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A New Standard for Due Diligence in Director’s Liability Tax Cases?


The Federal Court of Appeal judgment in Buckingham v. Canada may have set a new standard for due diligence. Unfortunately, as discussed in more detail below, a subsequent FCA case applied the pre-Buckingham standard. As a result, it is unclear which standard will prevail. This makes litigating director's liability cases involving a due diligence defence essentially a judicial lottery for the foreseeable future. Taxand Canada provides a take on the issue of due diligence on the part of a director and their liability in court cases.

Buckingham concerned unremitted source deductions and GST/HST. The main issue was the appropriate standard of care, diligence and skill required of a director to avoid being held personally liable for a corporation's failure to remit those amounts.

Mr Buckingham was chairman of the board of a corporation and also its largest shareholder. The corporation folded after experiencing losses for two consecutive years and failing to secure adequate financing. The corporation ceased operating without remitting certain amounts deducted, withheld or collected on behalf of the Crown, ultimately leading to reassessments against Mr Buckingham personally. Mr. Buckingham and the Minister of National Revenue were each partially successful in a hearing before the Tax Court of Canada. When they both appealed, the FCA allowed the Minister's appeal and dismissed Mr Buckingham's appeal.

Taxand Canada takes a look at the significance of Buckingham in more detail

Taxand's Take

Buckingham is another cautionary tale for corporate directors. When the financial future of a business is uncertain, a director must be very careful to avoid applying unremitted tax money toward keeping the business afloat. Every step taken by a director in an effort to keep a business operating at the potential expense of the Crown may negatively affect future reliance on the due diligence defence, and result in personal liability for the director.

Your Taxand contacts for further queries are:
Stevan Novoselac
T. +1 416 862 3630

John Sorensen
T. +1 416 369 7226

Taxand's Take Author