Introduction

Many small and medium-sized business owners and leaders in Quebec mistakenly believe that incorporation fully protects them from their company's debts. However, in tax matters, directors can be held personally liable for several debts: source deductions, GST/QST, penalties, and interest. This liability remains even if the company closes, goes bankrupt, or suffers from poor accounting management. This guide explains the legal obligations of directors, common risks in the event of tax debts, and how a CPA near you in Montreal can help you avoid severe financial consequences.

Legal and Regulatory Framework

According to the Tax Administration Act of Quebec (LAF) and the Income Tax Act (LIR), directors can be personally liable for the following tax debts:

• Unremitted source deductions (tax, QPP, QPIP, EI, CNESST)
• Unremitted GST and QST
• Penalties and interest related to late remittances
• Unpaid payroll taxes to the government
• Taxable benefits not declared or mismanaged

Liability applies if the director has shown negligence or inaction, or has not taken reasonable steps to prevent the default.

The tax authorities can pursue a director up to two years after their official resignation.

Important Judicial Decisions

The courts have repeatedly confirmed that directors are liable even if:

• The accounting was delegated to an employee or an accounting firm
• The company was facing financial difficulties
• Cash was used to pay suppliers before taxes
• The director was not "actively involved" in daily management

Judges have clarified that the director has a duty of care, including:

• Regular verification of remittances
• Implementation of a compliance system
• Quick response as soon as an anomaly is detected

The defense of "due diligence" requires concrete evidence, such as documented follow-ups, notices sent to accountants, or immediate corrective actions.

Why the CRA and Revenu Québec Target Directors

When a company accumulates tax debts, authorities quickly seek to determine if the directors have:

• Delayed or omitted source deduction remittances
• Used taxes to finance operations
• Made preferential payments (suppliers, salaries, loans) before the state
• Filed for bankruptcy to avoid tax debts
• Ignored notices of assessment, reminders, or letters of demand
• Tolerated a lack of bookkeeping

Auditors analyze bank statements, payroll reports, accounting books, financial statements, and internal communications.

The Main Tax Risks for Directors

1. Unremitted Source Deductions

This is the gravest risk. The money withheld from salaries belongs to the government.
If the deductions are not remitted:

• Automatic personal liability
• Significant penalties
• Interest accruing daily

Even a short period of delay can trigger legal action.

2. Unremitted GST/QST

Collecting taxes but not remitting them is considered a serious offense.
Consequences:

• Personal liability
• Potential seizure of personal assets
• Retroactive interest
• Complete audit of the company

Tax payments must take priority in financial management.

3. Lack of Bookkeeping or Negligent Accounting

Without adequate documentation, directors cannot prove their due diligence.
Risks:

• Adjustments
• Personal penalties
• Charges of gross negligence

The tax authorities consider bookkeeping as a minimum obligation.

4. Preferential Payments

Paying a supplier or repaying a loan before remitting taxes can incur personal liability.

5. Company Bankruptcy

Even in the event of bankruptcy, directors remain responsible for unpaid remittances.

Mackisen Strategy

At Mackisen CPA Montreal, we help directors and leaders to:

• Verify the actual status of tax remittances
• Establish a robust compliance system
• Respond quickly to notices from the CRA and Revenu Québec
• Correct delays in GST/QST and payroll
• Prepare a defense of "due diligence"
• Restructure financial arrangements to avoid future defaults
• Negotiate payment agreements when necessary

We protect directors against personal tax risks and secure the financial health of the company.

Real Client Experience

A director of a technology SME received a personal assessment for over $90,000 in unremitted source deductions. We demonstrated that he had taken reasonable steps, corrected the delays, set up an automated payroll system, and negotiated a significant reduction in penalties.
In another case, a restaurateur had used GST/QST to pay suppliers; the CRA held the directors responsible. We restructured the cash flow and established a compliance plan to avoid legal action.

Frequently Asked Questions

Can directors really lose personal assets?

Yes. In case of confirmed personal liability, authorities can seize personal assets.

How can I avoid liability?

By demonstrating due diligence: monitoring, documentation, prompt action.

Am I responsible for the accountant’s mistakes?

Yes. The director remains ultimately responsible.

Does resignation protect me?

Not immediately. Liability remains for up to two years following resignation.

Why Mackisen

With over 35 years of combined experience, Mackisen CPA Montreal helps executives understand and manage their tax responsibilities while implementing effective protection mechanisms. We ensure compliance, risk prevention, and peace of mind.