Author: Kris Gurprasad

Tax disputes in Canada are governed by strict deadlines under the Income Tax Act (Canada) (ITA) and the Excise Tax Act (Canada) (ETA). Missing these time limits for objections, appeals, or relief requests can forfeit a taxpayer’s rights. Below is a comprehensive list of certain key deadlines (and applicable extensions) for tax objections, appeals, taxpayer relief, and collections.

Objection Deadlines and Extensions

When a taxpayer disagrees with an assessment, a Notice of Objection must be filed within a prescribed time. If an objection deadline is missed, both Acts allow an application for an extension of time to object, first to the CRA and then (if needed) to the Tax Court of Canada (TCC). The table below summarizes the objection filing deadlines and extension timelines:

Deadline / Event	Time Limit (Objection Stage)
Notice of Objection – ITA (Individual taxpayers)	Later of 90 days from the date of the Notice of Assessment or 1 year after the taxpayer’s filing due date for that return. This, potentially extended option, applies to individuals (other than trusts) and graduated rate estates.
Notice of Objection – ITA (Corporations & others)	90 days from the date of the Notice of Assessment or Notice of Reassessment.
Notice of Objection – ETA (GST/HST)	90 days from the date of the Notice of Assessment (for GST/HST and other amounts under the ETA).
Apply for Extension of Time to Object – ITA	Must apply to the CRA within one year after the 90-day objection deadline.
Apply for Extension of Time to Object – ETA	Must apply to the CRA within one year after the 90-day objection deadline.
If Extension Request is Denied by CRA (ITA)	Taxpayer can apply to the TCC for an extension within 90 days of the CRA’s refusal notice. Also, if the CRA has not responded to an extension application within 90 days of filing it, the taxpayer may apply to the TCC as though it were refused. The TCC can then consider and either grant or dismiss the extension request.
If Extension Request is Denied by CRA (ETA)	Taxpayer can apply to the Tax Court within 30 days of the CRA’s refusal of the extension (or if 90 days have elapsed with no decision). The ETA thus provides a shorter 30-day window after a refused extension request for objections to seek the Court’s intervention.

Appeal Deadlines and Extensions

If the outcome of an objection is unfavorable (or unduly delayed), the next step is to appeal to the Tax Court of Canada. The ITA and ETA set deadlines for filing a Notice of Appeal after the CRA’s decision on an objection. The key documents to look out for that conclude a Notice of Objection are a Notice of Confirmation if no change is made to the assessment in dispute, or a Notice of Reassessment if the assessment in dispute has been varied. There are also provisions to appeal if the CRA delays its objection decision beyond a certain time. For missed appeal deadlines, a taxpayer can seek an extension of time to appeal by applying to the Tax Court. Key appeal-related deadlines are outlined below:

Deadline / Event	Time Limit (Tax Court Stage)
Notice of Appeal to Tax Court – ITA	90 days from the date the CRA mails its Notice of Confirmation (or notice of Reassessment) on the objection. If the CRA fails to issue a decision on the objection within 90 days of the objection being filed, the taxpayer is entitled to appeal to the Tax Court as though the objection were denied.
Notice of Appeal to Tax Court – ETA	90 days from the date the CRA (Minister) sends the Notice of Confirmation or Notice of Reassessment after an objection. If 180 days have passed since the objection was filed under the ETA and no decision has been communicated, the taxpayer is entitled to appeal to the Tax Court as though the objection were denied.
Apply for Extension of Time to Appeal to Tax Court – ITA	Must apply to the Tax Court within one year after the 90-day appeal period has expired.
Apply for Extension of Time to Appeal to Tax Court – ETA	Must apply to the Tax Court within one year after the 90-day appeal period has expired.

