"Checking The Box" Not Enough To Avoid Director's Liability For Outside Director

A decision of the Tax Court of Canada has provided further insight into the duties of an “outside” director who wishes to rely on the due diligence defence to avoid a director's liability assessment under the Income Tax Act  (the “Act”).

In Burnett v The Queen  (2022 TCC 99), the taxpayer was assessed pursuant to section 227.1 of the Act for unremitted payroll source deductions of Canadian Noble Cut Diamonds Ltd. (“CNCD”), of which he was a director. The taxpayer, who had previously been a director of numerous private and public corporations, viewed himself as an outside director, and did not have access to CNCD's bank account and was not a signing officer.

The taxpayer testified that at each board meeting he asked another director, who was president of CNCD and led its daily operations, about whether payroll source remittances were current. The response was always to the effect that all was up to date and there were no concerns.