Liability of directors for failure to deduct

Legislative history

Section 227.1 was enacted by S.C. 1980-81-82-83, c. 140, s. 124. According to the Federal Court of Appeal, draft legislation released in June 1982 imposed absolute liability on directors for amounts the corporation failed to deduct or remit, and the due diligence defence now in subsection 227.1(3) was introduced only after a policy review undertaken by the Department of Finance in September 1982 (Soper, reasons of Robertson J.A., Part III). Liability for a failure to pay tax under Part VII or Part VIII was added by S.C. 1984, c. 1, s. 100, applicable to 1983 and subsequent taxation years, and the section was further amended by S.C. 1988, c. 55, s. 172 (ibid.). The text in force in 1989, reproduced in Soper, referred to a receiving order under the Bankruptcy Act and to the Federal Court of Canada, and made no reference to subsection 135.1(7) or to solidary liability.

The consolidated history on the Justice Laws Website lists three amendments since the 1985 revision:

• S.C. 1994, c. 7, Sch. V, s. 90. The amending text is not published on the Justice Laws Website. The earliest point-in-time version of the section (in force from 31 August 2004) already refers in paragraph (2)(c) to the Bankruptcy and Insolvency Act and uses gender-neutral wording in subsections (3), (4), and (6). To be verified Which of these changes the 1994 amendment made has not been confirmed.
• S.C. 2004, c. 25, s. 202 (Federal Law–Civil Law Harmonization Act, No. 2, assented to 15 December 2004). Paragraph 227.1(2)(c) was replaced so that it refers to a “bankruptcy order”, rather than a “receiving order”, made under the Bankruptcy and Insolvency Act.
• S.C. 2006, c. 4, s. 87 (Budget Implementation Act, 2006, royal assent 22 June 2006). Subsection 227.1(1) was replaced to add a failure to withhold under subsection 135.1(7) (redemptions of tax deferred cooperative shares), to add the words “or solidarily”, and to replace “relating thereto” with “relating to it”. The amendment applies after 2005 (s. 87(2)).

Subsections (2) (other than paragraph (c)) and (3) to (7) read today as they did in the version in force on 31 August 2004. No amendment to the section appears among the amendments not in force listed on the Justice Laws Website (Act current to 3 September 2026). Application provisions are not part of the consolidation and must be read in the amending Acts.

Interpretation and application →

Interpretation and application

Section 227.1 imposes on directors a liability that is derivative of the corporation’s liability for specified withholding and remittance failures. The liability in subsection 227.1(1) is limited in three ways: the Crown must satisfy one of the conditions in subsection 227.1(2); the director may establish the due diligence defence in subsection 227.1(3); and proceedings must be commenced within the two-year period in subsection 227.1(4) (Madison, para. 2). The Minister gives effect to the liability by an assessment under paragraph 227(10)(a).

Liability (subsection 227.1(1))

Subsection 227.1(1) reaches three kinds of failure: a failure to deduct or withhold an amount as required by subsection 135(3) (payments pursuant to an allocation in proportion to patronage), subsection 135.1(7) (redemption, acquisition, or cancellation of a tax deferred cooperative share), section 153 (salary, wages, and the other payments listed in subsection 153(1)), or section 215 (Part XIII tax on amounts paid or credited to non-residents); a failure to remit such an amount; and a failure to pay tax for a taxation year under Part VII (refundable tax on corporations issuing qualifying shares) or Part VIII (refundable tax in respect of the scientific research and experimental development tax credit). Other corporate tax debts, including income tax under Part I, are outside the provision. Canada Pension Plan contributions, employment insurance premiums, and GST/HST are reached by parallel provisions in other statutes (see Provincial and treaty parallels).

The persons liable are “the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount”. Liability is joint and several, or solidary, with the corporation, and extends to “any interest or penalties relating to it”, which include the penalties for failure to deduct and failure to remit in subsections 227(8) and (9) and interest under subsections 227(8.3) and (9.2). The CRA’s position is that each director may be assessed for the full amount of the corporation’s liability (IC89-2R3, para. 22).

