De Facto Directors: Beware Of What You Did Not Sign Up For

When can the CRA treat non‑appointed individuals as directors for debt collection purposes?

Businesses are often operated out of corporations for the purpose of protecting the individuals behind the scenes from the potential liabilities of the business.

Piercing the corporate veil to collect from a director

The abilityofcreditors, including the Canada Revenue Agency (the CRA), to "pierce" the corporate veil and hold individuals accountablefora corporation'sdebts is limited. The CRA has certain statutory paths to seek payment from individualsfor certain liabilities of the corporation, the scope of which go beyond this article.¹

The potential joint and several liability of directors and former directors of a corporation for GST/HST, payroll remittances and certain less common debts² (Applicable Debts), whether only allegedly owing by the corporation or fully accepted as such, is a common path the CRA uses. This article is not a general review of directors' liability. Instead, the focus is CRA attempts to collect Applicable Debts from individuals who never signed up as or have long since resigned as directors.

Can an individual be personally liable as a director even if they were never officially appointed as such?

When an individual takes on the responsibility of becoming a director of a corporation under the applicable federal, provincial or territorial legislation, there are papers signed and corporate record books and public corporate registries updated. In these routine situations, a person has voluntarily put themselves out to be a director and is publicly presented as such. That person is a director at law, a de jure director.

Provisions empowering the CRA to collect Applicable Debts from individuals applies to "directors." The interpretation of that word is left to the courts. The courts have indicated that capturing more than just de jure directors protects against those who act as directors being able to avoid liability due to technicalities in their appointment.³

By way of ambiguity in the legislation and interpretation of the courts, the CRA's reach for the purposes of directors' liability extends beyond the de jure director. It can land on individuals who have not volunteered for the director role, never signed the papers, nor been recorded as directors in the corporate record books or public registries.

Such people, to the extent that the CRA attempts to make the case, are referred to as de facto directors.These de facto directors are fair game when it comes to the CRA pursuing the Applicable Debts of a corporation. The motivation by the CRA in taking the position that a person is a de facto director is to widen the base of individuals from whom they may seek payment of a corporation's Applicable Debts.

Who can be characterized as a de facto director?

To identify the factors that the Collections Department of the CRA will look to in an attempt to expand its pool of targets and "create" de facto directorships, there is no more practical starting point than looking at the direction to CRA collections officers in their own internal operations manual.⁴ This manual directs the Collections Department to consider the following:

"Was the individual carrying out any of the responsibilities, duties or functions of a director?

Was the individual directing the affairs of the corporation?

Was the individual authorizing the major activities and transactions?

Did the individual believe they were a director or believe they had authority to influence or control the management or direction of the corporation?

Did the individual hold themselves out as a director or decision maker?

Did others in the corporation (especially other directors) treat this individual as a director?

Was the individual providing payment for corporate debts from their personal bank accounts?"

Depending upon the aggressiveness of the CRA in any given case, they may attempt to assert a de facto directorship for lesser indicators of director type activities, including, but not limited to:

• signing corporate cheques;⁵
• attending meetings or signing documents at the request of others;⁶
• performing routine administrative or managerial tasks (such as bookkeeping, preparing invoices, or hiring staff);⁷or
• writing the CRA in response to a formal letter to a spouse asking that any future letters instead be sent to them.⁸

Because of the cost and uncertainty to an individual in responding to a directors' liability assessment, regardless of whether it is successfully defended against by way of objection or at the Tax Court of Canada, the above examples are provided despite the fact that not all have been successfully upheld once challenged. This is because it is the assessment itself of liability due to a de facto directorship that one should be taking proactive steps to avoid.

Interaction between de facto directors and the two year limitation period

One defence against directors' liability is that the assessment of such has occurred more than two years after that individual last ceased to be a director of the corporation. The two year clock that starts upon the formal resignation of a de jure director or dissolution of the corporation may be restarted by any activity that may expose that same individual to a de facto directorship. Accordingly, individuals who may think of themselves as free and clear of directors' liability, may be surprised to nonetheless receive an assessment in the mail.

As recently as January of 2026, the Court in Maragos⁹ provided guidance on a situation where a former de jure director of a dissolved but since revived corporation had his two year clock restarted during the period after the corporation was dissolved by virtue of de facto type activity. In this case, the Minister argued that the act of receiving mail from the CRA advising the individual that his corporation had been restored, constituted him acting as a de facto director. The Court determined that this was not sufficient activity for a de facto directorship to be established.

In the same case, once the Minister had restored the previously dissolved corporation, Mr. Maragos was improperly listed on the corporate registry as a director. A few months later, Mr. Maragos took the proactive step of filing a protective resignation. The Minister seized on this "delayed" filing and tried to assert that it, in and of itself, was evidence that Mr. Maragos had held himself out to the public as being a director, and, as a de facto director, had restarted the two year limitation period. The Court was not convinced. Justice Graham concluded:

I do not see how Mr. Maragos' promptness or lack thereof in dealing with an administrative error could in any way suggest that he was managing the business or affairs of [the corporation].

Cooperation with the CRA may trigger personal liability

Prior to more formal steps, the CRA may reach out to individuals previously involved with a corporation that has Applicable Debts or other tax debts to seek such things as unfiled returns, contact information, records or banking information. A person receiving such requests who was never a director or last ceased to be a director over two years prior may feel safe or even compelled, morally or otherwise, to communicate with the collections officer and/or cooperate with their requests.

Such cooperation, in and of itself could be treated by that same collections officer as an activity triggering de facto directorship. This could create personal liability where none was otherwise present. Good intentions or informality do not shield one from such liability. This exposure may or may not have been the primary or secondary intention of the collections officer at the outset of initiating such communication.

It is important in these situations to have an intermediary handle such communication. Ideally this would be a trained tax lawyer who can advise of and balance any obligations or desire one may have to cooperate; with the protection the individual would need from walking themselves into the de facto directorship and restarting the two year limitation period.

Best practices

• Avoid acting as a director unless you are prepared to accept the responsibilities.
• If you resign as a director, stop all director-like activities immediately.
• Keep clear records of your role and actions.
• Seek legal advice if you are unsure about your status.
• If the CRA reaches out to you about a corporation that you were never a de jure director of, or were previously a de jure director of, have an intermediary like a tax lawyer handle all communication.

Summary

The ability to go after one person for another person's debts is extraordinary. The CRA has the ability to do so in certain circumstances. Their power to seek payment of Applicable Debts from a director is not limited to de jure directors. It is in the best interest of an individual not to take actions that trigger a de facto directorship nor allow themselves to be duped into doing so. Any individual with high level past or current involvement with a corporation that may have Applicable Debts should consider proactively discussing the concept of de facto directorship with a tax lawyer.

Footnotes

1. The reader may wish to seek out one of the many well written articles on the non-arm's length transfer provisions of section 160 of the Income Tax Act.

2. Debts under the Air Travellers Security Charge Act, Excise Act, 2001, Softwood Lumber Products Export Charge Act, 2006.

3. Wheeliker v. R., [1999] 2 C.T.C. 395 (FCA).

4. 2017-11 – CRA National Collections Manual [still current as of Oct. 2023]

5. Scavuzzo v. The Queen, 2005 TCC 772.

6. MacDonald v. The Queen, 2014 TCC 308.

7. Koskocan v. The Queen, 2016 TCC 277.

8. Bremner v. The Queen, 2007 TCC 509 (Tax Court of Canada); affirmed 2009 FCA 146 (FCA).

9. Maragos v. The King,2026 TCC 4.

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.