Excise Tax Act section 323 makes the directors of a corporation personally liable, alongside it, for net tax it failed to remit. Three things gate it: the Minister must first fail to collect from the corporation in one of three prescribed ways, the director may raise a diligence defence, and no assessment may be made more than two years after the person last ceased to be a director.
Key takeaways
SECTION 01 OF 09
The marginal note is Liability of directors. The provision: “If a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3) or to pay an amount as required under section 230.1 that was paid to, or was applied to the liability of, the corporation as a net tax refund, the directors of the corporation at the time the corporation was required to remit or pay, as the case may be, the amount are jointly and severally, or solidarily, liable, together with the corporation, to pay the amount and any interest on, or penalties relating to, the amount” (ETA s.323(1)).
Liability fixes on whoever sat on the board at the time the corporation was required to remit, not whoever was there when the tax was charged. That duty is s.228(2): positive net tax is remitted, in the ordinary case, “on or before the day on or before which the return for that period is required to be filed”.
SECTION 02 OF 09
Section 323(1) also reaches a failure “to pay an amount as required under section 230.1” — marginal note Overpayment of refund or interest, applying “Where an amount is paid to, or applied to a liability of, a person as a refund, or as interest, under this Division and the person is not entitled to the refund or interest” (ETA s.230.1).
A director can therefore be personally liable for money the corporation received from the Crown and should not have. That has no analogue in Income Tax Act s.227.1, confined as it is to failures to deduct, withhold, remit or pay. It bites hardest on a share purchase, where unsupportable input tax credits leave an exposure showing up as no unpaid balance anywhere.
SECTION 03 OF 09
Subsection (2), marginal note Limitations, opens: “A director of a corporation is not liable under subsection (1) unless” one of three things has happened. Paragraph (a) requires a certificate for the corporation’s liability “registered in the Federal Court under section 316 and execution for that amount has been returned unsatisfied in whole or in part”. Paragraphs (b) and (c) cover liquidation or dissolution and bankruptcy respectively, each requiring a claim “proved within six months” of the triggering event.
The certificate route is no formality: s.316(2) provides that once registered a certificate “has the same effect, and all proceedings may be taken thereon, as if the certificate were a judgment obtained in the Court against the debtor”. CRA puts the same duty in its own words — it must “demonstrate its inability to recover the amounts directly from the corporation” (Treadstone Law sequences it identically).
Each gate is an event in the corporation’s collection history, not in the deal, which is why this surfaces years after closing: a buyer who reads CRA correspondence at closing and finds nothing has confirmed only that no gate has been cleared yet. Treadstone Law on remittances in a share purchase adds that statements record what was booked, not what was remitted.
SECTION 04 OF 09
Subsection (3) carries the marginal note Diligence: “A director of a corporation is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances”.
The income-tax provision was checked separately rather than assumed to match. ITA s.227.1(3) opens “A director is not liable for a failure under subsection 227.1(1)” and runs on identically from “where the director exercised the degree of care” to “in comparable circumstances”. The test is word for word the same; the framing is not, since the Income Tax Act heads its defence Idem and the Excise Tax Act its own Diligence.
The standard is judicially developed, and this page cites no case. The decisions applying it are the real content of the defence, and none was readable from a primary source: CanLII refuses automated requests, and the Federal Court of Appeal’s decision pages return a JavaScript shell — one item id fetched cleanly and proved to be an immigration appeal, not a tax case. Rather than cite a decision nobody here has read, the case law is left out.
SECTION 05 OF 09
IC89-2R3 — which replaces a 2006 circular, carries a 2014 page date, and states that “the circular itself is not law” — records CRA’s position: “An objective standard is applied when considering a due diligence defence.” The steps “must be taken before the failure has occurred”, and “The statutes do not distinguish between directors, whether active, passive, nominee, or outside directors”, while officers or employees “who perform the functions that directors would perform, may be liable” (IC89-2R3). Treadstone Law on HST remittance liability puts it plainly: oversight systems, not trust that filings are happening.