The director’s liability arises when the corporation defaults. In Colitto, the Federal Court of Appeal held that subsection 227.1(1) fixes both which directors are liable and when liability arises, and that subsection 227.1(2) is a relieving provision which does not postpone liability “unless and until” its conditions are met (paras. 18–23 and 27). Statements in Canada (Attorney General) v. McKinnon, [2001] 2 F.C. 203 (C.A.), that liability does not crystallize until the conditions are satisfied were obiter (Colitto, paras. 30–31). A director’s liability for defaults in a year is therefore a liability “in or in respect of” that year for the purpose of subparagraph 160(1)(e)(ii) (para. 27).

The Act does not define “director”, and the Federal Court of Appeal looks to the corporation’s incorporating statute for guidance (Corsano, Noël J.A., para. 7; Létourneau J.A., paras. 8–11, explaining Kalef). In Corsano, the majority held that persons who acted as directors without holding the share qualification required under the governing statute and the corporation’s articles could not rely on that defect to escape liability under section 227.1 (Noël J.A., paras. 17–20). Létourneau J.A., concurring in the result, would have held that the unqualified word “directors” covers all types of directors known to company law, including de jure and de facto directors (para. 5). In Hartrell, the Court accepted, on the authority of that decision (cited as Wheeliker v. R., [1999] 2 C.T.C. 395), that a person who was never formally appointed may be liable if he or she in fact functioned as a director (paras. 4–5 and 7). The CRA takes the same position (IC89-2R3, para. 10).

Conditions precedent (subsection 227.1(2))

A director is not liable unless one of three conditions is met: (a) a certificate for the corporation’s liability has been registered in the Federal Court under section 223 and execution has been returned unsatisfied in whole or in part; (b) the corporation has commenced liquidation or dissolution proceedings or has been dissolved, and a claim has been proved within six months after the earlier of the commencement of the proceedings and the dissolution; or (c) the corporation has made an assignment or a bankruptcy order has been made against it under the Bankruptcy and Insolvency Act, and a claim has been proved within six months after the assignment or order. A certificate registered under subsection 223(3) has the same effect as a judgment of the Federal Court.

The conditions are intended to ensure that “collection remedies against the corporation are exhausted before the directors are assessed” (Madison, para. 2). Only one of the three paragraphs can apply in a given case, and which one applies depends on the facts (para. 18). Paragraph (b) does not apply where the corporation is dissolved under a procedure that requires neither a liquidator nor proofs of claim, such as a dissolution by the registrar for failure to file annual returns; the Crown may then rely on paragraph (a), and “proof of claim” in paragraph (b) means a proof of claim in liquidation or dissolution proceedings (paras. 20–21, following Kennedy v. Canada, 92 D.T.C. 6380 (F.C.A.)). Read with subsection 227.1(5), paragraph (a) prevents recovery from a director of amounts the corporation has already paid (Colitto, para. 24). The CRA describes the conditions as requiring it to “demonstrate its inability to recover the amounts directly from the corporation” (IC89-2R3, paras. 6–7).

Due diligence (subsection 227.1(3))

A director is not liable where he or she “exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances”. The burden is on the director (Buckingham, para. 33).

In Soper, the Court described the standard as “objective subjective”, taking account of the director’s personal knowledge and experience (reasons of Robertson J.A., Part IV; the passage is reproduced in Hartrell, para. 9, as para. 30 of the version reported at [1997] 3 C.T.C. 242). Robertson J.A. observed that inside directors would have the most difficulty establishing the defence, that absent grounds for suspicion a director may rely on the managers responsible for remittances, and that a positive duty to act arises once a director obtains information, or becomes aware of facts, suggesting a potential problem with remittances (Part V). Marceau J.A. described the provision as imposing on directors “a completely new, separate and positive duty” owed to the Crown.