Taxpayer Relief Deadlines and Recourse

The Taxpayer Relief provisions allow the CRA to cancel or waive penalties and interest in extraordinary circumstances (or to accept certain late filings/elections). Such relief requests are subject to a strict 10-year limitation. If the CRA denies a relief request, the taxpayer cannot appeal to the Tax Court; instead, the decision may be challenged by an application for judicial review in the Federal Court. Key deadlines in this context:

Deadline / Event	Time Limit (Relief and Review)
Taxpayer Relief Request (Interest/Penalties)	Must be submitted within 10 years from the end of the calendar year or fiscal period to which the request relates.
Judicial Review (Relief Denial) – Federal Court	If the CRA denies a relief request (or grants only partial relief), the taxpayer first has the right to request a second review of the decision. Once a decision is rendered on the second review, the taxpayer can apply to the Federal Court for a judicial review within 30 days of receiving the CRA’s decision.

Collections Limitation Period (Ultimate Deadline for Tax Debt Collection)

Both the ITA and ETA impose an “ultimate” limitation period on the CRA’s ability to collect a tax debt. In general, the Canada Revenue Agency has 10 years to collect a tax debt, after which no further collection action can be taken unless the clock is reset by certain events (such as a payment or a written acknowledgement of the debt, or the CRA taking specific collection actions). Important points on limitation period for collection action:

Deadline / Event	Time Limit (Collections)
Collections Limitation Period – ITA	Generally, 10 years from the “date the Minister can first legally begin collection” of the tax debt. Under subsection 222(3) of the ITA, the CRA cannot commence or continue collection action after this 10-year period expires. However, ITA subsection 222(5) provides that certain actions restart the 10-year clock – for example, if the CRA takes any action to collect (like a written demand or garnishment) or the taxpayer makes a payment or acknowledges the debt in writing, the limitation period is reset and starts running anew from that date.
Collections Limitation Period – ETA	Generally, 10 years from the start of the limitation period for the GST/HST or excise tax debt. Similarly, under section 313 of the ETA, the Minister may not commence or continue collection action of a tax debt after 10 years from when the period begins. The 10-year period begins once the amount is assessed and collectible (post-appeal or 90-day no-objection window) and is extended/reset by any taxpayer acknowledgement or CRA action to collect the debt. If a full 10 years passes with no collection activity and no acknowledgements, the debt becomes statute-barred from collection.

The Canada Revenue Agency (CRA) sorts formal tax disputes (objections) into defined complexity levels – Low, Medium, High – each with its own expected processing timeframe. Understanding these categories and timelines is crucial for tax practitioners managing client disputes. Below is an overview of each complexity level and typical resolution times for income tax objections.

Low Complexity Cases

Low complexity income tax objections involve straightforward issues and are generally resolved relatively quickly. CRA data shows that low-complexity income tax objections were completed in about 126 days on average (roughly 4 months) in September 2025. Examples of low-complexity matters include simple disputes over individual tax credits, personal deductions, Canada Child Benefit amounts, or disability tax credit claims. Practically, this means clients can expect a resolution within a few months.

Medium Complexity Cases

Medium complexity objections encompass moderately complicated tax issues and therefore take longer to conclude. On average, in September 2025, a medium-complexity income tax objection took around 10–12 months to resolve (recently about 323 days). Such cases often involve business-related matters or more involved personal tax issues – for example, disputes over business expenses, partnership income allocations, or small/medium corporation (T2) tax assessments. 

High Complexity Cases

High complexity disputes are the most technically challenging and can span multiple years before resolution. They usually involve large corporate taxpayers or intricate tax arrangements – for instance, large corporate audits, complex business transactions, international transfer pricing issues, general anti-avoidance rule (GAAR) assessments, or aggressive tax avoidance schemes. These cases represent only about 2–3% of all objections, but they demand the longest timelines. CRA data indicates that in September 2025, it took over 690 days (approximately 2+ years) to resolve a high-complexity income tax objection. During this extended period, CRA appeals officers maintain regular contact with the taxpayer to manage the file. 

Conclusion

In summary, the CRA’s complexity level framework for objections provides a valuable roadmap for expected resolution times: from a few months for low complexity issues up to multiple years for high/complex cases.

