Every incorporated Canadian business has at least one director, and in most small businesses that director is the owner. A large proportion of them believe that incorporating placed their personal assets beyond reach of the company's debts. For most debts that is correct. For two specific categories it is emphatically not, and those two categories are precisely the ones a struggling business is most tempted to defer.
Key Takeaway
Under subsection 227.1(1) of the Income Tax Act and subsection 323(1) of the Excise Tax Act, directors are jointly and severally liable with the corporation for unremitted employee source deductions and net GST/HST, including interest and penalties. A due diligence defence exists under ITA 227.1(3) and ETA 323(3), but the Federal Court of Appeal in Buckingham held the standard is strictly objective, departing from the earlier objective-subjective approach in Soper, and does not vary with a director's personal skills or knowledge. Critically, the defence is directed at preventing the failure to remit, not at rescuing the company. In Ahmar the FCA flatly rejected a director's argument that deferring HST to fund a turnaround, which might ultimately have paid all creditors, constituted due diligence. The CRA must assess within two years of a person ceasing to be a director, and at least one Tax Court decision has held that a resignation letter that did not satisfy provincial corporate law formalities left the director in office, and liable.
The Inversion At The Centre Of This Law
Most compliance risks punish carelessness. This one punishes a particular kind of care, which is why it catches decent operators.
Picture the owner of a struggling Canadian company. Revenue has fallen. They cut their own salary, then costs, then hours. They approach lenders and potential investors. They put personal savings into the business. They keep paying staff their net wages because those people have mortgages. And because cash is finite and the CRA does not phone weekly the way a supplier does, remittances slip.
That owner is not being reckless. They are doing what most people would do, and they are doing it partly to protect employees. The law, as interpreted by the Federal Court of Appeal, does not treat any of it as a defence, and one of the leading cases is close to that exact fact pattern.
Understanding why requires understanding what the money is, which is the subject of the next two sections, and it is the single most useful thing a Canadian director can know about their own exposure.
The Two Provisions
The statutory language is unusually direct. Subsection 227.1(1) of the Income Tax Act and the parallel provision in section 323(1) of the Excise Tax Act for GST/HST state that directors of a corporation, at the time the corporation was required to deduct, withhold, or remit these amounts, are jointly and severally, or solidarily, liable, along with the corporation, to pay the outstanding amount, plus any related interest and penalties[1].
The scope of what is captured is broader than payroll income tax alone. Directors may be jointly and severally, or solidarily, liable to the CRA for unremitted deductions withheld at source including federal income taxes under ITA subsection 227.1(1), EI premiums under section 83 of the Employment Insurance Act, and CPP contributions under section 21.1 of the Canada Pension Plan, and may also be personally liable for unremitted GST/HST under ETA section 323[2]. One practitioner source notes the payroll exposure covers both the employer and employee portions of CPP and EI as well as income tax withheld[3].
The magnitude for smaller businesses deserves emphasis. As one legal overview puts it, for many small and medium-sized business directors, unremitted HST is the single largest personal exposure they carry, often without realizing it[4]. A business collecting thirteen percent HST on its sales accumulates a liability at a rate that has nothing to do with its profitability, and if it is not remitted the director owns it personally.
Why It Is Trust Money, Not Your Money
The conceptual foundation, articulated by the Tax Court in a way that explains every result that follows.
In Hirjee v. The King, 2023 TCC 4, the Court set out the justification: contrary to the suppliers of a corporation who may limit their financial exposure by requiring cash-in-advance payments, the Crown is an involuntary creditor. The level of the Crown's exposure can increase if the corporation continues its operations by paying the net salaries of employees without effecting source deduction remittances, or if the corporation collects GST/HST from customers without reporting and remitting those amounts in a timely fashion[5].
Read that carefully because it disposes of the intuitive objection. A supplier who fears non-payment can demand cash up front, tighten terms, or stop shipping. The Crown cannot. Its exposure grows automatically, every pay period and every sale, purely as a function of the business continuing to operate. Ordinary creditor discipline is unavailable to it, so Parliament substituted director liability.
