Personally Assessed for a Company's Payroll Debt Years After Leaving

The situation

Reza built a career as an investment advisor, but for several years he also co-owned an incorporated consulting business with a former business partner, Mateo, that provided back-office and compliance support to smaller financial firms. Reza handled client relationships; Mateo ran the operations side, including payroll for the company's dozen or so staff. When Reza's own advisory practice grew busy enough to demand his full attention, he stepped back from the consulting business, sold his shares to Mateo, and told the small team at a staff meeting that he was moving on. He assumed that was the end of his involvement.

Roughly two and a half years later, a letter arrived from the Canada Revenue Agency addressed to Reza personally. It was a notice of assessment holding him liable, as a director of the corporation, for a large amount of unremitted source deductions — the income tax, Canada Pension Plan, and Employment Insurance amounts the company had withheld from employee paycheques but never sent to the government. The company had fallen behind on remittances during a difficult stretch after Reza left, and by the time the CRA moved to collect, the corporation itself had no assets left to pursue. The agency's records showed Reza as a director of the company for the entire period the debt accrued, including the months he believed he had already left.

The legal problem

Under the Income Tax Act, money withheld from an employee's pay for tax, CPP, and EI belongs to the government from the moment it is deducted — it is never really the employer's money to begin with. If a corporation fails to remit those amounts and the CRA cannot collect from the company itself, the law allows the agency to assess the corporation's directors personally for the shortfall, including the related penalties and interest that accumulate over time. This is one of the more serious personal risks of sitting on a corporate board, and it does not require any wrongdoing by the director — simply holding the office when the company failed to remit can be enough.

Directors have two main lines of defence. One is a due diligence defence: showing the director took reasonable steps to prevent the failure. The other, more relevant here, is a timing defence. The law limits how long the CRA can wait after someone stops being a director before assessing them personally for the corporation's debts — protection is only available for amounts that relate to periods clearly after the resignation, and only if the resignation date can actually be established.

That was Reza's problem. He had left in substance — he stopped being paid as a director, stopped attending meetings, and had no further say in how the company was run — but he had never done it formally. There was no written resignation letter, no board resolution accepting it, and no filing with the corporate registry updating the company's director records. The corporation itself, under provincial business corporations legislation, was still required to keep its director information current, and Mateo had never updated it after Reza left. On paper, as far as the CRA's records and the company's own corporate filings were concerned, Reza remained a director for the entire period the unremitted payroll deductions piled up — including well over a year after he believed he was finished with the company.

What we did

1. Reconstructed the actual resignation date from every available source. Formal corporate records showed nothing, so the evidence had to come from elsewhere: the email in which Reza told Mateo he was stepping back and selling his shares, the share purchase documentation transferring his ownership, banking records showing his last director's fee, and the calendar and meeting notes from the staff meeting where he announced his departure. Gabriela, the office administrator at Reza's advisory practice, helped him search years-old email archives and personal calendars to pull together everything that still existed. Individually, none of these was a formal resignation. Together, they built a consistent, dated picture of when Reza's role actually ended.
2. Filed a notice of objection within the strict deadline. A notice of assessment can only be challenged within a limited window, and missing it forfeits the right to dispute the amount through the CRA's normal appeal process. The objection set out the resignation date and argued that liability should be confined to remittance periods that fell due while Reza was still, in substance and in fact, a director — and that the assessment window for anything later had already closed by the time the CRA acted.
3. Separated the debt into distinct remittance periods. The corporation's unremitted amounts had built up gradually across roughly three years, not all at once. Working from the company's own payroll records (obtained from Mateo, who cooperated once he understood the dispute did not touch his own liability), we broke the total debt down period by period and matched each one against the resignation timeline, showing precisely which periods predated Reza's departure and which did not.
4. Negotiated directly with the CRA's appeals officer. Rather than let the objection sit in a queue, we requested a review call, walked the officer through the documentary timeline, and proposed a specific reduced figure tied to the pre-resignation periods only. Appeals officers have discretion to accept persuasive evidence of a resignation date even without a formal filing, and this officer was willing to engage once the underlying paper trail was laid out clearly.
5. Advised on cleaning up the corporate record going forward. Independent of the CRA dispute, Reza was advised to have a proper resignation formally documented and filed with the corporate registry immediately, closing off any argument that his directorship continued past that point for any other purpose.

The outcome

The original assessment held Reza personally liable for roughly $820,000, covering unremitted source deductions plus the penalties and interest that had accumulated across the full period the CRA's records showed him as a director. After review, the CRA accepted the documentary evidence of his actual resignation date and agreed that a substantial portion of the debt — about $510,000 — related to remittance periods after he had genuinely left the company, and fell outside the assessment window that applies once a director has departed.

That left Reza responsible for roughly $310,000, covering the remittance periods that fell due while he was still undisputedly a director and within the window the CRA was entitled to assess. It was not a win in the sense of the debt disappearing — the earlier periods were real, and the company's failure to remit during those months was Reza's responsibility along with Mateo's, regardless of how the relationship later ended. But the reduction was substantial, and it turned an assessment that had threatened to be financially devastating into a manageable, defensible number he could plan around. Reza arranged a payment plan directly with the CRA to satisfy the reduced balance over time.

The case also underlined a harder lesson: none of this would have been in dispute if the resignation had been documented properly at the time. A short letter and a corporate registry filing, done within days of the staff meeting where Reza announced his departure, would have drawn a clean line the CRA could not have crossed. Instead, that line had to be reconstructed years later from emails and bank records, at real cost in time, stress, and professional fees.

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