In Peoples Department Stores, the Supreme Court, interpreting the duty of care in paragraph 122(1)(b) of the Canada Business Corporations Act and noting that Soper concerned identical language, declined to adopt the Soper formulation: “We prefer to describe it as an objective standard” (para. 63; see para. 62 on “comparable circumstances”). In Buckingham, the Federal Court of Appeal held that the Soper standard has been replaced by the objective standard in Peoples Department Stores (paras. 34 and 37). The director’s particular circumstances remain relevant but are measured against the reasonably prudent person (para. 39), and a person appointed as a director must carry out the office actively and cannot rely on his or her own inaction (para. 38). The inquiry differs from that under the corporate statute because subsection 227.1(3) is directed at preventing the failure: the director must show that he or she “turned his attention to the required remittances” and exercised care with a view to preventing a failure to remit (paras. 40 and 52).

Buckingham also settled several points of application. The defence does not depend on whether the corporation had enough cash, because amounts withheld are deemed received by the employee under subsection 153(3) and held in trust under subsection 227(4) (paras. 42–45). The director’s conduct is examined from the time it becomes apparent, to a director acting reasonably, that the corporation is entering a period of financial difficulty (para. 46, citing Soper). A director who allows the business to continue by diverting source deductions to other creditors cannot rely on the defence, even with a reasonable expectation that the arrears will later be paid (paras. 49 and 56); efforts directed at curing defaults after they occur, such as asset sales, do not suffice (paras. 51 and 57). McKinnon (cited in Buckingham as Worrell) turned on the bank’s de facto control of the company’s finances and did not create a new approach (para. 50).

The standard is the same for every director. The directors of a not-for-profit corporation, volunteer directors, and nominal or passive directors are held to the single statutory standard, and flexibility lies only in its application (Corsano, Létourneau J.A., paras. 22–25, adopted by the majority at para. 21). Delegating remittances to a manager without supervising the delegation is not diligence (“The delegation amounted to nothing less than abdication”: para. 30), and the adequacy of the corporation’s assets to pay all creditors eventually is irrelevant (para. 35). In Chriss, the Court held that a belief in having resigned can support the defence only if it closely tracks the requirements of an effective resignation (paras. 17–19 and 24), and that a loss of control argument succeeds only where a bank or other creditor had the legal ability to prevent the corporation from remitting (paras. 28–30).

Two-year limitation (subsection 227.1(4))

No action or proceedings to recover an amount payable under subsection 227.1(1) may be commenced more than two years after the director “last ceased to be a director”. The Federal Court of Appeal applies the period to the date of the assessment (Butterfield, paras. 2–3; Madison, paras. 2 and 13), and a resignation more than two years before the assessment is a complete defence (Madison, para. 13). The CRA takes the same position (IC89-2R3, para. 8).

When a person ceases to be a director is determined under the governing corporate statute. Under subsection 108(2) of the Canada Business Corporations Act, a resignation takes effect when a written resignation is sent to the corporation or at the time it specifies, whichever is later; under subsection 121(2) of the Ontario Business Corporations Act, it takes effect when the written resignation is received by the corporation or at the time specified, whichever is later. In Chriss, an oral intention to resign, with unsigned and undated resignations that never left the solicitor’s office, was not an effective resignation (paras. 9–15). The Court stressed that directorship must be “capable of objective verification” (para. 14) and that the two-year period requires precision in the date of resignation (paras. 12–13).

An assignment in bankruptcy does not cause a director to cease to be a director, and neither does exclusion from the business by the trustee (Butterfield, paras. 4 and 11, citing Kalef). A director who never resigned remained a director until the corporation was struck from the provincial register (para. 7). The CRA’s view is that directors continue in office, with reduced powers, after a trustee, receiver, or liquidator is appointed (IC89-2R3, para. 8).

