Chell v The Queen, 2013 TCC 29

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Director Liability for Failure to Remit: When is a Resignation NOT Enough?

Chell v The Queen, 2013 TCC 29

The main issue was whether a former director of two corporations was liable under the ETA and ITA for unremitted amounts, turning on the question of whether the person was a director within two years preceding the assessment for director’s liability. Another issue was whether as a director he had acted so as to have access to the due diligence defense.

The Court stated that both de facto and de jure directors can be liable under the ITA and ETA. In this case, though the appellant ceased to be a de jure director by resigning in accordance with the applicable corporate law statutes, he continued to act after the resignation such that third parties would have reasonably believed that he was continuing as a director.  The Court held that he was a de factor director within two years of the assessment, and therefore liable.  The Court also held that as a director he had taken no positive steps to make sure that the remittances were made, and stated that simply delegating to an employee without adequate supervision was not sufficiently diligent.


The appellant was the director of two companies who had failed to remit payroll  deductions and GST as required.  He was the last to resign as a director on January 11, 2006, but continued to act on behalf of the companies as President and CEO, and argued that he was not responsible because the assessment came more than 2 years after he ceased being a director.


Under the Income Tax Act (subsection 227.1(1)) and the Excise Tax Act (subsection 323(1)) a director may be liable for a corporation’s failure to remit certain amounts collected on behalf of the crow, but the liability cannot be enforced if the person ceases to be a director more than two years after the individual’s resignation as a director (ITA s 227.1(4) and ETA s 323(5)).

Neither the ETA or ITA define when a person cease to be a director, meaning that the corporate law of the relevant jurisdiction must be looked at as determinative (Aujla v Canada, 2008 FCA 304, paras 23-25).  A director may be a de jure or a de facto  director for purposes of director’s liability under the ETA and ITA (Moiser v R, [2001] GSTC 124 (TCC) at para 23).  A de jure director is one who has been appointed pursuant to the applicable corporate law.  A de facto director can be either (1) “those who are ostensibly duly elected but who may lack some qualification under the relevant company law, and [2] those who simply assume the role of director without any pretenses of legal qualification”.

Both de facto and de jure directors are liable if they were such within two years of the assessment, unless they demonstrate that they exercised due diligence as a defiance under the ITA or the ETA.

A person becomes and ceases to be a de jure director according to the corporate law of the relevant jurisdiction. In this case, both in Delaware and Alberta (two relevant jurisdictions) a director resigns by giving notice in writing, which the appellant here did on January 11, 2006.

The appellant continued to be intimately involved with the company, including authorizing the sale of assets which only a director could have done.  “de facto directorships ‘must be considered to endure at least as long as [the] person manages or supervises the management of the business and affairs of the corporation in question” (see Bremner v The Queen, 2009 FCA 146).  The court held that the appellant continued to act as de facto director at least until June 2006.  The court also held that even after the legal resignation, the actions of the appellant would suggest to a third party that he was still a director of the corporation.  This is supported by the fact that the functions of the appellant didn’t change after his resignation, thus he attempted to fulfill those functions – “because the appellant’s behaviour remained the same following his legal resignation, a third party would not suspect that his status had changed” (para 31).  The impression left by the appellant that he was a director convinced the court that he continued to be a de facto director until at least October 2006 (he attempted to conclude a long term contract with a prospective client).

The appellant’s behaviour towards the CRA also didn’t’ change after his legal resignation, and he never indicated to the CRA that he was no longer a director until August 2007. “the appellant resigned occultly, yet he continued to cooperate with the CRA as if his status had not changed […] creating the impression that he was still an active director of both corporations” (para 33).

Given that the appellant was a de facto director within two years of the assessment, he is prima facie liable unless he can demonstrate acting diligently to prevent the failures to remit (para 34).

An objective standard must be employed to determine whether a director has satisfied the conditions of the due diligence defense under subsection 227.1(3) of the ITA and subsection 323(5) of the ETA (The Queen v Buckingham, 2011 FCA 142 – “a person who is appointed as a director must carry out the duties of that function on an active basis and will not be allowed to defend a claim for malfeasance in the discharge of his or her duties by relying on his or her own inaction[, but] an objective standard does not, however, entail that the particular circumstances of a director are to be ignored.”  The consideration is “what a reasonable person would have done in the circumstances of the individual under assessment.”

The director hast point to steps taken to prevent the failure to remit, thus “turned his attention to the remittances, and then exercises due care, diligence and skill with a view of preventing failure.”(para 37). There is no evidence that the director took any positive steps to prevent the failure to remit, but used the remittances to fund the corporation’s failing business – he didn’t review the company’s books, review the pattern of remittances, and cannot discharge the statutory obligation by delegating remittance functions to an employee without any oversight on his part (para 39)

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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