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The role of director of a corporation comes with privileges, but also responsibilities. In the context of taxation, directors have a duty to ensure that source withholdings, including GST and QST, are collected by the corporation and remitted to the tax authorities. Failure to do so will implicate the directors’ personal responsibility. The case of Burnett v. The Queen is yet another example of a director failing to fully grasp the extent of this obligation.
Mr. Burnett was a capital markets advisor focussing on helping emerging companies go public. He has been appointed a director of numerous private and public corporations over the course of his thirty-year career. In 2010, Mr. Burnett was introduced to Canadian Noble Cut Diamonds Ltd. (“CNCD”). He invested $100,000 and raised another $1 million of financing. He was appointed director and, at the executive level, treasurer and secretary of CNCD. Mr. Burnett met informally with the other two board members monthly. Minutes of the meetings were not prepared. Instead, each member kept their own notes (although the Court remarked that none of those notes were introduced in evidence). Mr. Burnett testified that at each meeting, he asked whether payroll source remittances were current and was assured that they were. He qualified this as his “check the box” questioning. He also testified that, although he occupied the secretary and treasurer positions, he did not have access to CNCD’s bank account and was not a signing officer. In short, he viewed himself as an outside director with no involvement in CNCD’s operations. The other point emphasized by Mr. Burnett was that, in his view, the payroll remittances were small relative to other issues that occupied his attention, such as getting audited financial statements of CNCD prepared as a necessary step to having the company go public. To that end, the evidence revealed that CNCD had difficulty providing reliable books and records as early as 2011.
The sole issue in this case was whether Mr. Burnett could use the defence of due diligence to protect himself from liability. The Court found that he could not because he did not exercise the degree of care, diligence and skill to prevent the failure to remit that a reasonably prudent person would have exercised in comparable circumstances. Discussing what a reasonable person would have done, the Court stated:
 … By January 2011 a reasonably prudent person in like circumstances (i.e., having been a director for at least four months and having increased concern as to CNCD’s continuing inability to generate auditable financial statements), would have gone beyond the “check the box” stage and have sought documentary proof of payroll remittances, and absent same have promptly contacted (or caused to be contacted) CRA to ascertain whether payroll source remittances were current.
The Court found that CNCD’s inability to provide reliable books and records for the preparation of the financial statements should have been a red flag. For the defence of due diligence to apply, a director must show that he was “concerned” with the tax remittances. Asking routine questions and ignoring the red flags because the amounts are not material or the responsibility fell onto someone else is not showing concern.
If the circumstances warrant, a director has a duty to go as far as communicating directly with the tax authorities to ensure that remittances are being made. The standard of care is an objective one, referring to what a reasonably prudent person would have done in the circumstances.
 2022 TCC 99.