Director Liability for $700,000 of Unremitted GST/HST: A Canadian Tax Lawyer Breaks Down Stevens v. The King

Overview – Director Liability, Why Corporate Resignations Won’t Save Directors, and GST/HST Tax Reassessments

In Stevens v. The King, the Tax Court of Canada considered two recurring and highly consequential issues in GST/HST director liability litigation: when does a director legally cease to hold office for purposes of the two-year limitation period under the Excise Tax Act, and what level of oversight is required to establish a valid due diligence defence against personal liability for unremitted GST/HST?

The case arose after the Canada Revenue Agency (CRA) assessed the taxpayer personally under section 323 of the Excise Tax Act for more than $700,000 in unremitted GST/HST owed by a corporation operating a retail furnishing and appliance business. The taxpayer did not dispute the underlying GST/HST debt itself. Instead, he argued that the tax assessment was statute-barred because he had resigned as a director more than two years before it was issued. In the alternative, he maintained that he had exercised reasonable care by delegating financial and tax responsibilities to another individual responsible for the corporation’s accounting and remittance functions.

The CRA rejected both positions. It maintained that the taxpayer had failed to establish that a valid resignation had ever occurred and further argued that passive reliance on another individual, without meaningful oversight or internal controls, could not satisfy the statutory due diligence defence available to directors under subsection 323(3) of the Excise Tax Act.

The Tax Court agreed with the CRA on both issues. Applying a strict evidentiary approach, the Court found that the alleged resignation was not capable of objective verification and that the taxpayer’s oral testimony lacked credibility and corroboration. The Court also concluded that the taxpayer had failed to take active steps to prevent the corporation’s GST/HST remittance failures and therefore could not rely on the due diligence defence.

More broadly, the decision reinforces a recurring principle in Canadian tax litigation: director liability under the Excise Tax Act (and under the Income Tax Act) is governed by strict statutory requirements that cannot be avoided through informal corporate practices, undocumented resignations, or passive delegation of tax responsibilities. For directors facing GST/HST tax reassessments or potential personal liability, early guidance from an experienced Canadian tax lawyer can be critical for properly documenting resignations, implementing compliance controls, and assessing potential director liability risks before disputes with the CRA arise.

A Director Liability Assessment Following Years of GST/HST Non-Compliance

The dispute in Stevens v. The King arose from the collapse of a retail furnishing and appliance business that had accumulated substantial GST/HST arrears over several years. The taxpayer became the sole shareholder and director of the corporation in March 2011 after acquiring control of the business through a share purchase transaction connected to existing business dealings between related companies.

At the time of the acquisition, the corporation was already experiencing financial and compliance difficulties. It operated two retail locations and generated significant revenues through the sale of refurbished consumer products. However, the evidence before the Tax Court showed that the corporation had longstanding GST/HST filing and remittance problems that continued both before and after the taxpayer became a director.

Over time, the corporation’s revenues declined dramatically, and by 2016, the business had effectively become insolvent. During this same period, the taxpayer became increasingly involved in separate consulting work outside Canada and spent extended periods working in Saudi Arabia. According to his testimony, he delegated responsibility for the corporation’s accounting, GST/HST filings, and remittances to another individual who acted as director of finance and managed the corporation’s financial affairs.

The taxpayer maintained that he formally resigned as director on June 15, 2015, by personally delivering a signed resignation letter to the corporation’s finance director at the company’s office. He argued that this resignation was legally effective under the applicable corporate law and that the CRA was therefore prevented from assessing him personally more than two years later under the limitation period contained in subsection 323(5) of the Excise Tax Act.

The evidentiary record surrounding the alleged resignation, however, became a central issue in the appeal. There was no acknowledgement of receipt, no corporate resolution confirming the resignation, no filing to update the corporate records at the relevant time, and no independent witness to corroborate the delivery of the resignation letter. The individual who allegedly received the resignation later passed away before the litigation proceeded.

The dispute was further complicated by the taxpayer’s interactions with the CRA after the alleged resignation date. The taxpayer received multiple warning letters advising that the CRA intended to assess him personally for the corporation’s GST/HST liabilities. Yet, according to the Court’s findings, he did not initially inform the CRA that he had resigned as director, nor did he provide the resignation letter until much later during the objection process.

Against this backdrop, the CRA ultimately assessed the taxpayer personally for more than $700,000 in unremitted GST/HST, relying on the director liability provisions of the Excise Tax Act. The taxpayer appealed the tax assessment, arguing that it was statute-barred by his resignation and that he had exercised sufficient due diligence by relying on others to manage the corporation’s tax compliance obligations.

Why the Alleged Resignation Failed – The Requirement of Objective Verification

The central issue in Stevens v. The King was whether the taxpayer had actually ceased to be a director more than two years before the CRA issued the director liability assessment under subsection 323(1) of the Excise Tax Act. Under subsection 323(5), a director cannot be assessed more than two years after ceasing to hold office. The appeal, therefore, turned not on the existence of a resignation letter alone, but on whether the alleged resignation could be objectively verified on the evidence.

The taxpayer argued that he had validly resigned on June 15, 2015, by personally delivering a signed resignation letter to an individual managing the corporation’s financial affairs. He maintained that this was sufficient under the applicable corporate legislation and that no additional filings or formalities were legally required for the resignation to become effective. On that basis, he argued that the CRA was statute-barred from assessing him personally because the initial director liability assessment for the Corporation’s unremitted GST/HST was not issued until September 25, 2018—more than two years after his alleged resignation date.

