Income Tax Act Subsection 227

Excise Tax Act Subsection 323

Typically in Canada, your debts are your own. However, where corporations are involved that is not always the case. The Canada Revenue Agency (“CRA”) can assess director’s of a corporation for certain kinds of corporate debts. The most common are unpaid source deductions, and GST/HST.

There are defenses available to fight the imposition of director’s liability. A director may attempt a due diligence defense which is found in subsection 227.3 of the Income Tax Act. A good Tax Court of Canada example where this defense was attempted can be found Maddin v. The Queen (2014 TCC 277).

The due diligence defense essentially argues that appropriate efforts were made to ensure the corporation complies with the law (ie remits properly), and the director’s should not be blamed for what occurred. It is an incredibly difficult argument to make and one should seek proper legal advice before attempting to do so.

Another defense available is that there is a time limit for the CRA to assess a director for director’s liability. That time limit is two years from the time the director resigned, or two years from the date of dissolution.


Who is a Director?

There are two types of directors. De jure directors, and de facto directors. A de jure director is someone who is formally recognized as a director through government filings and with the corporate registry. De jure directors are individuals who are acting like directors, but who have not been officially recognized.

The CRA may assess either a de jure director, or a de facto director for director’s liability.

It should also be known that the CRA will assess every director they possibly can so that the odds of recovering the unpaid amounts increase.


Joint and Several Liability

Director’s liability is considered to be joint and several. What this means is the debt is shared by all those who have been assessed. If two directors have been assessed, and the corporation is still active, a payment by any party reduces the amount owed by the other two parties’.


Being Assessed

If a director is assessed for director’s liability they may object intending to draft and file a defense to the assessment. Not only can the director attempt to argue the time limitation or due diligence defenses found above, but they can also argue against the original assessment that created the original liability for the corporation.

If you have been assessed with director’s liability, please seek legal assistance to properly inform yourself of the defenses available.


CRA Resources

IC89-2R3 Directors’ Liability – ic89-2r3-e.html


Case law

Attia v The Queen, 2014 TCC 46 – Medical Impairment and Directors’ Liability for HST/GST

Maddin v The Queen, 2014 TCC 277 – Degree of Care, Diligence and Skill – Corporate Directors

McDonald v The Queen, 2014 TCC 315 – Unpaid GST – Director Liability of Persons Carrying Out Duties of Director

MacDonald v The Queen, 2014 TCC 308De Jure versus De Facto Directors of Corporations

Detailed Case law Analysis may be found here: