Medical Impairment and Directors’ Liability for HST/GST

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Medical Impairment and Directors’ Liability for HST/GST

Attia v The Queen, 2014 TCC 46

At issue was the availability of the Due Diligence defense against personal liability of a corporate director under Excise Tax Act subsection 323(3), and the effect of medical depression of the director on the defense.


The Appellant stared the business, which was his sole source of income, and had always met his tax liabilities.  As a result of his father dying and the franchisor informing him of the loss of his franchise, he suffered medical depression and was medicated by a physician (who testified) and saw a psychotherapist (who also testified).  Neither of these parties’ credibility was in doubt.  The taxpayer hired a manager to take care of the financial affairs while he was incapable, because of his depression, from doing so.


The legal framework for the due diligence defense is found in Canada v Buckingham, 2011 FCA 142, and Balthazard v Canada, 2011 FCA 331.  They impose an obligation of prudent and diligent conduct so as to improve the quality of decisions made by corporate boards and discourage the use of nominees as directors (para 11).

In this case the Appellant was not a nominee director or one who was unaware of his responsibilities – the history of compliance proved this. Also, the court noted that the Appellant had appointed a competent manager to replace him until he was capable again, because he was aware of his responsibilities.

The existence of depression is a factor to consider.  Although generally a director may delegate duties only with appropriate oversight (see  Kaur v. The Queen, 2013 TCC 227; Chell v. The Queen, 2013 TCC 29; Stafford v. The Queen, 2009 TCC 247.), this is not to be interpreted too narrowly. In Verret v. The Queen,2008 TCC 240, it was said that the directors health problems must be considered.

To determine whether the defense is made out, one must ask “what more a reasonable prudent person placed in comparable circumstances could have done to try to prevent the corporation’s failure to remit”:  Cloutier v MNR, [1993] T.C.J. No 103 (QL.  The court held that;

[15] … In this case, I believe that the appellant has shown a sufficient degree of diligence in delegating his duties to a competent manager, whose competence and honesty he had no reason to doubt, and I believe that a reasonable person placed in comparable circumstances would have don’t nothing more.

The purpose of 323(1) is not to penalize ill persons for failure to supervise, but rather to penalize directors “who were careless and who neglect their role as agents of the Crown” (para 20).

– Sas Ansari, JD LLM PhD (exp)

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