The practical reframing for an owner is this. Source deductions were withheld from your employees' pay; they are the employees' money in the Crown's hands. GST/HST was collected from your customers; it is the customers' tax that you gathered on the Crown's behalf. Neither amount was ever the corporation's working capital. A business that funds payroll or suppliers from those balances is not stretching its own resources. It is spending money it was holding for someone else, and that characterization is why the defences discussed below fail.
The Three Conditions
The CRA cannot simply pursue a director. Three conditions must be met, and each is a potential line of defence.
The CRA's own guidance sets out three basic rules: the Department must demonstrate its inability to recover the amounts directly from the corporation; it must start proceedings to assess directors no later than two years after they have ceased to be directors; and directors must be unable to show that they exercised the degree of care, diligence, and skill required to prevent the failure[6]. Contemporary practitioner commentary describes the same three requirements as corporate default and execution, the two-year limit, and lack of due diligence[7].
On the first, the CRA becomes an involuntary creditor and can pursue directors where a corporation fails to remit trust funds, but must first have tried to collect from the company, for example by seizing assets or through bankruptcy, without success[7].
Two of these three are procedural and objectively verifiable: did the CRA exhaust corporate collection, and did it assess within two years. The third is where the substantive fight happens, and where the case law has moved decisively against directors.
Buckingham And The Objective Standard
The leading authority, and a case whose facts every struggling owner should read.
Mr. Buckingham undertook extensive efforts to keep the business afloat, seeking new capital, cutting costs and pursuing mergers, but in the interim the corporation stopped remitting payroll deductions and GST/HST. The Tax Court had partially absolved him, finding his defence succeeded for payroll deductions but not for GST, but on appeal the Federal Court of Appeal found him liable for all unremitted amounts[8].
Two holdings define the modern law. First, the standard of care in ITA s.227.1(3) and ETA s.323(3) is strictly objective, marking a departure from the earlier objective-subjective approach in Soper v. Canada[8]. Second, it does not vary with the director's personal skills, knowledge, abilities and capacities[4].
The significance of the shift from Soper is easy to underrate. Under an objective-subjective approach, a director's own background mattered: an inexperienced director might be held to a lower standard than a chartered accountant. Buckingham removed that. The question is what a reasonably prudent person would have done in comparable circumstances, full stop. A director who did not understand payroll remittance obligations does not get a lower bar for not understanding them.
Buckingham has become the settled framework. Other appellate cases have consistently cited it, including Balthazard v. Canada, 2011 FCA 331, where the FCA applied Buckingham to a GST remittance case and overturned the Tax Court below[8].
Ahmar: The Turnaround Argument Rejected
If Buckingham sets the standard, Ahmar disposes of the argument most owners would instinctively make.
The director in Ahmar consciously decided to defer HST remittances and instead used incoming revenue, and even his personal funds, to continue operations in the hope of a turnaround. When the CRA assessed him he invoked due diligence, arguing that keeping the company alive was a reasonable strategy that might ultimately have allowed all creditors, including the CRA, to be paid. The FCA flatly rejected this argument, and the case underscores that the due diligence defence will fail when a director knowingly uses or withholds tax money to pay other creditors[8].
Sit with the facts. This director put his own money in. His stated objective was that everyone, the Crown included, would eventually be paid in full. On any ordinary moral accounting he was behaving better than a director who simply walked away. He lost.
The reason is that the defence is aimed at a specific thing. It asks whether the director exercised care to prevent the failure to remit. It does not ask whether the director acted reasonably in trying to save the business. Those are different questions, and a director can answer the second impeccably while failing the first completely, because the very strategy that saves the business, deploying available cash into operations, is the act that causes the remittance failure.
This is the inversion the article opened with, and it is why the practical guidance below is uncomfortable: the moment a business cannot both operate and remit, continuing to operate is a decision to incur personal liability.
What The Defence Actually Requires
Having established what does not work, the shape of what might.
