The Responsibility of Director Due Diligence

The Responsibility of Director Due Diligence



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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 remit.

• 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 GST/HST.

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.



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Ensure all source deductions are made in a timely manner. Failing to make source deductions may expose directors personally to the liability.

If you have any questions or want to speak further about your corporation or tax planning matters, contact Nicholas Kilpatrick at


Nicholas Kilpatrick is a partner with the accounting firm of  Burgess Kilpatrick and specializes in tax structuring and business development for his small and medium business sized clients.  Please visit our website at or on Facebook at Kilpatrick for more information on our firm.



[1] Haughey, Marshall, Spinoff Butterflies in Trouble?, Bennett Jones LLP.

[2] Kakkar, Manu, A Critique of Canada’s Divisive Reorganization Rules: Should Breaking Up Be So Hard To Do?, Canadian Tax Foundation, Vol. 49 No. 4.

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