Will CRA Pursue Directors For Deferred GST/HST?

• Published date: 16 June 2020
• Author: Mr Adam Gotfried, Michael Friedman, Jamie M. Wilks and Michel M. Ranger
• Subject Matter: Corporate/Commercial Law, Tax, Directors and Officers, Income Tax, Sales Taxes: VAT, GST
• Law Firm: McMillan LLP

One of the many measures that the Federal Government has taken to protect employment and ease cash-flow crunches during the ongoing Coronavirus pandemic is to allow businesses to defer, until June 30, 2020, the remittance of net GST/HST amounts (collectible/collected minus input tax credits generally) (the "Remittance Deferral") that became owing between March 27, 2020 and the end of May 2020 (the "Deferral Period").

While the Remittance Deferral has undoubtedly helped many Canadian businesses, the Federal Government has not (yet) clarified the consequences if a business is unable to remit GST/HST amounts owing after the Deferral Period expires, or is only able to remit one of (i) net GST/HST owing arising during the Deferral Period, and (ii) net GST/HST owing arising after the Deferral Period. Clarity on this point would be particularly welcome since the directors of a corporation can, in certain circumstances, be held personally liable for the corporation's failure to remit net taxes to the Canada Revenue Agency (the "CRA").

This Bulletin supplements McMillan's original analysis of the Remittance Deferral, which was first announced in March, 2020. McMillan's analysis of the Remittance Deferral is available here

Personal Liability of Directors for Net GST/HST Owing

Pursuant to subsection 323(1) of the Excise Tax Act (Canada) (the "ETA"), directors of a corporation are jointly and severally liable with the corporation for any net GST/HST that the company fails to remit to the CRA. However, the ETA absolves directors of personal liability under certain, specified circumstances. For example, the CRA cannot assess a former director, in respect of a corporation's failure to remit net GST/HST amounts, more than two years after the person ceased to be a director,¹ and the CRA must take steps to try to collect the amount (or any portion of it) from the corporation before assessing a director personally.²

Even if the CRA assesses a director or a former director within the permitted time -period, and has unsuccessfully sought to collect unremitted net GST/HST amounts from a corporation directly, a director's liability for unremitted net GST/HST amounts is still not absolute. In order to preclude personal liability, directors can plead a defence of due diligence.

The Due Diligence Defence

Subsection 323(3) of the ETA contains the due diligence defence to director's liability. The law places the onus of establishing the defence of due diligence on the directors. A...