The statutory formulation is that 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[4][2]. The operative word is prevent, and it is forward-looking: the defence concerns steps taken to stop the failure occurring, not steps taken afterward to remedy it.
Practitioner guidance frames the practical requirement as an active rather than passive posture. The only reliable defence is a proactive, documented system of oversight, and directors must ask questions, demand reports, and act decisively when they detect problems[1].
Translating that into observable conduct, the elements a director would want to be able to evidence include: a standing mechanism for confirming remittances were actually made rather than merely calculated, such as a periodic report or direct verification; documented enquiry when cash pressure emerged; specific instructions given to management or bookkeeping to prioritize remittances; and demonstrable action, not merely concern, when a shortfall became foreseeable.
What will not assist, on the authorities above, is evidence of general diligence about the business, effort expended on rescuing it, personal financial contribution, or good intentions toward the Crown. All of those were present in Ahmar.
Hall, And The Absent Director
A more recent decision illustrating that distance from operations is not protection.
In Hall v. The King, 2023 TCC 158, the CRA assessed Michael Hall for director's liability under both the Income Tax Act and the Excise Tax Act in respect of unremitted source deductions and uncollected net GST payable by Eastern Restoration Limited. Mr. Hall did not contest that the amounts were owed; he asserted the due diligence defence, claiming he had exercised the required degree of care, diligence and skill. The Tax Court agreed with the CRA, determined he was liable, and dismissed the appeal. Mr. Hall was a full-time firefighter who was also involved in the businesses[9].
The detail worth extracting is the firefighter point. Mr. Hall had a demanding full-time occupation unrelated to the corporations. Under the pre-Buckingham objective-subjective approach, that context might have mattered. Under the objective standard it does not: the question is what a reasonably prudent person in comparable circumstances would have done, and being busy elsewhere is not an answer.
This has direct application to a very common Canadian arrangement: the passive or nominal director. A spouse, family member, or business partner named as a director for convenience, who takes no part in operations, carries the same statutory exposure as the person actually running the company. Not knowing is not a defence; it may be evidence of the failure.
The Resignation That Was Not A Resignation
A procedural trap with severe consequences, and one that surprises people who thought they had exited.
In a 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 remained personally liable for unremitted GST/HST and source deductions[3].
This matters enormously because of how the two-year clock works. The limitation period runs from ceasing to be a director, and a resignation that is legally ineffective never starts it. A person who believed they resigned in 2022, and whose resignation was defective, may still be a director today and may be assessable for remittance failures occurring throughout that period.
Requirements vary by governing statute, and a corporation may be incorporated federally under the CBCA or under any provincial or territorial business corporations act. The generalizable instruction is that resignation is a formal act with statutory requirements, that a letter handed to the company may not satisfy them, and that a director resigning from a company in financial difficulty should have the resignation and any consequential filings reviewed by corporate counsel rather than assume a signed letter has done the job.
The Two-Year Clock
The most powerful defence available, and the one most dependent on a date nobody records carefully.
The CRA must issue the director assessment within two years of the person ceasing to be a director[7], and the Department must start proceedings to assess directors no later than two years after they have ceased to be directors[6].
Three observations. This is a hard limitation, not a discretionary factor, which makes the date of cessation a matter of significant financial consequence. It runs from cessation, not from the remittance failure, so a director who remains in office indefinitely never starts the clock on historical failures. And, per the previous section, it starts only from effective cessation under the applicable corporate statute.
The practical implication for anyone leaving a company in difficulty is that the resignation date should be documented unambiguously, the statutory requirements satisfied precisely, and evidence of both retained. That evidence may be worth the entire assessment two years later.
The Other Exposures
Tax remittances are the largest exposure for most directors but not the only one, and a director assessing their overall position should know the map.
A comprehensive legal overview identifies the principal sources: Canadian directors can be personally liable for their own torts, for up to six months of unpaid wages, for every dollar of unremitted source deductions and HST, for environmental contamination, and under the oppression remedy[4].
