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Specific legal provisions trigger the liability of directors of corporations for the failure to remit the GST and QST in due time (article 24.0.1 et seq. of the Tax Administration Act for the QST and section 323 of Part IX of the Excise Tax Act for the GST). Directors can be liable for any unremitted amounts as well as interests and penalties. However, there are several defenses to protect against this liability in the context of draft assessments or assessments issued by Revenu Quebec. For example, it is possible to exonerate a director who has acted with a reasonable degree of care, diligence and skill under the circumstances and who acted competently to prevent the corporation’s failure to remit taxes.

The Court of Quebec has recently summarized courts’ approach to this defense in Custodio (2020 QCCQ 444): “(…) it is now well established that the analysis of the director’s actions (…) must be made objectively. This means that the norm of diligence expected of the director does not vary depending on their personal circumstances; the director’s actions must be compared to those of a reasonably diligent and prudent director, while taking into account the context surrounding the corporation’s omission” (para 28, our translation).

In this case, the Court of Quebec went further by affirming that “(…) to be exonerated, directors must at least show that they have monitored the tax payments of the corporation and that they have taken concrete actions to prevent the corporation’s failure to remit taxes, especially when directors were aware or ought to have been aware that the corporation might not be able to make the required remittances. For example, the fact that the corporations is in a precarious financial situation or the presence of other indicators that the corporation might not be able to make the remittances warrant the imposition of a higher degree of prudence for directors” (paragraph 33, our translation).

In the context of COVID-19 and the recent postponement of filing and payment deadlines for GST and QST, it is important to bear in mind that the pandemic and this sort of postponement are in no way automatic grounds of exoneration for directors, who must still act diligently under the circumstances. Directors must even show a higher degree of diligence, since they are likely to be aware of the financial difficulties facing the corporation at the moment. Indeed, as long as COVID-19 will affect corporations’ ability to make tax payments, directors must increase their level of diligence to minimize the risk of triggering their liability.