FCA Allows Director to Challenge Underlying Assessment

Duque v. Canada 2020 FCA 73

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Directors Can Challenge Underlying Corporate Tax Assessments

This is an important case to be aware of if you are a corporate director or advise directors in the course of your business. The Appellant Mr. Steven Duque (“Duque”) was assessed as a director for unremitted GST payable on taxable supplies made by his corporation 1210166 Ontario Inc. (“1210”). His appeal to the Tax Court of Canada (“TCC”) was unsuccessful. The Federal Court of Appeal (“FCA”) found that the TCC erred and allowed Duque’s appeal in part.


Duque incorporated 1210 in 1996 and was the sole director at all material times. 1210 carried on a carpentry business (operating as DCC Carpentry). 1210 ceased carrying on business sometime before February 2007.

Following the completion of an income tax audit, the Minister of National Revenue (“Minister”) assessed unreported income to 1210 in the amount of  $1,039,748 for its taxation year ending on November 30, 2006 and in the amount of $209,244 for its taxation year ending on November 30, 2007.  The income tax audit and resulting reassessments lead to the 2012 net tax assessment under the Excise Tax Act (“ETA”) in respect of 1210. 1210 did not object to that assessment.

In 2014, Duque was assessed under the ETA director’s liability provisions (section 323) for the unremitted net tax, interest, and penalties of 1210.

At the TCC, Duque argued that he was not liable in his capacity as director by arguing that GST amounts had been allocated to incorrect reporting periods, the audit erroneously included invoice holdbacks, and furthermore, he had been duly diligent in a directorial capacity.  The TCC disagreed on all counts and dismissed Duque’s appeal.

Decision & Analysis

Webb J. correctly indicated that in his appeal, Duque was indirectly challenging the assessment of net tax payable under the ETA that was issued against 1210. Since 1210 did not object to the assessment that was issued against it, that assessment was not the assessment that was under appeal. Perhaps the most important part of the judgment is where Webb J. makes clear that a director can challenge the underlying corporate assessment:

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.[1]

Webb J. found that the TCC did not err in respect of the allocation of GST in the relevant reporting periods. He did however find that the TCC committed a palpable and overriding error on the second issue relating to invoice holdbacks. Webb J. found that the holdback amounts were as a matter of fact counted twice. A series of 10% holdbacks had been assessed under both the 2007 and 2007 reporting periods.[2] That was clearly an assessing error.

The appeal was therefore allowed in part to account for double counting of the holdbacks. No costs were awarded due to a prior agreement reached between Duque and the Crown.

Amit Ummat

Ummat Tax Law

Key Takeaway

This decision clearly and unequivocally enunciated the principle that an assessed director can challenge the underlying net tax assessed against the corporation.

[1] Duque v. Canada 2020 FCA 73 (“Duque”), at para. 20.

[2] Under the Construction Act, R.S.O. 1990, c. C.30, each payer is obligated to retain a holdback of 10% of the price of goods and services on which a lien could arise.