The unpaid wages exposure deserves particular attention alongside the tax liability, because the two crystallize in the same circumstances. A company that cannot remit is frequently a company that will shortly be unable to make payroll, and a director facing a CRA assessment for source deductions may simultaneously face a wage claim. The corporate statutes and provincial employment standards legislation both address this, with details varying by jurisdiction, and the six-month figure is a common formulation rather than a universal one.
The oppression remedy is a different kind of exposure: a discretionary statutory remedy under which a court can make orders against directors personally where corporate conduct has been oppressive or unfairly prejudicial to a complainant's interests. It is worth knowing about because it is not confined to any particular category of misconduct and is available to a broad class of complainants.
Non-Profit And Volunteer Directors
A point that will surprise a substantial number of Canadians serving on boards.
Director liability can extend beyond directors of a corporation to other directors, such as those of a non-profit organization[3].
A volunteer serving on the board of a community association, sports organization, arts group or charity that has employees is a director of a corporation that withholds source deductions. If that organization fails to remit, the statutory liability applies. The volunteer received no compensation, may have no financial expertise, and may attend quarterly meetings, and none of that alters the objective standard established in Buckingham.
Anyone accepting a board seat at an organization with staff should ask, before accepting, how remittances are verified and reported to the board, and should confirm whether directors' and officers' insurance is in place and whether it responds to statutory tax liabilities, which it frequently does not.
A Worked Case: The Six-Month Bridge
A Canadian manufacturer whose largest customer, roughly forty percent of revenue, moved its business elsewhere. The reconstruction below is illustrative rather than a report of a specific engagement.
The owner, sole director, responded exactly as most would. He stopped taking a salary, reduced his own draw to nothing, approached his bank for an expanded facility, retained an advisor to find a buyer or investor, and kept his twenty-two employees on payroll while pursuing replacement volume. To fund it, he deferred HST remittances for two quarters and fell behind on source deductions for four months, intending to catch up when the pipeline converted.
The pipeline converted more slowly than needed. The company filed for bankruptcy eleven months later. The CRA, unable to recover from the estate, assessed the owner personally for the unremitted source deductions and net HST, plus interest and penalties.
His instinct was that the facts favoured him: he had taken no money out, had put money in, had been transparent with his bank, and had been trying to preserve employment. On the authorities those facts are close to Ahmar, where a director who deferred HST and deployed personal funds to fund a turnaround, hoping all creditors would ultimately be paid, was rejected[8]. The strategy of continuing to operate was the mechanism of the remittance failure, and the objective standard does not weigh his sacrifice.
The decision point he did not recognize as a decision point was the first missed remittance. That was the moment the choice was between ceasing to incur trust obligations and accepting personal liability, and it was framed in his mind as a cash flow timing question.
What A Director Should Actually Do
Verify remittances, do not assume them. Establish a standing report confirming that source deductions and GST/HST were actually remitted, with dates and amounts, and keep it. The defence requires evidence of oversight, and oversight you cannot document is oversight you cannot prove.
Treat the first missed remittance as a governance event. Not a cash flow inconvenience. It is the point at which personal liability begins accruing, and it warrants a documented decision with professional input rather than an intention to catch up.
Do not fund operations from trust amounts. On Ahmar this is the conduct that defeats the defence most reliably, and doing it with the intention of eventually paying everyone does not assist.
Segregate if you can. Moving remittance amounts into a separate account as they arise removes the temptation and creates evidence of a system.
Get insolvency advice early, not late. A director facing a choice between operating and remitting should have that conversation with an insolvency professional while options remain, because the alternatives available at month one differ substantially from those at month eleven.
If you resign, resign properly. Comply with the formalities of the governing corporate statute, make any required filings, and retain evidence. A defective resignation leaves you liable and never starts the two-year clock.
If you sit on a non-profit board, ask the question. How are remittances verified, who reports them to the board, and does the D&O policy respond to statutory tax liability.
