Dean Blachford, Tax Litigation Lawyer
Karen Cheung, Law Student

Canada’s tax laws allow the CRA to hold directors personally liable for their corporation’s source deductions, non-resident withholdings and GST/HST debts. This is known as “directors’ liability”. But directors may be able to shield themselves from this personal liability using the “due diligence defence”.

This article describes the defence and how directors can demonstrate that they have acted with due diligence.

What is a due diligence defense?

The law states that directors are not personally liable for the source deductions and GST/HST debts of their corporation where they “exercised a degree of care, diligence, and skill of a reasonably prudent person”. This is known as the “due diligence defence”.

In essence, the CRA compares the director’s actions to a fictitious “reasonably prudent person”. If the CRA concludes that the director took the same types of actions that a reasonably prudent person would have taken, then the CRA will not hold the director personally liable. If the CRA concludes the director’s actions fell short, then they will hold the director personally liable.

While the idea of comparing a director’s actions to a “reasonably prudent person” is to have an objective standard, there are examples of directors successfully raising a due diligence defence based on the director’s personal circumstances, such as a director suffering from severe depression,[1] an immigrant director’s poor English-language skills and lack of knowledge of Canadian laws,[2] or a director being misled through fraudulent practices of their bookkeeper. [3]

It is critical that taxpayers act promptly when facing a director’s liability assessment since there are strict time deadlines that prevent a director from disputing an assessment once the deadlines have passed.

Demonstrating due diligence:

There are many types of actions that may assist directors to establish their due diligence. These include:

  • Attending board meetings and reviewing financial reports
  • Asking for updates from the corporation’s financial officers on the status of the corporation’s tax remittances
  • Obtaining regular confirmation from the corporation’s officers that withholdings, deductions, or remittances have been made during all relevant periods
  • Appointing a qualified bookkeeper and/or accountant and overseeing their duties
  • Having the corporation establish a separate account for necessary remittances to the CRA
  • Communicating with CRA regarding any outstanding amounts and taking action to have them paid (although actions taken before the corporation falls behind carry more weight)


Directors liability assessments are very common and highly intimidating. At Hazlo Law – Business Lawyers, we have a wealth of experience using the due diligence defence to successfully shield directors from personal liability. Contact us today to see how we can help.

[1] Attia v R, 2014 TCC 46.

[2] Qian v R, 2013 TCC 386.

[3] Thistle v R, 2015 TCC 149.

This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Dean Blachford today.  613-747-2459 ext.310,