Yes, for two kinds of debt, and not for the third
Directors' liability attaches to amounts the corporation collected or withheld on CRA's behalf and did not hand over. Under the Income Tax Act that means income tax, CPP and EI deducted from employees' pay and not remitted, along with certain other withholdings, plus the interest and penalties on them. Under the Excise Tax Act it means net GST/HST the corporation was required to remit, plus interest and penalties. The liability is joint and several: CRA can pursue any one director for the whole amount and leave the directors to sort out contribution among themselves.
What it does not cover is the corporation's own income tax. There is no equivalent provision making a director liable for an unpaid T2 balance, and a corporation that owes only income tax reaches its directors personally only through other rules, such as the one that follows money transferred to related persons for less than value. That line explains why every CPA you meet will tell you to pay payroll and HST before anything else: those are the balances that follow you home.
The same amounts are also the ones CRA collects most aggressively at the corporate level, because they are held in a deemed trust that ranks ahead of most creditors. So the director question rarely arrives on its own. It arrives after a corporation has been chased, garnished or has failed, and the assessment against the director is the last step in that sequence rather than the first.
What CRA has to do before it can assess you
CRA cannot go straight to a director; the statute makes it exhaust the corporation first. One of three things has to have happened: a certificate for the corporation's debt was registered in the Federal Court and execution came back unsatisfied in whole or in part; the corporation began liquidation or dissolution proceedings or was dissolved, and CRA proved its claim within a set period; or the corporation went bankrupt and CRA proved its claim within a set period. For an operating company that stopped paying, the first route is the usual one; for a company that failed, the last.
The second condition is time. No assessment can be issued against a person more than two years after they last ceased to be a director of the corporation. The clock runs from the date you actually stopped being a director, which is a question of corporate law and evidence rather than intention. A director who remains on the registry, or who keeps acting as one, has not started it.
Once assessed, you have the same rights as for any other assessment: 90 days to file a notice of objection, and the Tax Court after that. You can dispute the director-specific points, meaning whether you were a director, whether CRA met its conditions, whether the two years had passed and whether the defence applies, and in most situations you can also dispute the underlying corporate amount if it was never properly tested. The mechanics are the same as any dispute, laid out in how to dispute a CRA reassessment.
The due-diligence defence: prevention, not repair
The defence is that you exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. Courts apply that standard objectively. Your inexperience, your trust in a bookkeeper, or the fact that you were the investor rather than the operator are circumstances the court weighs, not excuses that carry the day on their own.
The word that decides most cases is prevent. Steps taken to fix the shortfall after you found out, such as paying it down over the following year, negotiating with CRA or borrowing personally, do not establish the defence, although they reduce what you eventually owe. What the defence needs is evidence that, before the failure, you had a system that would have caught it and that you acted on what the system told you.
| Tends to support the defence | Tends not to |
|---|---|
| A separate payroll or tax account funded on each pay run, with remittances paid from it before other bills | Remittances paid from the operating account whenever cash allowed |
| Monthly confirmation of remittances against CRA's statement of account, reviewed and initialled by the director | Assuming the bookkeeper or payroll provider handled it |
| Written instructions to the bank or staff that CRA remittances come before supplier payments and owner draws | Continuing to pay suppliers and owner draws while remittances slipped |
| Acting at the first sign of trouble: a resolution, a cash injection, a plan, or a resignation | Waiting to see whether the next month improved |
| A record of inquiries, minutes and follow-ups, kept as they happened | A memory of having been concerned, produced years later |
Reliance on professionals counts only inside a system of oversight. A director who hires a competent bookkeeper, receives monthly confirmations, checks them against CRA's statements and asks questions when a number moves has a defence. A director who hires the same bookkeeper and never looks has delegated the task without the duty. The distinction is not about effort; it is about whether the failure could have surprised a prudent person running that system.