Amount recoverable and interest (subsection 227.1(5))

Where execution under paragraph 227.1(2)(a) has issued, the amount recoverable from a director is the amount remaining unsatisfied after execution. Together with paragraph (2)(a), this avoids recovering from the director what the corporation has paid (Colitto, para. 24). Where the Crown proceeds under paragraph (2)(b) or (c), it may not collect more than the amount proved in the proceedings, subject to section 166 (ibid.). The amount includes interest and penalties relating to the corporation’s failure (subsection 227.1(1)); interest runs at the prescribed rate under subsection 227(8.3) (amounts not deducted or withheld) or subsection 227(9.2) (amounts deducted or withheld but not remitted).

Preference and contribution (subsections 227.1(6) and (7))

A director who pays an amount in respect of the corporation’s liability that is proved in liquidation, dissolution, or bankruptcy proceedings is entitled to any preference the Crown would have had and, where a certificate has been registered, to an assignment of the certificate to the extent of the payment (subsection 227.1(6)). A director who satisfies a claim is entitled to contribution from the other directors who were liable for it (subsection 227.1(7); see Madison, para. 2).

Assessment, objection, and appeal

The Minister may assess an amount payable under section 227.1 “at any time” (paragraph 227(10)(a)), subject to subsection 227.1(4), and Divisions I and J of Part I then apply with any modifications the circumstances require. The director may therefore object under section 165 and appeal to the Tax Court of Canada. The one-year alternative in paragraph 165(1)(a) is confined to an assessment of an individual “in respect of the taxpayer for a taxation year”; a director’s assessment under subsection 227(10) should be treated as governed by the 90-day period in paragraph 165(1)(b). An extension may be sought under section 166.1, within one year after the time for objecting expires (paragraph 166.1(7)(a)).

A director assessed for the corporation’s debt may contest the corporation’s underlying liability. In Gaucher, the Court held that a person assessed derivatively under subsection 160(1) must have “a full right of defence”, including an attack on the primary assessment, because he or she was not a party to it (paras. 6–9). In Duque, after noting that the Tax Court had extended that principle to section 227.1 and to section 323 of the Excise Tax Act (para. 19), the Court stated expressly that a director assessed under section 323 “should be able to challenge the underlying assessment” of the corporation (para. 20).

Before assessing, the CRA writes to the directors who may be liable, invites an explanation of the steps taken to ensure remittance, and may assess without further notice if no reply is received within the time set in the proposal (IC89-2R3, paras. 19–21).

← Legislative historyPolicy purpose and commentary →

Policy purpose and commentary

The Federal Court of Appeal has described the mischief at which section 227.1 was directed: in the recession of the early 1980s, directors faced with a choice between remitting withheld amounts and paying creditors essential to the business often preferred the latter, and the means of recovering such amounts from directors personally were limited (Soper, reasons of Robertson J.A., Part III). The provision strengthens the Crown’s ability to enforce the obligation to remit and rests on the presumption that a corporation’s decision to default “would originate with the directors” (Colitto, para. 25, quoting Smith v. Canada, 2001 FCA 84). The Crown “is an involuntary creditor” whose exposure grows while a corporation pays net wages without remitting (Buckingham, para. 49; see Corsano, Létourneau J.A., para. 18), and the defence should not reward directors who finance the corporation with Crown money (Buckingham, para. 49). Parliament nonetheless chose not to impose absolute liability (para. 52).

Employees are not held liable for amounts withheld but not remitted, and may credit the amounts purportedly withheld against their own tax (Soper, Part III). The loss therefore falls on the Crown unless it can recover from the corporation or its directors. The conditions in subsection 227.1(2) serve a distinct purpose: they prevent double recovery and confine the director’s liability to what cannot be recovered from the corporation (Colitto, para. 24).

The Department of Finance’s 1982 explanatory notes to section 227.1 and its 1988 technical notes to paragraph 227.1(2)(a) were considered in Colitto and found to be descriptive and of no assistance on the timing of liability (paras. 28–29). Soper relied on E.G. Kroft, “The Liability of Directors for Unpaid Canadian Taxes”, in Report of Proceedings of the Thirty-seventh Tax Conference, 1985 (Canadian Tax Foundation, 1986), 30:1, and E.P. Moskowitz, “Directors’ Liability Under Income Tax Legislation and Other Related Statutes” (1990), 38 Can. Tax J. 537, for the background to the provision.