Scenario: A small corporation has been reassessed by the Canada Revenue Agency (CRA) for income tax, but the owner missed the 90-day deadline (plus the one-year extension) to file a notice of objection. Normally, missing this deadline means the tax debt is final and unchallengeable by the corporation. Faced with an unpayable tax bill, the owner puts the corporation into bankruptcy. What happens next, and is there any way to dispute the tax debt now?

Section 160 – Liability for Transfers to Non-Arm’s-Length Parties

Generally, when a tax debtor transfers property to a related or non-arm’s-length recipient for less than fair market value, section 160 of the Income Tax Act (Canada) (ITA) allows CRA to pursue the recipient for the transferor’s tax debt. In effect, the recipient becomes liable for the tax debt up to the lesser of the value of the transferred asset (minus the consideration received by the transferor) and the amount of the tax debt. For example, if a corporation owing taxes paid a dividend or transferred an asset to its shareholder (a non-arm’s-length person) without equivalent consideration, CRA can generally assess the shareholder personally under section 160 for the corporation’s income tax arrears (to the extent of the undervalued transfer). The shareholder and the corporation are then jointly and severally liable for that amount.

In our scenario, once the corporation is bankrupt (and cannot pay its tax debt), CRA often turns to such derivative assessments. The business owner might receive a section 160 assessment holding them personally liable for the corporate tax debt, especially if they received any funds or assets from the company for little or no consideration.

Defending a Section 160 Assessment – Contesting the Tax Debt

Importantly, being assessed under section 160 gives the individual a fresh chance to dispute the underlying tax debt. The section 160 assessment is a separate assessment against the transferee (the owner), who has their own right to object and appeal. Canadian courts have confirmed that a person assessed under section 160 must have a full right of defence to challenge the assessment made against the person, including an attack on the primary corporate assessment on which the person’s assessment is based. In other words, even though the corporation missed its objection deadline, the transferee can still argue that the corporation did not actually owe the amount of tax in the first place.

When responding to a section 160 assessment, several defences can be raised, including (but not limited to):

• No Tax Debt or Lower Tax Debt: The original taxpayer (e.g. the corporation) did not owe the assessed taxes – meaning the underlying tax assessment was incorrect. This is effectively challenging the basis of the tax debt.
• Valid Consideration: The transfer in question was not a gift or below-value transfer (for example, it was repayment of a loan or the recipient paid fair market value), so section 160 should not apply.
• Overstated Value: The property’s value was lower than the CRA assumed, reducing the transferee’s liability.

If any of these succeed, the section 160 assessment can be reduced or eliminated. Notably, lack of knowledge of the tax debt is not a defence – liability under section 160 can apply even if the transferee was unaware of the tax owing.

Practical Takeaways

This strategy – letting the corporation go bankrupt and dealing with a section 160 assessment – is a last resort. It underscores a peculiar quirk of tax law: a related-party recipient can get their “day in court” on the original tax issue, even if the primary taxpayer lost that right. However, invoking this strategy is risky and can lead to personal liability. The better course is always to file timely objections to tax assessments to avoid such predicaments. If you do find yourself facing a section 160 assessment after a missed objection, seek professional tax advice.

Statutory Framework for Directors’ Tax Liability

Directors of Canadian corporations face personal liability if their company fails to remit certain taxes. Under Income Tax Act (Canada) (ITA) subsection 227.1(1) and Excise Tax Act (Canada) (ETA) subsection 323(1), directors are jointly and severally liable with the corporation for unremitted employee source withholdings (payroll deductions) and net GST/HST, including interest and penalties. Both statutes provide a due diligence defence in virtually identical terms: a director is not liable if they “exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.” This statutory defence places the onus on directors to show they took proper steps to prevent the company’s failure to remit. The scope of this defence -and the standard of care it entails – was sharply defined by the Federal Court of Appeal in Canada v. Buckingham, 2011 FCA 142 (“Buckingham”).

