Section 160/325 - Derivative Liability And Bankruptcy

A taxpayer can still be held liable for a tax debt thought to have been erased by bankruptcy. This was the decision of the Federal Court of Appeal in Canada v. Heavyside, 1996 CanLII 3932 (FCA) and more recently affirmed in Légaré v. The Queen, 2019 TCC 106 (CanLII).

Central to the issue of bankruptcy and persisting tax debts are the derivative liability provisions of the Federal Income Tax Act such as section 160. It's counterpart under the Federal Excise Tax Act, section 325, operates similarly. Pursuant to sections 160 and 325, a person can be held liable for the tax debt of another, including a corporation. Per section 227.1 of the Income Tax Act, a director is jointly and severally liable for certain tax arrears of a corporation (director liability). Similar director liability provisions can be found in Canadian legislation such as the Excise Tax Act, Canada Pension Plan and Employment Insurance Act.