Further scholarly and professional commentary to be added

← Interpretation and applicationRelevant case law →

Relevant case law

• Canada v. Buckingham, 2011 FCA 142. The standard under subsection 227.1(3) is objective, following Peoples Department Stores (paras. 34 and 37); the defence is directed at preventing the failure (paras. 33 and 40); conduct is assessed from the onset of financial difficulty (para. 46); a director who continues the business by diverting source deductions cannot rely on the defence (paras. 49–57).
• Soper v. Canada, [1998] 1 F.C. 124 (C.A.). The “objective subjective” standard, the treatment of inside and outside directors, and the positive duty to act on notice of a potential remittance problem (reasons of Robertson J.A., Parts IV and V); the legislative background (Part III). The formulation of the standard has been superseded by Buckingham.
• Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68, [2004] 3 S.C.R. 461. The duty of care in paragraph 122(1)(b) of the Canada Business Corporations Act is objective, and “in comparable circumstances” introduces a contextual, not a subjective, element (paras. 62–63).
• Canada v. Corsano, [1999] 3 F.C. 173 (C.A.). Persons who acted as directors without the required qualification cannot rely on it to avoid liability (Noël J.A., paras. 17–20); a single standard of care applies to all directors, including those of not-for-profit corporations (Létourneau J.A., paras. 22–25, adopted at para. 21). George Wheeliker was one of the respondents, and later decisions of the Court cite the judgment as Wheeliker v. R., [1999] 2 C.T.C. 395.
• Hartrell v. Canada, 2008 FCA 59. A person not formally appointed who in fact functioned as a director may be liable under subsection 227.1(1) (paras. 4–5 and 7).
• Canada v. Chriss, 2016 FCA 236. A resignation is ineffective without a written resignation communicated to the corporation (paras. 9–15); the two-year period runs from the date of resignation, which must be precise (paras. 12–13); limits on the reasonable-belief and loss of control arguments (paras. 17–24 and 28–31).
• Butterfield v. Canada, 2010 FCA 330. An assignment in bankruptcy does not end a directorship, and a director who never resigned remained one until the corporation was struck from the register (paras. 4, 7, and 11).
• Madison v. Canada, 2012 FCA 80. The purpose of subsection 227.1(2) and the rule that only one of its paragraphs applies (paras. 2 and 18); paragraph (b) does not apply to a dissolution without a liquidator or proofs of claim (paras. 20–21); a resignation more than two years before the assessment is a complete defence (para. 13).
• Canada v. Colitto, 2020 FCA 70. A director’s liability arises when the corporation defaults, not when the conditions in subsection 227.1(2) are met (paras. 18–27), so that it can support a section 160 assessment of a transferee of property from the director.
• Duque v. Canada, 2020 FCA 73. A director assessed for the corporation’s unremitted net tax may challenge the corporation’s underlying assessment (paras. 17–20).
• Gaucher v. Canada, 2000 D.T.C. 6678 (F.C.A.). A person assessed for another’s tax debt may raise any defence the primary taxpayer could have raised (paras. 6–9).

Canada v. Kalef, [1996] 2 C.T.C. 1, 96 D.T.C. 6132 (F.C.A.), is not held on the Court’s website; it is described above only as later decisions of the Court have characterized it. Federal Court of Appeal decisions are available on the Court’s website.