The Limits Of This Analysis
Several caveats matter. This article summarizes statutory provisions and case law from secondary sources, including law firm and practitioner commentary, rather than from the judgments themselves; the characterizations of Buckingham, Ahmar, Balthazard, Hall and Hirjee reported here should be verified against the decisions before being relied upon, and full citations for Buckingham and Ahmar were not established in the sources reviewed. One CRA source cited is an archived information circular and may not reflect current administrative practice. Corporate law requirements including resignation formalities, and employment standards provisions including wage liability, vary by jurisdiction across federal, provincial and territorial statutes, and this article does not address any specific jurisdiction's requirements. It also does not address the assessment objection and appeal process, the interaction with bankruptcy and insolvency proceedings, or reverse vesting orders. Nothing here is legal or tax advice; a director facing or anticipating an assessment should engage Canadian tax counsel immediately, and a director of a company in financial difficulty should obtain insolvency advice.
Frequently Asked Questions
What exactly are directors personally liable for?
I put my own money into the company. Does that help?
Does my lack of financial experience lower the standard?
How long can the CRA come after me?
I am a director in name only. Am I exposed?
Does this apply to non-profit boards?
References
- Fiszman Tax Law. Understanding Director Liability For Unremitted Taxes, on the statutory language of ITA 227.1(1) and ETA 323(1) and the requirement for a proactive documented system of oversight. fiszman.ca/resources/understanding-director-liability-for-unremitted-taxes
- Canadian Tax Foundation. (2025). A Refresher On The Personal Liability Of Corporate Directors, Canadian Tax Focus, on the range of statutes engaged including EI Act s.83 and CPP s.21.1 and the due diligence defences. ctf.ca/EN/EN/Newsletters/Canadian_Tax_Focus/2025/4/250411.aspx
- Andrews & Co. (2025, February 23). Unremitted GST/HST Or Source Deductions: Directors Can Be Personally Liable, on employer and employee portions, non-profit directors, and the July 23, 2020 Tax Court resignation decision. andrews.ca/announcement/unremitted-gst-hst-or-source-deductions-directors-can-be-personally-liable
- Grigoras Law. (2026, June 12). Personal Liability Of Directors In Canada: When The Corporate Veil Doesn't Protect You, on the principal sources of personal liability, the HST exposure for SMB directors, and the two Buckingham holdings. grigoraslaw.com/personal-liability-directors-canada-corporate-veil
- CAIRP. (2025). Director's Liability ─ Due Diligence Defense & RVOs, Rebuilding Success, quoting Hirjee v. The King, 2023 TCC 4 on the Crown as involuntary creditor. cairp.ca/-zine/Rebuilding_Success_Fall_Winter_2025/Directors_Liability
- Canada Revenue Agency. Archived IC89-2R ─ Directors' Liability: Section 227.1 Of The Income Tax Act And Section 323 Of The Excise Tax Act. Government of Canada. Note: an archived information circular that may not reflect current administrative practice. canada.ca/en/revenue-agency/.../archived-directors-liability-section-227-1
- Taxpayer Law. (2026, January 20). The Due Diligence Defence To CRA Director Liability Assessments (ITA s. 227.1; ETA s. 323), on the three conditions and the two-year limitation. taxpayer.law/due-diligence-defence-to-cra-director-liability-assessments
- Taxpayer Law. (2026, January 20). Directors' Personal Liability For Unremitted Taxes: Buckingham And Beyond, on the Buckingham facts and holdings, the departure from Soper, the Ahmar rejection of the turnaround argument, and Balthazard v. Canada, 2011 FCA 331. taxpayer.law/directors-personal-liability-for-unremitted-taxes-buckingham-and-beyond
- Canadian Accountant. (2024, February 4). Director Held Personally Liable For Unremitted And Uncollected GST/HST ─ Due Diligence Defence Judged Insufficient, on Hall v. The King, 2023 TCC 158. canadian-accountant.com/content/practice/due-diligence-defence-hall
This article discusses Canadian statutory provisions and reported case law and is provided for general informational purposes. It is not legal or tax advice. Case characterizations derive from secondary commentary and should be verified against the judgments. Corporate law and employment standards requirements vary by jurisdiction. A director facing or anticipating an assessment should engage Canadian tax counsel immediately.