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Director liability
Owners often expect incorporating to keep the company's obligations at a distance from them personally. Two specific amounts do not work that way, and they are exactly the ones a business under cash flow pressure falls behind on first.
The short version
A corporation collects two kinds of money that never belonged to it.
Both are treated in law as amounts belonging to the government, with the corporation acting as an intermediary. That characterization is what the director liability provisions rest on.
Two provisions do the work: section 227.1 of the Income Tax Act for source deductions, and section 323 of the Excise Tax Act for GST/HST. Together they let the CRA assess directors personally for the unremitted amounts, plus the penalties and interest, which by the time anyone is looking can be a substantial part of the total.
What is not covered. The director liability provisions do not extend to the corporation's own income tax. A company that owes corporate tax it cannot pay does not, on that basis alone, expose its directors personally. The exposure is specifically about the amounts held on behalf of others.
A note for incorporated professionals. A professional corporation changes how a practice is taxed and how income can be timed. It does not change your responsibility for your own professional work, which stays with you regardless of what the letterhead says.
That is a question for your regulator and your insurer rather than for me, and it is worth being clear on separately, because it is a common assumption in the other direction. See incorporated professionals.
Almost never through anything that felt like a decision at the time.
A business hits a difficult quarter. Payroll has to run, suppliers have to be paid, and the remittance is due the same week. The remittance is the one obligation with no one on the other end of the phone asking about it, so it slips. The following month is tighter still, and now there are two.
In effect the company has begun financing itself with money that is not its own. It rarely feels like that from the inside, because the money was in the bank account and the bank account is where money to pay things comes from. But the HST collected on your invoices was never yours, and neither was the tax withheld from your staff.
The CRA watches late remittances closely and moves faster on them than on most other balances, particularly where a business has been consistently compliant and then stops. A change in pattern is itself a signal.
The reason this turns into personal liability rather than a corporate debt is timing. By the time it has been running long enough to be investigated, the company may not have the assets to settle it. The provisions exist precisely for that situation.
File on time even when you cannot pay. Filing and paying are separate obligations with separate consequences, and people who cannot do the second often stop doing the first, which makes everything worse.
Filing keeps the amount known, keeps late-filing penalties off the top of a balance that is already growing, and keeps you in a position to negotiate. A payment arrangement is a conversation the CRA has regularly. It is a much harder conversation to start when the returns are not in.
Wider than the minute book, which is the part that surprises people.
| Active or inside directors | Involved in running the business |
|---|---|
| Inactive or outside directors | Appointed but not involved day to day. A spouse or family member named at incorporation and never thought about since |
| De facto directors | Never appointed, but acting like one. Someone exercising duties consistent with those of a director can be treated as one |
The CRA regards all three as equally responsible for unpaid amounts. Being the person who was named on paper years ago and has had nothing to do with it since is not, by itself, an answer. Nor is never having been named while effectively running the place.
An assessment cannot be made against someone who ceased to be a director more than two years before. That is a real protection and it is regularly wasted, because ceasing has to actually have happened.
It requires a formal resignation, or an event that disqualifies you from being a director, or the dissolution of the corporation. Stepping back, going quiet, or no longer being involved does not start the clock. Neither does an intention nobody documented.
If you have left a company you were once a director of, it is worth confirming that the resignation was properly recorded and dated. That piece of paper is what the two years run from.
The CRA commonly assesses every director for the full unpaid balance rather than splitting it. Whoever pays can then pursue the corporation and the other directors for their share, which is a civil matter and someone else's problem to fund.
Practically, this means the director with money is the one who pays. If you are on a board with people whose finances you do not know, that is worth understanding before there is a balance.
Liability is not automatic. A director is not liable where they exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.
The emphasis on prevention is the whole of it. The defence is about steps taken to stop the remittances being missed, not about efforts to fix things afterwards. Arranging to pay the arrears is admirable and is not the defence.
What tends to help is evidence of a system: remittances made a priority in the payment process, someone specifically responsible, the board asking about compliance and it being minuted, and action taken promptly when a problem appeared. What does not help is having trusted that it was being handled.
Courts have been notably less receptive to the defence from inside directors, who are taken to know what is going on, than from genuinely outside ones.
Directors' and officers' liability insurance is worth having and is not a complete answer here.
Policies vary considerably, and coverage for unpaid statutory amounts such as taxes and source deductions is commonly limited or excluded outright. A policy written to cover claims of mismanagement will not necessarily respond to an assessment for unremitted HST.
The useful step is to read the exclusions with the specific question in mind, or to ask your broker directly whether the policy responds to a director liability assessment under the tax statutes. It is a short question with a definite answer, and it is better asked now.
The order matters more than the speed.
None of this is comfortable and all of it is better than the alternative. See payroll for keeping the remittance side reliable in the first place.
Not for unremitted payroll source deductions or GST/HST. Those amounts are treated as belonging to the government, with the corporation holding them in transit, and directors can be assessed personally for them along with penalties and interest. Corporate income tax is not included in that exposure.
After two years, provided you actually ceased to be a director. That requires a formal resignation, an event disqualifying you, or dissolution of the corporation. Simply stepping back or ceasing involvement does not start the clock, and the date on the documented resignation is what the two years run from. Worth confirming it was properly recorded.
That does not prevent an assessment. The CRA treats inactive or outside directors as responsible alongside active ones. A due diligence defence may be available and is assessed on what was done to prevent the failure, but being uninvolved is not itself the defence. It is worth reviewing who is on the record and why.
You can be treated as one. A de facto director is someone who was never formally appointed but exercises duties consistent with those of a director. The CRA regards de facto directors as equally responsible. Running the company without the title does not avoid the exposure.
Yes, always. Filing and paying are separate obligations. Filing on time keeps late-filing penalties off a balance that is already growing, keeps the amount known, and leaves you able to discuss a payment arrangement. Not filing turns one problem into two and makes the second conversation considerably harder.
This page describes the provisions in general terms as at August 2026 and is not advice for your situation. Whether a director liability assessment is valid, and whether a due diligence defence succeeds, turn heavily on specific facts. If you have received an assessment, note the objection deadline and get advice promptly, since these deadlines are strict.
It is a far better conversation early than after an assessment. Twenty minutes, no charge.
Call (905) 207-9639