Buckingham v. Canada (2011 FCA 142): Objective Standard and the Duty to Prevent Non-Remittance

In Buckingham, the Federal Court of Appeal clarified the standard of care for the due diligence defence and underscored that a director’s duty is oriented toward preventing failures to remit, not merely addressing them after the fact. The case involved a director (Mr. Buckingham) whose company fell into serious financial trouble. He undertook extensive efforts to keep the business afloat – seeking new capital, cutting costs, pursuing mergers – but, in the interim, the corporation stopped remitting payroll deductions and GST/HST. The Tax Court had partially absolved Mr. Buckingham (finding his defence succeeded for payroll deductions but not for GST), but on appeal the FCA found him liable for all unremitted amounts.

Objective standard: The FCA held that the standard of care in ITA s.227.1(3) and ETA s.323(3) is strictly objective. This marked a departure from the earlier “objective-subjective” approach in Soper v. Canada (FCA, 1997), which had allowed consideration of a director’s personal knowledge and attributes. The Court explicitly stated that Soper’s mixed standard “has been replaced by the objective standard laid down by the Supreme Court of Canada in Peoples Department Stores”. In other words, the director’s conduct is measured against the actions of a reasonably prudent person in similar circumstances, not against the director’s own background or subjective good intentions.

Preventing the failure vs. curing it: Buckingham also refocused the due diligence inquiry on pre-emptive action. The Court criticized the trial judge for applying a “reasonable business decision” or business judgment approach (drawn from general corporate law in Peoples), instead of the correct statutory test which demands that “the director’s duty of care, diligence and skill be exercised to prevent failures to remit.” The FCA stressed that a director’s foremost duty in this context is to prevent the remittance failure in the first place, rather than simply to remedy it later. Mr. Buckingham’s defence failed because his efforts, however earnest, were directed at rescuing the company and paying creditors after tax defaults had already occurred, instead of ensuring the remittances were made on time. The Court noted that once his company began diverting funds from the tax obligations, his subsequent attempts to catch up were “curative rather than preventive” and thus fell short of the statutory due diligence standard.” Crucially, Buckingham held that the due diligence defence cannot be used to excuse a decision to keep a struggling business operating at the expense of using trust tax monies for cash flow. The judgment made clear that this is precisely the scenario the director-liability provisions are meant to avoid. Quoting the decision, the defence “must not be used to encourage such failures by allowing a care, diligence and skill defence for directors who finance the activities of their corporation with Crown monies, whether or not they expect to make good on these failures to remit at a later date.” In Mr. Buckingham’s case, once he chose to use the proceeds of asset sales to continue operations – knowing that source deductions and GST would not be remitted – he “transferred the risk associated with the asset transaction from [the company] to the Crown,” and at that point his due diligence defence was no longer sustainable. The Court pointedly observed that had the director ceased operations earlier or resigned, thereby avoiding further unremitted tax accruals, he might have been in a better position to avoid personal liability.

No absolute liability: While Buckingham set a high bar, it also affirmed that directors’ liability is not absolute. Parliament provided the due diligence escape hatch, so courts must not interpret the law in a way that makes every failure to remit automatically a director’s personal fault. The FCA rejected any suggestion that because trust taxes (especially GST) are collected from third parties, a director could never be diligent unless remittances were perfect – that would effectively eliminate the defence. Instead, each case must examine whether the director did everything a reasonably prudent person would have done to avoid the company’s default. If so, the defence can still succeed and shield the director, even if the corporation ultimately failed to remit. In short, Buckingham confirmed that a corporation’s tax default does not automatically equal director negligence, but the onus is squarely on directors to prove their vigilant oversight or timely corrective measures to prevent a failure.

