Tax & Trade Blog

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THE DUE DILIGENCE DEFENCE & DIRECTORS’ LIABILITY

PROVING DUE DILIGENCE TO AVOID DIRECTORS’ GST/HST LIABILITY NO EASY FEAT!

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The GST/HST framework under the Excise Tax Act (“ETA”), as with other indirect tax regimes (like federal and provincial alcohol, tobacco and vaping taxes) includes “directors’ liability” provisions that are triggered when the corporation does not have the money to pay an assessed amount. Most of these systems have “due diligence defences” and “statutory limitation rules” which may limit a director’s liability, but these rules are tricky to apply in practice.

We review these rules in a two-part series, with reference to the recent case Stevens v. The King, 2026 TCC 76 (“Stevens”), which revolves around this directors’ liability framework.

A great new year’s resolution for Directors of a Canadian private corporations is to brush up on GST/HST and income tax compliance!  The reason is that where a corporation incurs a tax debt for GST, HST or income tax source withholdings, the directors of those corporations can be held personally liable.  For GST/HST purposes, this potential liability encompasses virtually all the net tax obligations of the corporation!  

A recent case demonstrates the high standard directors need to uphold, even when imposed with incredibly difficult situations in which the government has played a hand.