Directors can be personally
liable for employee source
deductions (both the employer
and employee’s portion of CPP
and EI, and income tax withheld)
and GST/HST unless they
exercise due diligence to
prevent failure of the corporation
to remit these amounts on a
timely basis. As many
businesses are struggling with cashflow, it may be attractive
to direct these amounts held in trust for the government to
satisfy other creditors, such as suppliers. However, in doing
so, directors may unknowingly expose themselves to
personal liability if the entity is not able to remit the required
source deductions and GST/HST.
Director liability can extend beyond directors of a corporation
to other directors, such as those of a non-profit organization.
The following recent court cases highlight some of the
issues related to this liability exposure:
– In a July 20, 2020 Tax Court of Canada case, the use of
trust funds (employee withholdings and GST/HST
collected on revenues) to pay other creditors resulted
in the directors being personally liable for the
unremitted amounts. Their significant contributions of
personal assets to pay other creditors and efforts to
remedy the failure after it has occurred could not
offset the lack of steps taken to prevent the failure to
– However, in another July 20, 2020 Tax Court of Canada
case, the director was not personally liable as due
diligence to prevent failure to remit was demonstrated.
In this case, there was no evidence GST/HST funds
had been diverted to other expenses, and significant
efforts to make remittances was conducted, including
prioritizing remittances over opportunities to
benefit the business. Racial discrimination and
sexual harassment by its customers impeded the
business’s efforts to collect revenues including
Care should also be provided to properly resign as a
director to limit future exposure. CRA must issue the
assessment against the directors within two years from the
time they last ceased to be directors.
In another July 23, 2020 Tax Court of Canada case, failure
to comply with all resignation requirements under the
relevant provincial corporate law meant that the director’s
resignation was not legally effective, even though he had
submitted a signed letter of resignation to the corporation. As he was still a director, he was still personally liable for
unremitted GST/HST and source deductions.
ACTION ITEM: Ensure all source deductions are made in
a timely manner. Failing to make source deductions may
expose directors personally to the liability.
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