← Policy purpose and commentaryCRA documents →

CRA documents

• IC89-2R3, Directors’ Liability (last updated 10 April 2014), which cancels and replaces IC89-2R2 dated 24 March 2006. The circular covers section 227.1 together with section 323 of the Excise Tax Act and parallel provisions of other federal statutes. It states that the CRA must first demonstrate that it cannot recover from the corporation (paras. 6–7), treats nominee, passive, and outside directors alike (para. 9), extends liability to de facto directors (para. 10), describes the methods a prudent director should use and states that “the steps must be taken before the failure has occurred” (paras. 12 and 14), applies an objective standard (para. 18), and sets out the pre-assessment proposal process (paras. 19–21). The circular does not address objections or challenges to the corporation’s assessment.
• T4001, Employers’ Guide – Payroll Deductions and Remittances (Rev. 25), section “Director’s liability”, which summarizes the liability for income tax, CPP contributions, and EI premiums and refers to IC89-2R3.
• How we may make another person or entity also responsible for your debt, CRA collections page, which describes the “directors’ liability assessment” for unremitted trust amounts, including penalties and interest.

Technical interpretations and roundtable positions to be added

← Relevant case lawRegulations, forms, and elections →

Regulations, forms, and elections

• Income Tax Regulations, C.R.C., c. 945, s. 108. Amounts withheld under subsection 153(1) in a month must be remitted by the 15th day of the following month (subsection 108(1)), subject to the accelerated schedules in subsections 108(1.1) to (1.13). The remittance deadline fixes when the corporation is “required to remit” and therefore which directors are liable.
• Form T400A, Notice of Objection – Income Tax Act, for objecting to a notice of assessment issued under the Act, including a director’s assessment.
• There is no prescribed form or election under section 227.1.

← CRA documentsCompliance →

Compliance

• Remittance deadlines. Source deductions must be remitted by the dates in section 108 of the Regulations. Each missed deadline is a separate failure for which the directors then in office are liable.
• Penalties. A failure to deduct or withhold under subsection 153(1) or section 215 attracts a penalty of 10% of the amount (subsection 227(8)). A failure to remit attracts a graduated penalty of 3%, 5%, 7%, or 10% according to the manner of payment and the length of the delay (subsection 227(9)). Under either subsection the rate is 20% where a penalty under that subsection was already payable for the year and the later failure was made knowingly or under circumstances amounting to gross negligence. These penalties relate to the amounts for which directors are liable.
• Interest. Interest accrues at the prescribed rate on amounts not deducted or withheld (subsection 227(8.3)) and on amounts deducted or withheld but not remitted (subsection 227(9.2)).
• Assessment period. There is no reassessment period in the ordinary sense: the Minister may assess “at any time” under paragraph 227(10)(a), but not more than two years after the director last ceased to be a director (subsection 227.1(4)).
• Records. A director relying on subsection 227.1(3) needs contemporaneous evidence of the steps taken before the failure: board minutes, reports from financial officers, and confirmations of remittance (IC89-2R3, para. 12; Buckingham, para. 40). A director who resigns needs proof of an executed, dated resignation and of its delivery to or receipt by the corporation (Chriss, paras. 14–15).

← Regulations, forms, and electionsPlanning and dispute notes →

Planning and dispute notes

Planning

• Build remittance monitoring into governance before any difficulty arises: regular reports from the officers responsible, confirmation that each remittance has been made, and minutes recording that the board reviewed them. Precautionary measures of this kind are persuasive evidence of diligence (Soper, Part V; IC89-2R3, para. 12), and under Buckingham the director must be able to show that he or she turned his or her attention to remittances (paras. 40 and 52).
• Treat the first signs of financial difficulty as the start of the period in which the director’s conduct will be judged (Buckingham, para. 46). Paying net wages while diverting source deductions to other creditors will defeat the defence, whatever the prospects of recovery (paras. 49 and 56).
• Payment of the corporation’s liability in full, even late, leaves nothing to recover from the directors, because paragraph (2)(a) and subsection (5) prevent recovery of what the corporation has paid (Colitto, para. 24; see the passage from McKinnon quoted at para. 30). In an insolvency, the deemed trust in subsections 227(4) and (4.1) operates notwithstanding the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act) and in priority to security interests; directors should therefore ensure that withheld amounts are paid over in preference to other creditors. The CRA suggests that directors advise any receiver or trustee in writing of the banking arrangements in place for paying source deductions (IC89-2R3, para. 13).
• A director who wishes to leave should deliver an executed, dated written resignation to the corporation and keep proof of delivery; an intention to resign, or instructions to counsel, will not suffice (Chriss, paras. 14–15 and 19). The resignation ends exposure to later failures and starts the two-year period; it does not affect liability for failures during the director’s tenure. The public registry should be updated, although under subsection 108(2) of the Canada Business Corporations Act and subsection 121(2) of the Ontario Business Corporations Act effectiveness turns on the written resignation.
• A person who takes part in management without being appointed, or who continues to act after an ineffective appointment, should assume that he or she may be treated as a director for the purpose of section 227.1 (Corsano, Noël J.A., paras. 19–20; Hartrell, paras. 4–5).