One more pattern the courts reject: continuing to operate a business that is knowingly using trust money to survive. A director who understands that this month's payroll deductions are funding next month's rent, and keeps going in the hope of recovery, has made a choice the statute does not protect, however reasonable the hope seemed at the time. The moment the business cannot both remit and operate, the director's duty and the owner's instinct part company, and the defence follows the duty.
De facto directors, spouses and resigning properly
You can be a director without ever being appointed. A person who acts as one, by signing as a director, holding themselves out to lenders or CRA as one, or making the decisions a board would make, can be assessed as a de facto director, and the two-year clock cannot start for someone still acting in the role. That includes the founder who resigned formally and kept running the company exactly as before.
Spouses are the most common surprise. A spouse named as a director when the corporation was formed, often on a professional's suggestion, is a director in law and is assessed as one, and the objective standard leaves little room for never having attended anything. A spouse who was genuinely excluded from the corporation's affairs and took reasonable steps within that limit may still have arguments, but it is the harder file. The cleaner protection is to remove a passive spouse from the board before there is any trouble, in writing and on the registry.
Resigning has to be provable. Under Ontario corporate law a resignation takes effect when a written resignation is received by the corporation, or at the later time it specifies, so it must be written, dated, signed and delivered, and the minute book should record it. Update the public registry promptly, because that filing is the evidence CRA and a court will look at first, even though the resignation operates under corporate law rather than through the registry. A resignation that exists only as a draft, or was never delivered, does not start the clock.
Two cautions. Resigning does not remove liability for failures that occurred while you were a director; it starts the two-year period after which CRA can no longer assess you for them. And a sole director resigning is not a clean exit, either under corporate law or on the facts, because someone has to run the corporation and it is usually still you. Take corporate legal advice before relying on a resignation as the plan.
The day you learn remittances were missed
Act on it that day, and keep a record of acting. The steps below protect both the corporation and you, and their order matters.
- Establish the true shortfall from CRA's statements of account in My Business Account, by account and by period, not from memory or the bookkeeping file alone.
- Make this period's remittance on time, whatever else is unpaid; from today forward, current remittances are the first payment made.
- Remit what you can against the arrears immediately, source deductions and HST ahead of every other creditor, including yourself.
- Stop dividends, shareholder loan repayments and transfers to related parties until the trust amounts are cleared.
- Put the facts in writing: a dated memo or board resolution recording what was found, what was done and what the plan is.
- Decide, with advice, whether the business can remit and operate at the same time, and if it cannot, what that means for you as a director.
The payment side, including what CRA asks for before agreeing to a schedule, is covered in what your options are when the business cannot pay CRA. The prevention side, the monthly reconciliation and the events that quietly change the amount owed, is in how to prevent payroll remittance surprises, and that system is what gives a director the defence in the first place.
Do not resign in a panic and do not stay in denial. A resignation delivered the week you discovered the problem, followed by continued involvement, looks like what it is. A resignation delivered after you have documented the problem, funded what you could and concluded the corporation cannot remit is a step a prudent person takes.
What changes the answer
Five facts decide how exposed a director actually is:
- Whether you were a director in law, in fact, or neither, and when that ended in a way you can prove.
- Whether CRA has met its preconditions: a certificate returned unsatisfied, or a claim proved in a liquidation or bankruptcy.
- What you did before the failure to prevent it, and whether any of it is documented.
- Whether the corporation is still operating and able to remit, since a live business can clear the debt and a dead one cannot.
- The size of the trust debt against your personal assets, which decides whether the defence is worth litigating or the number is worth settling.
We handle these files from both ends inside CRA support: reconstructing the corporation's remittance history and CRA accounts, quantifying the true trust debt, building the record for the defence where one exists, and running the objection where an assessment has already issued. Where a director's exposure is real and the corporation is finished, we work alongside legal and insolvency advisors so the tax decisions and the corporate decisions happen in the right order. A free 15-minute discovery call is enough to tell you whether the two-year clock has started, and whether the file you have supports a defence.
