Canada: Statutory Sources Of Liability

Directors of corporations (whether federal, provincial, public, private or non-profit) are responsible for supervising the management of the affairs of the corporation. In the course of carrying out those responsibilities, directors are exposed to a growing number of statutory liabilities.

Directors have obligations to manage the affairs of their companies and govern themselves in accordance with the incorporating statutes for their companies. In addition to these obligations, directors have specific statutory obligations.

Remittance Obligations

Of all the liabilities that directors face, those relating to tax or source deduction remittance are the ones most likely to materialize. If there has been a failure to remit or withhold tax under the Income Tax Act (Canada) (ITA), directors are jointly and severally liable with their companies for payment of tax, interest and penalties. Section 227.1(1) of the ITA provides that, if a corporation has failed to deduct, withhold, remit or pay tax as required, directors are jointly and severally liable with the company to pay the amount owed. Liability is imposed on individuals who are directors at the time the corporation was required to deduct, withhold, remit or pay the tax.

In addition to the above, there is also potential liability under Section 242 of the ITA. If a corporation commits any offence under the ITA, any officer, director or agent of the corporation who directed, authorized, assented or acquiesced to or participated in the commission of the offence is a party to and guilty of the offence. This very broad exposure to liability applies to offences such as failing to file tax returns, failing to withhold or remit taxes, failing to keep proper records and documentation, failing to carry out compliance offers and making false or deceptive statements on a tax return. The Excise Tax Act is an Act that imposes joint and several liability on directors and their companies for failure to remit the Goods and Services Tax.

Other remittance statutes and obligations to note are the Ontario Retail Sales Tax Act, the Ontario Pension Benefits Act, the Employment Insurance Act (Canada), the Canada Pension Plan and the Employer Health Tax Act (Ontario). Most of the abovementioned statutes allow for the defence of reasonable due diligence. In other words, liability can be avoided if the director is able to establish that he or she exercised a reasonable degree of care, diligence or skill to prevent the failure to withhold or remit.

Wage And Employment Obligations

Corporate and employment statutes in many provinces impose liability upon directors for a portion of unpaid wages, vacation pay and other employment related obligations.

As a practical matter, a director’s liability for unpaid wages or vacation pay will only arise after recovery against all assets of the corporation has been exhausted. In addition, there are procedural requirements for recovery of such claims. The director must be acting or have acted within two years that the claim arose (six months in the case of the Ontario Business Corporations Act (OBCA)) and the corporation must be sued within six months after the debts became due.

Safety In The Workplace

Safety in the workplace is not only the employer’s obligation; it also extends to the directors of the employer corporation. In Ontario, the Occupational Health and Safety Act (Ontario) (OHSA) places an obligation on directors to take all reasonable care to ensure that their corporation complies with:

  • the provisions of the OHSA and its regulations;
  • orders and requirements imposed by inspectors and Directors empowered under the OHSA; and
  • orders of the Minister of Labour.

Offences under the OHSA involve strict liability, meaning that offences can be committed without there being an accompanying intent to break the law. If a corporation is convicted, directors may also be prosecuted for failing to comply with their statutory duty to take all reasonable care to ensure such corporate compliance.

The OHSA is a regulatory statute and, as such, imposes strict liability but not absolute liability on corporations and their directors. The Crown must prove the commission of the offence beyond a reasonable doubt; thereafter, the onus shifts to the accused to prove the existence of due diligence upon a balance of probabilities. To establish the due diligence defence, an accused director must prove, on a balance of probabilities, that all due care or "due diligence" has been taken to prevent the act or omission that forms the basis of the charge.

Liability Under Corporate Legislation

The Ontario Business Corporations Act and Canada Business Corporations Act ("CBCA") impose director liability for a variety of corporate actions or failures to act. These include duties to creditors of the corporation, meeting the requirements with respect to the purchase, redemption or other acquisition of shares and the payment of dividends. Under Federal Bankruptcy legislation, directors are also jointly and severally liable for authorizing the improper payment of dividends or for "reviewable transactions" between related corporations. There are also obligations relating to financial assistance provided by the corporation in connection with the purchase of its shares, share issuance, indemnification payments and unreasonable commissions.

One of the most important defences available to directors with respect to the above possible sources of liability is the reliance defence. The OBCA provides that a director is not liable for certain actions or breaches of the general fiduciary duty if he or she relies in good faith on:

  • financial statements of the corporation represented to him or her by an officer of the corporation or in a written report of the auditor of the corporation to present fairly the financial position of the corporation in accordance with generally acceptable accounting principles; or
  • a report of a lawyer, account, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.

In the case of the CBCA, the reliance defence has been replaced with the defence of due diligence. This permits the director to show that he or she acted reasonably in the circumstances and, as such, is broader than the reliance defence. The due diligence defence provides that a director will not be held liable in certain circumstances if he or she exercised the degree of care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, including reliance in good faith on:

  • financial statements of the corporation represented to the director by an officer of the corporation or in a written report of the auditor of the corporation fairly to reflect the financial condition of the corporation; or
  • the report of a person whose profession lends credibility to a statement made by the professional person.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.