Practice National Taxation

Duque V. The Queen: Analysis and comments on director's liability

David Rotfleisch on how the 2020 Federal Court of Appeal decision clarifies tax law for directors challenging an underlying assessment

Author: David J. Rotfleisch

TORONTO – Steve Duque incorporated DCC Carpentry (the "Corporation") in 1996 and ceased to carry on business sometime before February 28, 2007. The Canada Revenue Agency (CRA) had assessed the Corporation under the Income Tax Act for unremitted taxes for its tax years ending on November 30, 2006, and November 30, 2007. During these reporting years, Duque was the only director of Corporation. The income determined under the Income Tax Act further led to an assessment for additional taxes owed under the Excise Tax Act.

On April 4, 2012, the Corporation was assessed under the Excise Tax Act for the reporting periods ending on November 30, 2006, and February 28, 2007. The Corporation did not respond with a Notice of Objection which is the requirement for a taxpayer to challenge an income tax or GST assessment. On December 18, 2014, Duque was assessed under section 323 of the Excise Tax Act. Section 323 states that, if a corporation fails to remit taxes under subsection 228(2) of the Excise Tax Act in a particular reporting year, the director of the corporation during the relevant reporting years is jointly and severally liable with the Corporation for those taxes. Subsection 228(2) states that there must be a remittance of net tax (i.e., the difference between the tax collectable and tax collected-if it's a positive amount).

At the Tax Court of Canada, Duque's Canadian tax lawyer challenged whether the GST amounts for 2006 were allocated in the correct periods, whether there was a double counting of taxable revenues by including certain invoices, and whether he satisfied the due diligence defence. The due diligence defence is only satisfied where it was demonstrated that the director exercised a degree of care and diligence to prevent a failure in the company based on what a reasonably prudent person would have done in a similar circumstance. If any of these submissions were allowed, it would have reduced what Duque owed personally in unremitted taxes by the Corporation. The Tax Court judge dismissed all of Duque's submissions because the Corporation neither kept the proper records to prove the first two submissions nor satisfied the due diligence defence requirements.

In making these submissions at the Tax Court and the Federal Court of Appeal, the issue of whether a director could challenge the underlying assessment surfaced — i.e., could Duque challenge how much in unremitted taxes the Corporation owed, despite the Corporation having never filed a tax objection? The Federal Court of Appeal cited three cases to conclude that the director can challenge the underlying assessment. First, in Gaucher v. The Queen, the Federal Court of Appeal held that a taxpayer assessed under 160 of the Income Tax Act for the tax debt of another person could challenge the other person's assessment. Then in Scavuzzo v. Canada, a decision at the Tax Court of Canada, the principle in Gaucher was extended to assessments of a director's liability under section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act. However, when this issue was brought to the Federal Court of Appeal in Abrametz v. The Queen, the Federal Court of Appeal took a different route to resolve the problem. The Federal Court of Appeals didn't address whether a director, who was assessed for the unremitted net tax of a corporation, could challenge the underlying assessment.

Now, in Duque v. The Queen, the Federal Court of Appeal explicitly brings this principle to the Federal Court of Appeal level: 

In my view, it should be explicitly stated that a director, who has been assessed personally for unremitted net tax of a corporation, should be able to challenge the underlying assessment of net tax payable by that corporation. A director should not be held personally liable for more unremitted net tax, penalties and interest than what should properly have been assessed against that corporation.

[WEBB J.A, Duque v. Canada, 2020-04-15]

Challenging an Underlying Tax Assessment

The decision by the Federal Court of Appeal in Duque v. The Queen provides directors facing the tax liabilities of their corporation with more certainty. Before Duque, the case law at the Tax Court of Canada had conflicting views about whether a director could challenge the underlying assessment. Now that the Federal Court of Appeal has explicitly reiterated this principle, directors facing a tax assessment under section 323 can challenge, with certainty, their corporation's underlying tax assessment.

A tax assessment under section 323 of the Excise Tax Act is a difficult situation and could result in you personally paying the Canada Revenue Agency a large sum of money. Taxpayers should seek advice in order to challenge such a tax assessment.

David J. Rotfleisch, CA, CPA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm and is a Certified Specialist in Taxation Law. 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, 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 litigation. Visit and email David at

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