Director’s Liability

Written by Richard Ouellette, CPA, CA on Sep. 3, 2019

What is director’s liability? While the tax debts of a corporation belong to the corporation and the tax debts of an individual belong to that individual, there are some exceptions to the rules. Directors may have liability for certain tax accounts of the corporations they serve.

When a corporation faces insolvency, remittances to the government may fall behind or be missed. Directors who are in emergency mode may be tempted to use company funds to pay off insistent suppliers to keep the business going. However, by not paying GST or source deductions the directors have exposed themselves to significant liability.

The CRA is required to pursue the corporation first, and generally may only issue an assessment to a director when collection from the corporation is unsuccessful or a claim has been proven under a dissolution or bankruptcy proceeding. At that point, an assessment may be issued to the director for the unremitted amounts together with any related penalties or interest.

De facto Directors

A person who is not technically a director of a company can be held personally liable as a director in certain circumstances. A person who is, in fact, exercising the responsibilities of a director can be held to be a de facto director. A person who plays a key role in a company or has ultimate decision making authority for the company will be at risk of being found to be a de facto director.  Whether a person is a de facto director is fact specific and requires analysis on a case by case basis.

Defenses against a Directors’ Liability Assessment

If you are personally assessed as a director of a company for the tax obligations of that company there are some potential defenses that you should be aware of.


A director can only be held liable for tax obligations of the company if the person was a director “at the time the company was required to deduct, withhold, remit or pay the amount”. If your directorship had not yet commenced or you had resigned prior to the time that the company failed to meet its tax obligation, you will not be personally liable for that failure. Strict compliance with the requirements and procedures for resigning under the relevant corporate legislation is crucial. Documentation showing when your directorship commenced and ceased is extremely important.

Due Diligence

Where a director “exercises the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances” that director should not be personally liable for the tax obligations of the company. A due diligence defense is supported by examples of you acting prudently and being reasonably well informed as a director. You must show that you took active steps to ensure that the company would make its GST and source deduction remittances.

Two Year Limitation Period

The CRA must commence proceedings to collect against a director within two years of when the director last ceased to be a director. This makes the documentation of your resignation as a director extremely important. The two year limitation period starts on the date of your resignation. A formal resignation may not be helpful if you continued to act as a de facto director after the date of formal resignation

Not a Director

Sometimes a person is listed as a director of a company despite the fact that he or she did not consent to be a director of the company. If you can show that you did not consent to be a director of the company and did not participate as a director of the company you may be able to dispute a directors’ liability assessment on the basis that you were not a director of the company.

Do not take your responsibility as a director lightly. If the corporation is in financial difficulty, you should take additional precautions to ensure that withholding taxes are remitted on a timely basis.

If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.

Thanks to Richard Ouellette of KWB Chartered Accountants for providing this content.

Richard Ouellette, CPA, CA

Richard Ouellette, CPA, CA


Richard joined KWB in November 2007. He graduated from the University of Lethbridge in 2003 with a Bachelor of Management. Before joining KWB, Richard articled and worked at a national firm. He successfully wrote the 2005 UFE, and obtained his CA designation in 2006.

On his personal time, Richard enjoys going home to his wife and playing with his two young children. He also enjoys traveling, golfing, biking, working out, and spending time with friends and family.

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