Practice Business Taxation

Director held personally liable for unremitted and uncollected GST/HST — due diligence defence judged insufficient

Case commentary from Canadian tax accountant and lawyer David J Rotfleisch on the Tax Court of Canada decision in Hall v The King

Author: David J. Rotfleisch


David Rotfleisch, CPA, JD
David J Rotfleisch, CPA, JD is the founding tax lawyer of and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm.

Hall v. The King (2023 TCC 158) is a Tax Court of Canada case focused on director's liability under the Income Tax Act and Excise Tax Act. The director, and appellant, in the case was Michael Hall. Mr. Hall operated two businesses called 556 Ltd. and Canadian Roofing, of which he managed his renumeration through a third corporation called Eastern Restoration Limited ("ERI"). In 2014, the CRA assessed Michael Hall for director's liability under the Income Tax Act and Excise Tax Act related to unremitted source deductions and uncollected net GST payable by ERI. Mr. Hall objected to these assessments and appealed them to the Tax Court. The Tax Court, however, agreed with the CRA and determined that Mr. Hall was indeed liable for the unremitted amounts, leading to the dismissal of the appeal.

Background: Legal Troubles and Unremitted Taxes

Mr. Hall was a full-time firefighter who engaged in secondary businesses. From 2008 to 2011, he was involved in managing restoration and renovations through ERI. ERI served as a conduit for Mr. Hall's invoiced remuneration. The primary function of ERI was to receive payments from other companies, particularly 556 Ltd. and Canadian Roofing, and disburse these funds to Mr. Hall.

Mr. Hall's legal troubles started in the last quarter of 2009. Another company called Paul Davis Systems, a licensor to 556 Ltd., took action against 556 Ltd., resulting in a lockout. This led to protracted litigation initiated by Mr. Hall against various parties. This case would be heard before the Superior Court of Newfoundland and Labrador and stretch over 19 months and 27 days. The decision was rendered by the Superior Court of Newfoundland and Labrador in 2022.

This lockout in early 2010 significantly affected 556 Ltd. and its operations. Despite these challenges, Mr. Hall actively pursued legal action against those involved in the lockout, demonstrating his commitment to protecting the interests of 556 Ltd. The lockout would, however, also impact Mr. Hall's corporations' remittances of taxes.

During 2010 and 2011, Mr. Hall's corporation failed to remit deductions to the CRA, which led to the CRA assessing him. In 2014, the CRA assessed Mr. Hall personally as the director for the corporations for the unremitted deductions from 556 Ltd., Canadian roofing, and ERI. 556 Ltd. and Canadian Roofing had their assessments vacated by the CRA after Mr. Hall objected to them in 2016. However, the CRA did not drop their assessment against Mr. Hall for director's liability for ERI under the Income Tax Act and Excise Tax Act.

The Due Diligence Defence

In this case Mr. Hall was not contesting that ERI owed unremitted deductions. Rather, Mr. Hall asserted a due diligence defense under the Income Tax Act and Excise Tax Act, claiming that he exercised the degree of care, diligence, and skill required to prevent the failures in remitting taxes and should not be held liable.

A due diligence defence may be possible when the CRA tries to a hold director personally liable for the taxes owing of a corporation. This defence claims that the directors should not be liable for a failure of the corporation to remit taxes if they exercised the degree of care, diligence, and skill that a reasonably prudent person would have in similar circumstances. The defence is codified under subsection 227.1(3) of the Income Tax Act and subsection 323(3) of the Excise Tax Act.

The court recognized that there are differences in how the due diligence defense applies under the Income Tax Act and Excise Tax Act. The court first recognized a distinction as to what the director failed to do under the ITA compared to the Excise Tax Act. Under the Income Tax Act, if the company fails to retain or remit the deductions at source from employees' remuneration, then the director may be liable. Whereas, under the Excise Tax Act, it is net GST (or HST) that has not been paid by the corporation for which the director may be liable.

The second distinction was in the expected actions of the director. Under the Income Tax Act, directors must establish that they turned their attention to the required remittances and exercised their duty of care, diligence, and skill to prevent failures to remit. Under the Excise Tax Act, Directors must show that they took appropriate actions in a timely manner to limit the amounts at risk for the tax authorities, specifically related to GST-related net tax remittances.

The Court's Analysis of Mr. Hall's Due Diligence Defence

The Tax Court recognized two key issues that needed to be examined:

  1. Did Mr. Hall take actions in a timely manner to limit the failures and were those actions sufficient in the circumstances to rise to the objective standard of a reasonably prudent person?; and,
  2. In conclusion, has the due diligence threshold been met?

The lawyer for Mr. Hall argued three points in his due diligence defence. The first point was that Mr. Hall's actions in the 556 Ltd. litigation showed that he did take action. The second point was that the conclusions of the CRA concerning 556 Ltd. and Canadian Roofing, which led to the assessments for each company being vacated, should be applied to ERI and that the assessment of ERI should be similarly vacated. Lastly, he asserted that the "lock out" was an impediment on his efforts to remit the deductions that were owed.

The CRA argued that Mr. Hall had not met the requirements of a due diligence defence for four reasons. First, Mr. Hall failed to prevent or rectify remittance failure once known. Second, Mr. Hall held a higher standard of due diligence due to his experience and sophistication, which comes from him not being a new business owner. Third, the CRA argued that the release of the other companies from tax liability were immaterial to ERI's liability. Fourth, the CRA argued that Mr. Hall took a passive approach when it came to dealing with the unremitted taxes and characterized the litigation as a lost "bet."

The Tax Court sided with the CRA. In doing so the court recognized that ERI's sole purpose was to receive, as a conduit, remuneration paid by 556 Ltd. and Canadian Roofing to Mr. Hall. That Mr. Hall, as sole director, would then, as a director and officer of ERI, take those funds as received and pay himself, presumably less the statutory withholdings and HST collected. That Mr. Hall stated, he would receive remuneration as invoiced, pay himself and all would be well. Mr. Hall was solely and exclusively responsible to pay himself and remit the remainder to the CRA. His failure to do was, as recognized by the Tax Court, not reasonably prudent.

Furthermore, the court agreed with the other reasons argued by the CRA. That Mr. Hall was not a new business owner or novice director, yet there was no evidence that he took any of the steps expected of someone with his education and experience to resolve ERI's debt once it was known. That the litigation involving 556 Ltd., which Mr. Hall claimed impeded his actions to resolve ERI's issues, did not involve ERI and did not prevent him from resolving ERI's issue separately. That there were no circumstances "justifying that slippage betwixt hand and mouth." Thus, the Tax Court held Mr. Hall liable for the unremitted amounts, and the appeals were dismissed.


Directors can be held liable for a corporation's taxes. This can be protected against if a director takes active and prompt actions to address and rectify failures, which would allow for a successful application of the due diligence defence. This involves understanding the specific obligations under both the Income Tax Act and Excise Tax Act, and the expected actions of a director in situations where a failure to meet those expectations occurs.

The case of Hall v. The King emphasizes the importance of taking concrete actions, especially in situations involving legal challenges or impediments, to meet the objective standard of a reasonably prudent person and successfully assert a due diligence defence. 

David J Rotfleisch, CPA, JD is the founding tax lawyer of and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm and is a Certified Specialist in Taxation Law who has completed the CICA in-depth tax planning course. He appears regularly in print, radio and TV and blogs extensively.  

With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, cryptocurrency traders, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax audit representation and tax litigation. Visit and email David at

Read the original article in full on Goods Services Tax. Author photo courtesy Rotfleisch & Samulovitch P.C. Image by iStock.

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