Post-Buckingham Appellate Developments: Chriss, Ahmar, and Others

Subsequent Federal Court of Appeal decisions have reinforced and built upon Buckingham’s principles. Notably, in Canada v. Chriss, 2016 FCA 236, the Court applied the objective due diligence test to directors who attempted to avoid liability by resigning (or believing they had resigned). In Chriss, two individuals argued they were not liable for a company’s unremitted payroll taxes because they had effectively resigned years earlier. The FCA disagreed – their resignations were never properly executed or delivered, so they remained directors during the default period. The Court then considered if their belief that they were no longer directors could constitute due diligence. Citing Buckingham, Justice Rennie reiterated that the due diligence defence is assessed on an objective standard – i.e. against the conduct expected of a reasonable person in similar circumstances. A “reasonable director” would not casually assume an oral resignation or unsigned draft was effective; he or she would insist on proper formalities and confirmation. The FCA held that a director’s unilateral subjective belief in having resigned, without taking all steps a prudent person would take to ensure it, does not meet the high threshold for due diligence. In the Court’s words, “a director cannot raise a due diligence defence by relying on their own indifferent or casual attitude to their responsibilities”.

Chriss also addressed a common argument when companies fail: that the directors lost de facto control of the company’s finances to a creditor or third party, leaving them unable to cause the tax payments. The FCA acknowledged that prior cases (e.g. Canada v. McKinnon, 2000 FCA 338; Moriyama v. Canada, 2005 FCA 207) have relieved directors of liability where an outsider (like a secured lender) had legally seized control of the company’s accounts, genuinely preventing the directors from remitting funds. However, the Chriss appellants were not in that situation – although a creditor/investor had influence and had promised further funding, the corporate directors still retained ultimate authority over how available funds were used. The Court drew a clear line: unless a director is effectively stripped of power by external forces, they remain responsible for the decision to pay (or not pay) the Crown. Even facing pressure to pay other bills, a director cannot justify using money owed to the government for other purposes absent a truly involuntary inability to pay.

More recently, in Ahmar v. Canada, 2020 FCA 65, the Federal Court of Appeal reaffirmed the hard line against using government withholding funds as a float for a failing business. Mr. Ahmar was the sole director of a construction company that ran short of cash. He consciously decided to defer HST remittances and instead used incoming revenue (and even his personal funds) to continue operations in hopes 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 CRA) to be paid. The FCA flatly rejected this argument. Ahmar underscores that the due diligence defence will fail when a director knowingly uses or withholds tax money to pay other creditors.

Other appellate cases have consistently cited Buckingham as the authoritative framework. For example, in Balthazard v. Canada, 2011 FCA 331, the FCA applied Buckingham to a GST remittance case, overturning a Tax Court judge who had implied that, because GST is collected from customers, a director could hardly ever claim due diligence for failure to remit. The Court of Appeal, pointing to Buckingham, held that this reasoning would effectively make directors insurers of tax debts and impose absolute liability, contrary to Parliament’s intent. Instead, the proper approach was to assess whether the director took all reasonable actions to prevent the failure – including using personal resources, making timely arrangements with tax authorities, etc. – and to only hold them liable if they fell short of that standard. The consistent theme in post-Buckingham jurisprudence is a strict yet principled interpretation: directors will be protected from personal liability only if they can demonstrate concrete, proactive steps directed at preventing tax defaults, and never if they passively allow defaults or willfully choose other priorities over tax compliance.

Conclusion

Ultimately, the Buckingham line of cases delivers a clear message to corporate directors and their advisors: ensuring tax remittances are made is a non-negotiable duty. Good intentions or general efforts to keep the company afloat will not shield a director if they allow the government’s money to be used as working capital. The due diligence defence remains available, but only for the diligent – those who can show concrete, timely and prudent actions aimed at preventing a failure to remit. Especially for directors of financially troubled companies, the prudent course may sometimes be to wind up or step down before tax obligations go unpaid, rather than soldiering on and risking personal liability.