SECTION 06 OF 09
Subsection (5), marginal note Time limit: “An assessment under subsection (4) of any amount payable by a person who is a director of a corporation shall not be made more than two years after the person last ceased to be a director of the corporation”. Note the number, easy to cite wrongly: subsection (4) is the assessment power.
The income-tax provision does something different. ITA s.227.1(4) provides that “No action or proceedings to recover any amount payable by a director of a corporation under subsection 227.1(1) shall be commenced more than two years after the director last ceased to be a director of that corporation” — and that Act’s assessing power sits elsewhere, in s.227(10), beginning “The Minister may at any time assess any amount payable under” a list including section 227.1.
Two years in both, time-barring two different acts: under the ETA the assessment itself, under the ITA the action or proceedings to recover. What that produces in practice is a question of interpretation, and with no judgment read here no answer is asserted — but it is the reason not to reason about one statute from the other (compare how CRA collects GST/HST debt).
SECTION 07 OF 09
Section 323(5) runs from the day the person “last ceased to be a director”, and the Excise Tax Act never says when that is. For a federal corporation the answer is CBCA s.108, marginal note Ceasing to hold office, whose subsection (2) fixes the date: “A resignation of a director becomes effective at the time a written resignation is sent to the corporation, or at the time specified in the resignation, whichever is later”.
Treadstone Law on the resigning director’s window deliberately declines to state the number of years, on the ground that a mis-stated limitation gives false comfort at the worst moment. Section 323(5) supplies it: two years, from the effective date of the resignation, not from the last unremitted period.
SECTION 08 OF 09
Two anchors do the work. Liability attaches to the directors “at the time the corporation was required to remit”, and the remittance falls due under s.228(2), on the return’s filing deadline — which for an ordinary registrant filing monthly or quarterly is, under s.238(1)(b), “within one month after the end of the reporting period of the registrant”.
Now put a closing inside a reporting period. The tax accrues while the seller’s nominees hold the board; the obligation to remit crystallises after the period ends, by which time the buyer’s nominees are the directors. On the words of subsection (1) they are the ones in office when the corporation was required to remit that period’s net tax — including the part that accrued before they arrived.
Directorship is also consensual, so confirm the corporate record. CBCA s.106(9) provides that an individual elected or appointed “is not a director and is deemed not to have been elected or appointed to hold office as a director unless” they consented or acted as one.
SECTION 09 OF 09
Outgoing directors do not walk clean: their own two-year window runs from their own cessation, so a seller who resigns at closing stays assessable for two years on periods when they held office. That is a tail on the seller, not a defence for the buyer: s.323(1) makes directors liable “jointly and severally, or solidarily”, so the Minister chooses whom to pursue. A director who pays gets contribution under subsection (8), granted to “A director who satisfies a claim under this section” where ITA s.227.1(7) grants it to “A director who has satisfied a claim”. It is worth what the co-directors are worth.
Subsection (4) pulls in the ordinary assessment machinery, so a director objects as any registrant does: s.301(1.1) allows a notice of objection “within ninety days after the day notice of the assessment is sent to the person” (the GST/HST objection process).
Four neighbouring rules do different work. ITA s.227.1 director liability is the twin compared above; s.160 and ETA s.325 transferee liability attach to a recipient of property and need no board seat; the statutory clocks behind holdbacks covers how these periods size a holdback. Two boundaries: s.323 is federal and no provincial sales-tax regime is described here, and the corporate-law rules quoted are the CBCA’s (federal versus provincial).
No. Section 323(2) first requires the Minister to fail to collect from the corporation in one of three prescribed ways — an unsatisfied execution on a registered certificate, or a proven claim within six months of liquidation, dissolution or bankruptcy — before any director becomes liable.
Yes, potentially. Liability attaches to whoever were directors when the corporation was required to remit that period’s net tax, which falls due after the reporting period ends — so a closing inside a reporting period can leave the buyer’s new directors on the hook.
Two years from the date the resignation takes effect, and that effective date is itself a corporate-law question — CBCA section 108(2) fixes it as when a written resignation is sent to the corporation, or the date specified in it, whichever is later.
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