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CRA ASSESSING DIRECTORS FOR GST MORE OFTEN

SIMILAR SURGE IN ASSESSING THIRD-PARTY TRANSFEREES, INCLUDING SHAREHOLDERS

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Most business owners assume a corporation’s debts belong to the corporation. For unpaid GST/HST, that assumption is often wrong.

From what we have heard from our colleagues, there has been a significant increase in the Canada Revenue Agency’s (“CRA”) efforts to hold directors personally liable for their corporation’s GST/HST non-compliance. The CRA’s own statistics show that between 2021/2022 and 2024/2025, the CRA more than tripled the number of director’s liability assessments for GST/HST, while GST/HST assessments of third-party transferees nearly tripled.

In this Tax Audit Series blog, we review both of these collection tools under the Excise Tax Act (“ETA”), and why shareholders who receive dividends may be on the hook.

Director’s Liability

Under section 323 of the ETA, where a corporation fails to remit net GST/HST, its directors at the time that tax was payable are jointly and severally liable with the corporation for that amount, plus interest and penalties. The primary limits on this liability are that the CRA must generally first try to collect the taxes owing from the corporation and cannot assess a former director more than two years after he or she ceases to be a director.

A director’s main defence against this liability is “due diligence,” meaning the director exercised the care, diligence and skill a reasonably prudent person would have to prevent the failure to remit GST/HST. As the Federal Court of Appeal confirmed in Canada v. Buckingham, 2011 FCA 142, directors must act to stop missed GST/HST remittances before they occur – and efforts to fix them afterward do not satisfy the due diligence defence.

Third-Party Transferees

Section 325 casts an even wider net. Where a person (including a corporation) transfers property to a non-arm’s length person for less than fair market value, the transferee becomes jointly and severally liable for the transferor’s GST/HST debts.

This liability is capped at the amount by which the transferred property’s value exceeded what the transferee paid. Additionally, there is no due diligence defence.

Shareholders Receiving Dividends

A dividend is a transfer of property for no consideration. A non-arm’s length shareholder who receives dividends while the corporation owes GST/HST can therefore be assessed for the corporation’s debt, up to the full amount of those dividends. We have previously blogged on a Tax Court of Canada case applying the parallel Income Tax Act provision to exactly this situation.

The CRA can assess a shareholder for GST/HST the corporation owed when a dividend was paid, even if that tax was only discovered and reassessed years later – leaving the shareholder liable for the value of dividends they already received and paid income tax on.

Takeaways

The CRA is increasingly looking beyond the corporation to collect unpaid GST/HST. Directors should treat GST/HST remittances as a priority, and shareholders should be wary of taking dividends while the corporation has outstanding – or potential – GST/HST liabilities.

Experienced Tax Counsel can help directors and shareholders manage this exposure – ideally before the CRA comes calling.

For help with GST/HST audits and third-party assessments, please click here.

For an updated Index of our Tax Audit Series, click here.