Disputes

• Identify which paragraph of subsection 227.1(2) the Crown relies on and verify the facts on which it depends: registration of the certificate and the return of execution, or proof of the claim within six months in the liquidation, dissolution, or bankruptcy. Only one paragraph applies on given facts, and paragraph (b) is unavailable for an administrative dissolution (Madison, paras. 18 and 20–21).
• Test the limitation period first. Establish the exact date on which the director last ceased to be a director under the governing corporate statute; a resignation more than two years before the assessment is a complete defence (Madison, para. 13; Chriss, paras. 12–15). Bankruptcy of the corporation does not end the directorship (Butterfield, para. 4).
• The director bears the burden on due diligence (Buckingham, para. 33). The evidence must show steps taken to prevent the failure, not to cure it (paras. 40 and 51), assessed objectively. Arguments based on loss of control are limited to cases where a bank or creditor could legally prevent remittance (Chriss, paras. 28–30).
• Consider challenging the corporation’s underlying assessment, which a derivatively assessed director may do even where the corporation did not object (Gaucher, paras. 6–9; Duque, paras. 17–20).
• Object within 90 days after the notice of assessment is sent (paragraph 165(1)(b)); an extension may be sought within one further year (subsection 166.1(7)). Assessments under section 21.1 of the Canada Pension Plan and section 83 of the Employment Insurance Act are made under those Acts, and their own assessment provisions apply to the director (CPP, subsection 21.1(3); EI Act, subsection 83(3)).
• In informal procedure appeals, documents bearing on resignation should not be excluded as hearsay without considering their reliability and probative value (Madison, paras. 11–14).
• Findings on due diligence and de facto directorship are questions of mixed fact and law, reviewed on appeal for palpable and overriding error unless an extricable error of law is shown (Buckingham, para. 25; Hartrell, para. 3).
• Relief from penalties and interest may be requested under the taxpayer relief provisions described in T4001 (“Cancel or waive penalties and interest”).