The Tax Court approached the issue through a strict evidentiary lens. While acknowledging that a written resignation does not necessarily require formal corporate filings to be legally effective, the Court emphasized that director resignations must nevertheless be capable of objective verification, particularly where they are later relied upon to defeat significant director liability assessments. Relying on Amiante Spec Inc. v. Canada, House v. Canada, and Hickman Motors Ltd. v. Canada, the Tax Court emphasized that the taxpayer bore the burden of establishing a credible prima facie case capable of rebutting the CRA’s assumptions. Although oral testimony may sometimes suffice without documentary support, the Court found the taxpayer’s evidence lacked credibility when viewed in light of the surrounding facts.

Applying that standard, the Court found substantial weaknesses in the taxpayer’s evidence. There was no acknowledgement confirming receipt of the resignation letter, no contemporaneous corporate records documenting the resignation, no evidence that third parties were notified, and no reliable documentation establishing that another individual had formally assumed the role of director. The individual who allegedly received the resignation had also passed away before trial, leaving the taxpayer’s testimony largely uncorroborated.

The Court further considered the taxpayer’s conduct after the alleged resignation date. Despite receiving warning letters from the CRA advising that he faced potential personal liability for the corporation’s GST/HST arrears, the taxpayer did not initially inform the CRA that he had resigned as director. Nor did he provide the resignation letter during the earlier stages of the objection process. The Court viewed this delay as inconsistent with the taxpayer’s position and found that it undermined the credibility of his evidence.

More broadly, the Court expressed concern that accepting informal and unverified resignations based solely on a director’s later testimony would create the risk of retroactive attempts to escape statutory liability after tax exposure emerges. The analysis, therefore, focused not on the taxpayer’s subjective intention to resign, but on whether the resignation could be objectively established through reliable evidence.

On the facts before it, the Court concluded that the taxpayer had failed to prove that he had effectively resigned as director. As a result, the two-year limitation period under subsection 323(5) did not apply, and the CRA’s director liability assessment remained valid.

Why the Due Diligence Defence Failed

The taxpayer also argued that he should not be personally liable because he had delegated responsibility for the corporation’s financial affairs and GST/HST compliance to another individual. The Tax Court rejected that position. The Court found that the taxpayer made no meaningful enquiries regarding GST/HST filings or remittances, implemented no formal controls to ensure compliance, and must have known that the corporation was delinquent in its tax obligations for years. In those circumstances, the Court concluded that he had taken no active steps to prevent the failure to remit net tax and therefore could not rely on the due diligence defence under subsection 323(3) of the Excise Tax Act.

Pro Tax Tips – Practical Guidance for Director Liability, Corporate Resignations, and GST/HST Compliance

The decision in Stevens v. The King highlights that director liability cases under the Excise Tax Act are rarely decided on the basis of informal understandings or subjective intentions. When the CRA seeks to impose personal liability for unremitted GST/HST, the analysis focuses on objective evidence, corporate records, and whether directors actively fulfilled their compliance responsibilities.

From a practical perspective, one of the most significant risks arises when directors assume that delegating accounting or tax functions to employees, accountants, or financial managers is sufficient to establish due diligence. As this case illustrates, passive reliance on others—without oversight, follow-up, or internal controls—will rarely satisfy the statutory due diligence defence. Directors should ensure that GST/HST filings, remittances, and arrears are regularly monitored and formally documented.

The case also underscores the importance of properly documenting corporate resignations. While corporate statutes may not always require extensive formalities, informal resignations supported only by later oral testimony can create significant evidentiary problems in a tax dispute. Directors seeking to resign should ensure that resignation letters are acknowledged in writing, recorded in corporate records, communicated to relevant stakeholders, and followed by all necessary corporate filings to create a clear, objectively verifiable record.

Another practical lesson concerns CRA warning letters and collection communications. Once directors become aware of potential GST/HST arrears or personal liability exposure, inaction can significantly weaken future defence arguments. Ignoring warning signs, failing to investigate compliance issues, or delaying responses to CRA correspondence may later be interpreted as evidence of insufficient oversight.

For business owners, shareholders, and directors facing GST/HST compliance issues or potential director liability exposure, early guidance from a top Canadian tax lawyer can be critical to implementing appropriate governance controls, properly documenting director transitions, and assessing personal liability risks before disputes with the CRA escalate into formal tax reassessments.

FAQ – Key Questions on Director Liability and GST/HST Tax Reassessments

Can I avoid personal liability for unremitted GST/HST if I delegated tax responsibilities to someone else in the company?

Not necessarily. As Stevens v. The King demonstrates, directors cannot rely solely on passive delegation to establish the due diligence defence under the Excise Tax Act. Even where another individual is responsible for accounting, tax filings, or financial management, directors are still expected to maintain oversight and take active steps to ensure GST/HST remittances are properly made. Implementing formal reporting systems and compliance controls can be critical in reducing director liability exposure—particularly with guidance from an experienced Canadian tax lawyer.

Is a resignation as a director effective if I signed a resignation letter, but no corporate filings were completed?

Potentially, but proving the resignation may become significantly more difficult. In Stevens v. The King, the Tax Court emphasized that director resignations must be capable of objective verification, especially where they are later relied upon to defeat a CRA director liability assessment. A signed letter alone may not be sufficient if there is no acknowledgement of receipt, no supporting corporate documentation, and no evidence that the resignation was communicated or implemented in practice. Directors should ensure that resignations are properly documented, recorded, and reflected in corporate records to avoid future disputes with the CRA.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.