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Excise Tax Act Section 323: Director Liability

In Newhook v. The Queen, 2021 TCC 1 (Informal), the individual was assessed under the director’s liability provisions for the failure of the corporation to remit GST/HST. [1] This allows the Canada Revenue Agency (CRA) to assess a director personally for the tax debt of the corporation.

The court found the director liable for the corporations’ tax debts. The court found the director failed to exercise due diligence in remitting GST/HST.

This was an informal procedure case, and as such is not strictly binding precedent. [2]

Key Points

  • A director who manages the day-to-day operations of a corporation cannot abdicate all responsibility to remit GST/HST by relying on an accountant. [3]
  • “A reasonably prudent director must actively take positive steps beforehand to ensure that GST/HST filings and remittances are done on time.” [4]
  • Here, the accountant was “remiss in the discharge of its duties”. However, the director failed to exercise any oversight of the accountant, simply trusting the accountant to take care of any remitting GST/HST. [5]
  • “It is simply not enough to deflect blame onto others. [The director] cannot invoke the incompetency and negligence of his accountant when he lost confidence in his accountant but did nothing about it.” [6]
  • When determining whether the director exercised due diligence, “actions to cure the tax debt and are not steps taken to prevent a failure to remit.” [7]


The facts are relatively straightforward. The individual was the sole director and shareholder of a construction company. At the time of trial he was 64 years old. He went into the construction business after high school. He had no experience with accounting and never took any accounting courses. He relied on his accountant for tax compliance.

Around 2011 the corporation was informed it had GST/HST debt going back to 1998. Subsequently, Writs of Seizure and Sale were issued in the Federal Court. When these were not satisfied (because the corporation did not have any assets) the individual was assessed personally for these amounts.

The director argued that his reliance on an accountant to undertake the necessary tax compliance satisfied the due diligence defence to a director’s liability assessment. The court rejected this argument.

The court, relying on Buckingham v. The Queen, 2011 FCA 142, reiterated that the due diligence defence is an objective standard. It requires proving the director was specifically concerned with tax remittances and exercised the care, diligence, and skill to ‘prevent a failure to remit’. The court stated:

The focus of the defence of due diligence is to prevent the failure to remit, not to cure failures to do so. Directors must establish that they were specifically concerned with the tax remittances and that they exercised their duty of care, diligence and skill with a view to preventing a failure by the corporation to remit the concerned amounts. The assessment of the director’s conduct begins when it becomes apparent to the director that the corporation is entering a period of financial difficulties. [8]

The court found that the director, being involved in the day-to-day operations of the corporation, was aware that the corporation had fallen into arrears with its GST/HST. Importantly, the court found that the director could not absolve himself of responsibility by citing his reliance on an accountant and the accountant’s failure to deal with the failure to remit. It seems the director would bring issues to the accountant, who assured him the issue would be taken of, including the failure to remit. The accountant failed to resolve the remittance issues. However, the director also failed to follow-up with his accountant after bringing up the remittance issue. This pattern of behaviour continued even after the director felt the accountant was unreliable.

If you have been assessed under the director liability provisions of the Excise Tax Act please contact one of our experienced tax lawyers.

For more information on our Tax Team please visit our website.

This article was written by Tax Lawyer Graham Morton.

[1] Excise Tax Act, RSC 1985, c E-15, section 323

[2] Tax Court of Canada Act, RSC 1985, c T-2, section 18.28

[3] Paragraph 44

[4] Paragraph 47

[5] Paragraph 47

[6] Paragraph 48

[7] Paragraph 49

[8] Paragraph 42

Jul 23, 2021