← ComplianceProvincial and treaty parallels →

Provincial and treaty parallels

• Excise Tax Act. Section 323 imposes a parallel liability for a corporation’s failure to remit net tax under subsection 228(2) or (2.3), or to repay a net tax refund under section 230.1, with the same conditions (subsection 323(2)), the same defence (subsection 323(3)), and provisions on the amount recoverable, preference, and contribution (subsections 323(6) to (8)). Unlike subsection 227.1(4), subsection 323(5) expressly bars an assessment made more than two years after the person last ceased to be a director. The Federal Court of Appeal applies the due diligence standard under the two provisions in the same way (Buckingham, para. 47).
• Canada Pension Plan and Employment Insurance Act. Section 21.1 of the Canada Pension Plan and section 83 of the Employment Insurance Act make the directors in office when a corporate employer fails to deduct or remit contributions or premiums jointly and severally, or solidarily, liable with the corporation, and apply subsections 227.1(2) to (7) of the Income Tax Act with such modifications as the circumstances require (CPP, subsection 21.1(2); EI Act, subsection 83(2)).
• Other federal statutes. IC89-2R3 notes parallel provisions in section 81 of the Air Travellers Security Charge Act, section 295 of the Excise Act, 2001, and section 95 of the Softwood Lumber Products Export Charge Act, 2006 (para. 1).
• Ontario. Section 139 of the Taxation Act, 2007, S.O. 2007, c. 11, Sch. A, makes directors liable for a corporation’s failure to deduct, withhold, or remit amounts required by subsection 153(1) of the federal Act as it applies for Ontario purposes, in terms that follow subsections 227.1(1) to (7), with the certificate registered in the Superior Court of Justice under subsection 131(2). The Ontario Minister may assess “at any time” (subsection 140(1)). The Employer Health Tax Act, R.S.O. 1990, c. E.11, contains no comparable civil liability; section 36 makes an officer, director, or agent who directed, authorized, assented to, acquiesced in, or participated in an offence by the corporation guilty of the offence.
• Quebec. Under section 24.0.1 of the Tax Administration Act, CQLR c. A-6.002, the directors in office when a corporation omits to remit, deduct, withhold, or collect amounts under a fiscal law become solidary debtors with the corporation, on conditions similar to those in subsection 227.1(2). Section 24.0.2 relieves a director who acted with reasonable care, dispatch, and skill, or who could not have been aware of the omission, and bars an assessment more than two years after the director last ceased to be a director.

← Planning and dispute notesAnnotated cross-references →

Annotated cross-references

• Subsections 135(3) and 135.1(7), section 153, and section 215 (the withholding obligations whose breach engages section 227.1), and Parts VII and VIII (sections 192 and 194).
• Subsection 153(3), under which amounts withheld are deemed received by the payee, and subsections 227(4) and (4.1) (deemed trust), both relied on in Buckingham to reject a cash-flow defence (paras. 42–45).
• Subsections 227(8), (8.3), (9), and (9.2) (penalties and interest that form part of the director’s liability) and subsection 227(9.4) (the payer’s own liability for amounts withheld but not remitted).
• Paragraph 227(10)(a) (assessment of directors “at any time”) and Divisions I and J of Part I, including sections 165 and 166.1 (objections and extensions).
• Section 223 (certificates registered in the Federal Court), which is the first step under paragraph 227.1(2)(a).
• Subsection 227(5), which makes trustees, receivers, secured creditors, and other specified persons who cause payments to be made jointly and severally, or solidarily, liable for the related withholding obligations; it operates alongside, and is distinct from, section 227.1.
• Subsection 160(1), under which a director’s liability for defaults in a year may support an assessment of a person to whom the director transferred property (Colitto, para. 27).
• Canada Business Corporations Act, section 108, and Ontario Business Corporations Act, section 121 (when a director ceases to hold office).

← Provincial and treaty parallelsSources →

Sources

• Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 227.1 and prior versions: Justice Laws Website; point-in-time versions from 31 August 2004 and 15 December 2004. Related provisions: ss. 135, 135.1, 165, 166.1, 192, 194, 215, 223, and 227.
• Amending Acts: S.C. 2004, c. 25, s. 202; S.C. 2006, c. 4, s. 87.
• Income Tax Regulations, C.R.C., c. 945, s. 108.
• Excise Tax Act, s. 323; Canada Pension Plan, s. 21.1; Employment Insurance Act, s. 83; Canada Business Corporations Act, s. 108.
• Ontario e-Laws: Business Corporations Act, s. 121; Taxation Act, 2007, ss. 139–140; Employer Health Tax Act, s. 36. LégisQuébec: Tax Administration Act, ss. 24.0.1–24.0.2.
• Federal Court of Appeal: Buckingham, Chriss, Colitto, Duque, Madison, Butterfield, Hartrell, Corsano, and Gaucher. Federal Courts Reports (Library and Archives Canada archive of the Federal Judicial Affairs site): Soper and Corsano.
• Supreme Court of Canada: Peoples Department Stores.
• Canada Revenue Agency: IC89-2R3; T4001; collections page on co-liability; Form T400A.

← Annotated cross-references