Directors Need To Meet High Standard To Avoid Liability

The Tax Court of Canada again confirmed that directors of corporations will have a high burden to meet to establish a due diligence defence and avoid liability for unremitted source deductions.

In Maddin v The Queen, 2014 TCC 277, the taxpayer was a director of a corporation that failed to remit nearly $300,000 of employee source deductions. The only issue before the Court was whether the taxpayer exercised "due diligence" under subsection 227.1(3) of the Income Tax Act (Canada).

The taxpayer sold a portion of the shares in a corporation to two other individuals, but remained a director so the company could benefit from his experience. The taxpayer argued that his intention was to play a limited advisory role in the corporation, and another director was in charge of managing the daily operations. However, the Court found that: the taxpayer was in the office 2-3 days a week, effectively spending more time in the office than the other directors; he was familiar with