Director Liability Limitation Period Checker
A director stops being exposed two years after they actually cease to hold office, but only if the resignation was effective and the CRA misses the window. Work out when yours expires, what is inside the assessment and what is not, and whether the due diligence defence is available.
amount directors can be assessed
—
—
—
—
What Is Inside the Director Assessment
| Amount | Statute | Reaches a Director | Value |
|---|
The Limitation Clock
| Item | Rule | Position |
|---|
Conditions and Defences
| Requirement | What It Means | Your Position |
|---|
Points That Decide This
What to Do Next
—
Disclaimer: Section 227.1 of the Income Tax Act makes the directors of a corporation jointly and severally liable, together with the corporation, for amounts the corporation was required to deduct or withhold and remit, together with related interest and penalties. Section 323 of the Excise Tax Act imposes an equivalent liability for net GST/HST that the corporation failed to remit. Corporate income tax is not recoverable from directors under either provision. Subsection 227.1(2) and subsection 323(2) impose preconditions: the Minister may not assess a director unless a certificate for the amount has been registered in the Federal Court and execution has been returned unsatisfied in whole or in part, or the corporation has commenced liquidation or dissolution proceedings or has been dissolved and a claim has been proved within six months, or the corporation has made an assignment or a bankruptcy order has been made and a claim has been proved within six months. Subsection 227.1(4) and subsection 323(5) provide that no action or proceedings to recover from a director may be commenced more than two years after the person last ceased to be a director of the corporation. Subsection 227.1(3) and subsection 323(3) provide a defence 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 Federal Court of Appeal in Buckingham confirmed that this standard is objective and that the defence is directed at preventing the failure to remit rather than at curing it afterwards. Whether a person has ceased to be a director is determined under the governing corporate statute and the corporation’s constating documents, and a person who continues to act as a director may be found to be a de facto director despite a purported resignation. This page is general information, not legal or accounting advice.
Two Years, From Actually Ceasing
The limitation is short and it is real. No proceeding to recover from a director may be commenced more than two years after the person last ceased to be a director. Directors who have genuinely resigned and waited out the window are not assessable, and the CRA misses that window more often than you would expect.
The difficulty is almost never the arithmetic. It is proving when you ceased, and whether you really did.
A resignation that was never documented may never have happened. Telling your business partner you were finished, stopping attending meetings, or moving to another city does not end a directorship. It ends when a written resignation takes effect under the governing corporate statute, and without that document the two-year clock may never have started at all.
De Facto Directors Are Caught Too
Someone who was never formally appointed but who behaves like a director, signing cheques, directing employees, making the decisions a director makes, can be found to be a de facto director and assessed accordingly.
The same reasoning works against a person who resigns on paper and then keeps running the company. The resignation is undermined by the conduct that followed it, and the limitation period may be treated as running from when they actually stopped rather than from the date on the document.
| Situation | Limitation Position |
|---|---|
| Written resignation, stopped acting | Two years runs from that date |
| Written resignation, kept running the company | May be treated as continuing |
| Stopped acting, nothing in writing | Contestable, evidence decides it |
| Never appointed, acted as a director | De facto director, still exposed |
| Still a director | No clock is running |
Only Certain Amounts Reach a Director
This is the distinction that reduces the exposure most often, and it is frequently missed when an assessment arrives showing one large number.
| Amount | Recoverable From a Director |
|---|---|
| Source deductions withheld and not remitted | Yes, section 227.1 |
| Net GST/HST collected and not remitted | Yes, section 323 |
| Interest and penalties on those amounts | Yes |
| Corporate income tax | No |
| The employer’s own share of CPP and EI | Treated with the remittance obligation |
The logic is that source deductions and GST/HST are money the corporation held on behalf of someone else. Its own income tax is its own debt. A corporation that owes all three can produce a director assessment far smaller than its total balance, and checking the composition is worth doing before anything else.
Where the corporation transferred property to you, a separate route exists. That is the derivative liability regime under section 160 and section 325, which has no limitation period at all and does not depend on you being a director. The two can be assessed against the same person at the same time for overlapping money.
The CRA Has to Do Something First
A director cannot be assessed out of the blue. The Minister must first have exhausted or effectively exhausted collection against the corporation, by one of three specified routes: a certificate registered in the Federal Court with execution returned unsatisfied, or a claim proved in a liquidation or dissolution, or a claim proved in a bankruptcy, each within the prescribed timing.
Where those steps were not properly taken, the assessment is vulnerable regardless of the merits. It is a technical point and it wins cases.
Due Diligence Is About Prevention
The defence protects a director who exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the failure. Two things about it are routinely misunderstood.
The standard is objective. The Federal Court of Appeal settled that in Buckingham, and the days of a purely subjective test that asked what this particular director could manage are over. An inexperienced director is not held to a lower bar.
And the defence is directed at prevention, not rescue. Steps taken to pay off arrears after they built up are not the defence. What counts is what was done to stop the remittances being missed in the first place.
Knowingly using withheld money to fund operations is close to fatal to the defence. A director who decided to pay suppliers and wages out of source deductions in the hope of trading through has made a choice rather than failed to prevent something. That reasoning appears repeatedly in the case law.
What Does Support the Defence
- Systems that separated remittances, such as a dedicated account or automated payment
- Contemporaneous enquiries to management or the bookkeeper about whether remittances were current
- Minutes and correspondence showing the issue was raised and acted on before the failure
- Action taken on discovering a problem, promptly and in writing
- Resigning where the director could not influence the outcome, done properly and documented
- Evidence the director was misled despite reasonable enquiry
Joint and Several Among Directors
Every director can be assessed for the whole amount. The CRA is not obliged to divide it or to pursue the director most responsible, and in practice it pursues the one most likely to pay. Contribution between directors is a civil matter among them, not something the assessment accounts for.
So the presence of other directors does not reduce your exposure, although payment by any of them reduces what remains collectible from everyone.
What This Calculator Does Not Cover
- Whether your resignation was effective under the governing corporate statute
- Section 160 and section 325 derivative liability, which has no limitation period and follows property transfers
- Provincial payroll and sales tax director liability regimes
- Employment standards claims for unpaid wages, which reach directors separately
- Whether the underlying corporate assessment is correct, which can be challenged on its own
- Bankruptcy of the director personally and its effect on the assessment
If an assessment has issued, the objection deadline runs from the notice and it is short. Our CRA collections and tax debt service covers the limitation argument, the composition of the assessment, the prerequisite steps and the due diligence evidence.
Frequently Asked Questions
Common questions on director liability for corporate tax debts.
Related Calculators and Guides
More tools for directors facing CRA assessments.
The Limitation Argument Has to Be Made in Time
Send us the notice of assessment, the resignation documentation and the corporate filings. We will test the limitation period, check the composition of the assessment, examine whether the prerequisite steps were properly taken and build the due diligence evidence.