Revived corporation, revived liability? Not so fast, says the Tax Court

Directors of CBCA[1] governed corporations often take comfort in the two‑year limitation period on personal liability under subsection 323(5) of the Excise Tax Act (“ETA”)[2]. After resignation and the passage of time, the risk of a personal assessment is generally expected to expire. But what if the corporation is dissolved for failure to file and later revived at the Minister’s request? Does that revival also resurrect the director’s exposure to personal liability?

In Maragos v. The King, the Tax Court of Canada (the “Court”) addressed this question and clarified when a former director of a dissolved and later revived CBCA-corporation ceases to be a director for purposes of the two-year limitation period. The decision is an important development at the intersection of the CBCA and the ETA’s director’s liability regime, and offers meaningful guidance for former directors who have stepped away from the corporation.

I. Background

The appellant was a director of a corporation incorporated under the CBCA. On July 24, 2018, the corporation was dissolved pursuant to section 212 of the CBCA due to failure to file its annual return. Subsequently, the Minister of National Revenue (the “Minister”) applied to have the corporation revived, with revival taking effect on December 24, 2018.

Following the revival, the Minister attempted to collect outstanding GST debts from the corporation. When those efforts proved unsuccessful, on May 14, 2021, the Minister assessed the appellant for director’s liability under section 323 of the ETA – which allows the Minister to pursue directors for certain unremitted tax amounts (“Assessment”). The appellant formally resigned as a director on May 15, 2019, and appealed the Assessment.

II. Issue

The central issue before the Court, framed under section 58 of the Tax Court of Canada Rules (General Procedure) [3] was: when did the appellant last cease to be a director (either de jure or de facto) for the purposes of subsection 323(5) of the ETA?

III. Position of the parties

The appellant argued that the Assessment was issued outside the statutory limitation period. Although he formally resigned as a director in May 2019, he maintained that his directorship ended upon the corporation’s dissolution in July 2018. The respondent, however, contended that the revival of the corporation automatically reinstated the appellant as a director, thereby resetting the limitation period to the date of his formal resignation.

IV. CBCA revival and ETA director liability: textual, contextual, and purposive analysis

The Court undertook an analysis, structured around the text, context, and purpose of the relevant statutory provision, specifically subsection 209(4) of the CBCA, which governs the revival of dissolved corporations.

A. Textual analysis

The Court found that the text of the provision alone, while slightly favoring the appellant’s position, provides little clarity on how directors should be treated upon revival.

B. Contextual analysis

The Court found that a contextual analysis of the provision modestly supported the appellant’s interpretation. The Court examined related CBCA provisions such as:

• subsection 102(2) (mandates at least one director);

• subsection 108(1) (circumstances in which a director ceases to hold office); and

• subsection 109(4) (deeming persons who manage the corporation in the absence of directors to be de facto directors).

The Court observed that the CBCA contemplates situations where a corporation could have no directors, and provides mechanisms for shareholders to elect new directors, or for de facto directors to be recognized. The Court concluded that Parliament likely envisioned a similar solution for a revived corporation, where the absence of directors can be remedied through shareholder action without automatically reinstating former directors who are unaware of the revival.

The Court also highlighted that automatic reinstatement of directors upon revival could create conflicts with other CBCA requirements, such as:

• the need for director consent set out in subsection 106(9) of the CBCA; and

• the residency requirements in subsections 105(3)-(4) of the CBCA.

These conflicts are avoided by treating dissolution as terminating directorship.

C. Purposive analysis

The Court’s purposive analysis was centered on two legislative objectives: preserving corporate continuity and protecting limitation periods.

Subsection 209(4) of the CBCA is intended to preserve corporate continuity notwithstanding a temporary dissolution. While both parties’ interpretations aligned with this objective, only the appellant’s approach respected the operation of limitation periods. The respondent’s approach created an inconsistency between subsection 209(4) of the CBCA and 323(5) of the ETA.

Subsection 323 of the ETA permits the Minister to impose personal liability on directors for a corporation’s tax debt; however, like all limitation provisions, it is intended to ensure timely enforcement. In Markevich v. The Queen[4], the SCC confirmed that the rationales underlying limitation periods apply to the Minister’s collection of tax liabilities. Limitation periods promote certainty for taxpayers and encourage prompt collection by authorities. Extending liability beyond the statutory period would unfairly prejudice individuals who reasonably believed their obligations had ended, potentially resulting in significant financial consequences.

The Court also considered section 119 of the CBCA (director liability for unpaid wages) and found that it further supported the need for statutory coherence and issues with the respondent’s interpretation.

In this case, the Minister acted promptly by reviving the corporation within 5 months of its dissolution, leaving 19 months to issue an assessment within the applicable limitation period. The Minister’s failure to act within that time frame could not justify imposing liability on the appellant beyond the statutory period. The Court concluded that applying the two-year limitation period from the date of formal resignation, as proposed by the respondent, would unfairly shift the consequences of administrative delay onto the appellant.

D. De jure directorship ends upon dissolution

The textual, contextual and purposive analysis confirmed that the appellant did not become a director when the corporation was restored and had last ceased to be a de jure director at the time of dissolution, thereby favoring the appellant’s interpretation. Accordingly, the Assessment issued in May 2021 fell outside the limitation period prescribed by subsection 323(5) of the ETA.

E. No de facto directorship following dissolution

The Court also found that the appellant did not act as a de facto director following the corporation’s dissolution and that the respondent failed to meet the evidentiary burden required to establish otherwise.

V.Practical implications of the decision

This decision provides important clarity for directors of CBCA corporations confirming that, absent express statutory language, revival does not reinstate former directors, and the limitation period for director liability under the ETA runs from the date of dissolution. The ruling underscores the importance of certainty and fairness in the application of limitation periods, and the need for statutory provisions to be interpreted harmoniously to avoid unintended extensions of liability.

If you need assistance with resigning as a corporate director, have been contacted by the CRA regarding director’s liability, or have any questions about a director’s tax liability, please contact a member of Miller Thomson’s Tax group.

[1] Canada Business Corporations Act R.S.C., 1985, c. C-44.

[2] R.S.C., 1985, c. E-15.

[3] (SOR/90-688a).

[4] 2003 SCC 9.