt revenue

• ITC eligibility

• input tax adjustments

• related-party transactions

• common errors in restaurant, retail, consulting, logistics, real estate

This prevents future assessments.

3. Correct filings before an audit

Voluntary corrections often eliminate director liability exposure completely.

4. Defend the director during an audit

We manage:

• all auditor communication

• legal arguments

• jurisprudential references

• negotiation of penalties

• objection filing if needed

5. Build a due-diligence file

Even if the company later fails, the director remains protected because they can prove they took reasonable measures.

Real Client Experience

A Montreal retail company faced a $146,000 GST/QST reassessment for unremitted taxes and inflated ITCs. RQ initiated director liability procedures, targeting the owner personally.
Mackisen:

1. Reconstructed sales and GST/QST ledgers

2. Demonstrated missing ITCs previously overlooked

3. Proved due diligence through email evidence and monthly accountant reports

4. Negotiated penalty cancellation

5. Eliminated the personal liability transfer

Outcome: The director avoided a personal assessment and the corporate balance was reduced by over $70,000.

Common Questions

Are former directors also liable?

Yes — for up to two years after resignation.

Can a director be liable even if not involved in daily operations?

Yes. Passive directors are still responsible under due-diligence rules.

Can bankruptcy eliminate GST/QST director liability?

Corporate bankruptcy does not eliminate director liability. Personal bankruptcy may, but only under strict conditions.

Are new directors liable for old debts?

They may be, unless they can prove they performed a compliance review upon appointment.

What if the bookkeeper made the mistake?

Directors remain responsible unless they can prove active monitoring.

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.

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