When a corporation fails to remit its payroll withholdings or Goods and Services Tax/Harmonized Sales Tax (GST/HST) to the Canada Revenue Agency (CRA), the company’s directors can be held personally liable for those unpaid amounts in certain circumstances. Stepping down from a directorship does not automatically absolve someone of these tax obligations. In fact, Canadian tax law imposes a “two-year clock” on director liability: the CRA cannot commence an action against a former director for unremitted taxes more than two years after that individual has left the board. However, taking advantage of this time limit requires a proper and timely resignation. Complicating matters, even people who are not officially directors on paper but act like directors – so-called de facto directors – may find themselves on the hook as well. In this article, we explain when directors remain personally liable for unremitted payroll deductions and GST/HST, how resignation and the “two-year rule” work, and why de facto directors should also be cautious.

Directors’ Personal Liability for Unremitted Payroll and GST/HST

In Canada, certain tax debts of a corporation can follow directors home. Specifically, directors are personally liable for the company’s unremitted employee source deductions (payroll withholdings for income tax, Canada Pension Plan, and Employment Insurance) and for unremitted GST/HST collected from customers. These amounts are considered trust funds collected on the government’s behalf, so if the corporation fails to remit them as required, tax authorities treat it as a serious offense. The law (primarily the federal Income Tax Act (Canada) for payroll and Excise Tax Act (Canada) for GST/HST) allows the CRA to recover such debts from the directors in office at the time the remittances were due. All directors of the company during that period can be held jointly and severally liable, meaning the CRA may pursue any or all of them for the full amount outstanding.

That said, there are important preconditions and defenses built into the law. First, the CRA is generally required to attempt collection from the corporation itself before turning to directors. Typically, this means the CRA will try to seize corporate assets, enforce liens, or push the company into bankruptcy to obtain the tax money. Only if those efforts are unsuccessful (e.g. the company is insolvent, bankrupt, or defunct) will the CRA shift focus to the personal liability of directors. Second, directors have a statutory “due diligence” defense: if a director can prove that they exercised the degree of care, skill, and diligence to prevent the failure that a reasonably prudent person would have exercised, then the director is not liable for the unremitted tax. In practice, this generally means showing that you took proactive steps to ensure the company’s tax withholdings and filings were being handled properly – for example, by making inquiries, reviewing records, or objecting to risky financial decisions. A director who was duly diligent (or who resigned before the tax non-compliance occurred) has a strong defense against personal liability.

Finally, the CRA must move within a specific timeframe to hold a director liable. This is where the “two-year clock” comes into play, as discussed next.

The Two-Year Limitation Period

One of the most crucial protections for directors in these situations is the two-year limitation period. Under Canadian tax law, no action or proceeding to recover a company’s unremitted tax can be commenced against an individual more than two years after that individual last ceased to be a director. In simpler terms, the CRA cannot legally assess or sue a former director for a corporation’s payroll or GST/HST debts if over two years have passed since the person’s resignation from the board.

This rule effectively puts a timer on a director’s personal exposure. If you resign as a director and two full years go by with no director liability claim, you can no longer be held personally liable for earlier unremitted taxes of that company. The clock starts ticking from the date you “cease to be a director.” Importantly, if you never formally resign (or your resignation isn’t legally recognized), the clock never starts – leaving you indefinitely exposed. Likewise, if you resign but the CRA initiates a director liability assessment within the next two years, the matter can proceed even if the actual collection or court process extends beyond the two-year mark. The key is that the government’s action must begin within that two-year window.

Resigning sooner rather than later is therefore critical if the company is in financial trouble. The longer you remain a director of a tax-indebted corporation, the longer you remain personally at risk. By stepping down, you stop accumulating new personal liability for any future unremitted amounts, and you start the countdown on the limitation period. Conversely, delay in resigning could be costly – for example, if you stay on an extra year trying to help the business turn around, that’s one more year of potential unremitted GST/HST or payroll amounts for which you might be on the hook.

It’s worth noting that resigning does not erase liability for the time you were a director. You remain liable (subject to defenses) for any unremitted taxes that fell due during your tenure. The resignation’s main benefit is cutting off future exposure and eventually time-barring the CRA from coming after you for those past debts.

