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Published: October 13, 2021

Last Updated: October 13, 2021

Can Directors of a Corporation be Jointly and Severally Liable for the Corporation’s Taxes

If you are an employer and you pay salaries to your employees, you will be required to withhold and remit source deductions. Employers are generally responsible for deducting the following amounts: federal income tax, provincial income tax, the Employment Insurance premium and the Canada Pension Plan contribution. It is a requirement for the employers to withhold and remit these deductions to the Canada Revenue Agency (CRA).
If an employer fails to withhold and remit the source deductions, then the CRA will typically issue a notice of tax assessment to the employer and commence collection actions to retrieve the amount. For example, the CRA could garnish receivables and bank accounts and seize and sell assets that belong to the employer, all without having to go Court.
The CRA’s collection power does not end there. The CRA has the ability to issue derivative assessments to a third party for an amount owing that it is unable to collect from the employer. One such derivative assessment, against directors of the Corporation, is found in section 227.1 of the Income Tax Act.
Section 227.1 of the tax act states that the directors of a corporation may be jointly and severally or solidarily liable together with the corporation to pay tax on an amount that the corporation failed to pay. For example, if a corporation withheld but did not remit source deductions, directors may be liable for the unremitted amount by virtue of section 227.1. Section 227(10) of the Canadian tax act allows the CRA to assess the corporation’s liability to the director. A recent case of the Tax Court of Canada that illustrates the operation of this section of the ITA is Tran v Queen.

Tran v Queen 2021 TCC 51

In Tran v Queen, the CRA held that a director of a corporation was liable under section 227.1 of the tax act for the corporation’s unremitted source withholdings. The director of the corporation was assessed on the basis that the corporation failed to remit total source withholdings of $305,390.15. The director argued that because he was not involved with the corporation’s financial management, he should not be held liable for the corporation’s failing to make remittances. The Court’s main issue in this case was whether the director was liable under section 227.1 of the Canadian tax act for the corporation’s failure to remit the deductions to the CRA.
Two crucial sub issues that determined the outcome of this case was (1) who bears the burden of proving the amounts failed to be remitted and (2) whether the liability amount of the corporation’s unremitted source deductions was correct.
With respect to the first sub issue, the Court relied on a landmark case, Hickman Motors Ltd. v Canada, to determine the principles which govern the burden of proof in taxation cases. The Supreme Court of Canada in Hickman Motors held that the taxpayer has the initial onus to demolish the assumptions on which the Minister relies for his assessment. The case also stated that the taxpayer will have met the initial onus when he or she makes a prima facie case. Moreover, the Supreme Court of Canada stated that the burden will shift to the Minister if the taxpayer establishes a prima facie case.
The Court considered whether this initial burden should shift to the Minister in this case due to the nature of the derivative assessment. The Tax Court of Canada relied on Justice Paris in Andrew v The Queen to examine this issue. In Andrew, the court held that the onus of proving an underlying tax liability in an appeal from a derivative assessment could fall on either the Minister or the taxpayer depending on the facts. If the underlying tax debt is exclusively within the knowledge of the Minister, the burden will shift to the Minister. On the other hand, if the information regarding the tax liability of the taxpayer is accessible by the taxpayer, the initial onus will stay with the taxpayer. In the case at hand, the Court found that the tax liability of the corporation was not exclusively within the knowledge of the Minister. Therefore, the onus was upon the taxpayer to demolish the CRA assumptions.
The second sub issue that was important for the Court was whether the underlying assessment issued by the Minister was accurate. One crucial assumption that the Minister relied on was the fact that the corporation failed to remit total source deductions of $305,390.15. The figure was a crucial assumption because this was the amount that the director was assessed as a result of the director’s liability tax assessment.
The Court concluded that the underlying assessment was incorrect and overstated. The Court held that on the balance of probabilities, the underlying assessment was incorrect because the evidence that the Minister relied on did not accurately reflect the amount and timing of the salaries that were actually paid to the employees. Therefore, the Court found that the expert Canadian tax litigation lawyer for the director made a prima facie case that demolished one of Minister’s crucial assumptions regarding the underlying tax assessment. The Tax Court of Canada ruled in favour of the director and costs were payable by the Minister to the director.

Contact a Toronto Tax Lawyer to Learn More About a Director’s Liability Assessment

Section 227.1 allows the CRA to collect taxes from directors of corporations. If you are director of a corporation, you may be jointly and severally liable for trust funds that the corporation does not remit to the CRA. Therefore, you must be vigilant to confirm that the corporation is withholding and remitting its source deductions. If you are unsure whether your corporation is complying with the tax act remittance obligations, consider consulting with a top Toronto tax lawyer today.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."


Yes. It is possible to object the tax assessment. This may be done by the timely filing of a notice of objection against the notice of assessment. When challenging the tax assessment, the expert Canadian tax litigation lawyer for the director will consider some defences that may be applicable depending on the circumstances.

One defence to a director liability tax assessment is relying on the two-year limitation period. If the CRA wants to issue a director’s liability assessment, the CRA must do so within two years from the time after which the director resigned. If a director properly resigned two years prior from being assessed with a director’s liability tax assessment, the taxpayer may rely on the two-year limitation defence. Another defence is the due diligence defence. If a Canadian tax litigation lawyer for the director can show that the director exercised a degree of care and diligence to prevent the corporation from failing to remit source deductions, the director may not be liable for the corporation’s tax debts.

Yes. Although a person may not be listed as a director of a corporation, if the person exercises the responsibilities of a director, he or she may be held to be a de facto director. This is a factual inquiry. For example, if a person has the authority to make the ultimate decisions of a corporation, the person may be a de facto director

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