Director’s Liability: Another Way CRA Can Hold You Personally Responsible
A couple of weeks ago, I wrote about non–arm’s length assessments and how limited liability doesn’t always protect incorporated business owners. Director’s Liability is another situation where the CRA can hold you personally responsible for your corporation’s tax debts, even if the business is incorporated.
Under the Income Tax Act and Excise Tax Act, corporate directors can be personally liable for certain unpaid tax amounts, including:
· Payroll source deductions (CPP, EI, and income tax withholdings)
· GST/HST collected from customers but not remitted
If these amounts remain unpaid, CRA can pursue both the corporation and its directors individually.
How Director’s Liability Works
Before CRA issues a Director’s Liability Assessment, four conditions must be met:
You were a director during the period the taxes became payable.
The corporation failed to remit required source deductions or GST/HST.
CRA first attempted to collect the debt from the corporation.
The assessment is issued within the legal time limit (generally two years after you resign as a director).
If these conditions are met, CRA can assess the director personally for 100% of the unremitted amount, plus penalties and interest.
A Common Scenario
A small corporation runs into cash flow trouble and uses GST/HST collected from customers to cover short-term expenses, planning to “catch up later.”
Deadlines pass. Penalties are charged. Interest compounds daily. Before long, the balance becomes overwhelming and stalls business growth.
Even if the corporation closes, CRA can still pursue the director. That’s because GST/HST and payroll deductions are trust amounts; money the business collects on behalf of the government, not revenue the business earned and can use.
Why This Matters for Business Owners
Many entrepreneurs assume that incorporation shields them from personal financial exposure, but that protection does not apply to certain tax debts.
Staying compliant, especially with payroll and GST/HST, isn’t just about avoiding penalties and interest. For directors, it’s about protecting your personal finances and credit.
Consistent bookkeeping, timely filings, and clear cash flow visibility can prevent costly surprises.
Want support staying ahead of CRA requirements?
A quick 30-minute consult can save hours of stress and confusion and help you avoid costly, unnecessary mistakes.