Avoid Being the “Last Director Standing”

A scenario to avoid is being the sole remaining director when others have resigned. If multiple directors served and all your co-directors resign before you, suddenly you become the last director left – effectively holding the bag for ongoing obligations. In that case, you would be solely responsible for any new tax remittances the corporation fails to make after the others’ resignation dates. Those former directors would still be liable for debts from their period in office (until their own two-year clocks run out), but you’d carry the responsibility going forward. If the company’s troubles continue, you might see its unpaid tax debts balloon while you are the only director – a highly risky position.

Proper Resignation: How to Start the Clock and Limit Liability

Resignation, to be effective for limiting liability, must be done properly. It’s not enough to verbally announce you’re quitting or to stop attending meetings – you need to follow the formal process required by corporate law so that you legally cease to be a director. Until you meet these requirements, the CRA will consider you a director on record (and your two-year clock won’t begin).

The exact steps to resign can vary slightly depending on the incorporation jurisdiction (e.g. under the federal Canada Business Corporations Act or Ontario’s Business Corporations Act), but generally they include:

• Deliver Written Notice: Prepare a written resignation letter and deliver it to the corporation’s registered office or an official company representative (such as the corporate secretary). This is typically mandated by law or corporate bylaws.
• Fulfill Any Other Legal Formalities: Follow any additional steps required by the incorporating statute or the corporation’s articles (such as receiving acceptance of the resignation if needed, though in most cases a director’s resignation is effective once delivered).
• Cease All Director Functions: Once you resign, do not continue to act in any capacity that could be construed as a director’s role. This means you should step back completely from decision-making control, stop representing yourself as a director, and avoid signing documents on behalf of the company. Remaining involved in a leadership capacity after resigning can blur the lines and potentially nullify the protection of your resignation (as explained in the next section on de facto directorship).

By resigning properly and promptly, you accomplish two things: (1) you cap your personal liability to the tax obligations that arose during your period of directorship, and (2) you trigger the two-year limitation period to start running as soon as you’re officially out.

De Facto Directors: Liability Without the Title

Even if you are not officially listed as a director of a corporation, you might still be treated as one for tax liability purposes if your actions and role in the company effectively mirror those of a director. The law captures these individuals under the concept of a “de facto director.” A de facto director is someone who acts in the capacity of a director – making high-level management decisions, influencing financial affairs, or holding themselves out as a company authority – without being formally appointed to the board. In the eyes of the CRA (and the courts), such a person may be deemed a director in fact, and thus can be held personally liable for unremitted payroll and GST/HST just like an official director would be.

It’s possible to become a de facto director by accident, without realizing it. For example, consider a spouse or business partner who has no official title but regularly handles the company’s finances, decides which bills get paid, or negotiates with CRA agents – all while the “true” directors are passive or absent. That person might be seen as a de facto director. Officers or employees with significant authority, or former directors who continue to run the show after resigning, are also at risk of being deemed de facto directors. The implication is clear: stepping down on paper is not enough if in practice you maintain control. The CRA (and later, a judge) will look at substance over form – who was actually directing the business?

Crucially, de facto directors have the same two-year limitation protection and due diligence defenses as formal directors. The law doesn’t explicitly name “de facto” directors, but courts interpret the directors’ liability provisions to apply to them in order to prevent individuals from evading responsibility by staying in the shadows. Practically, this means if you stop acting as a director (even if you never were one officially) and fully step away from the company’s management, a two-year clock starts running just as it would for a formally resigned director. After two years of not being involved in that de facto capacity, you cannot be assessed for those past liabilities.

Conclusion: Protect Yourself as a Director

Serving as a director comes with serious responsibilities – including potential personal responsibility for certain unpaid taxes. If your corporation is struggling to meet its payroll remittance or GST/HST obligations, it’s essential to be proactive in managing your exposure. If you find yourself in a difficult position regarding director’s liability for unremitted taxes, don’t hesitate to seek out expert guidance and protect your personal financial well-being.