The owner who asks whether they are personally liable for their corporation's debts usually asks it the week a letter arrives — a CRA director's liability assessment, a bank demand naming them under a guarantee, a Ministry of Labour claim. By then the answer is mostly already decided, and it was decided years earlier, by which documents they signed and which cheques they let slide.
The interesting thing is that the law you were told about at incorporation is entirely true. Separate legal personality is real. Salomon still stands. The Ontario Court of Appeal in Yaiguaje v. Chevron Corporation, 2018 ONCA 472 refused to pierce the veil of a wholly owned subsidiary even to enforce a US$9.5 billion judgment, and expressly rejected any free-standing “just and equitable” ground for doing it. If your protection ever fails, it will not be because a judge looked through the corporation. It will be because Parliament, the bank, or your own signature went around it.
What the corporate veil actually protects
Trade payables. Supplier invoices. The lease your corporation signed in its own name without an indemnity from you. A commercial judgment against the company. A contract dispute the company loses. For all of these, a creditor's recourse ends at the corporation's assets, and if those assets are gone the creditor writes it off. This is the whole point of the structure, and it is why the sole proprietor who reads whether to incorporate or stay a sole proprietor should usually stop being a sole proprietor.
The test for piercing, restated in Chevron, has two limbs: the individual must completely dominate and control the corporation, and the corporation must have been used as a shield for fraudulent or improper conduct. Bad business judgment does not qualify. Undercapitalisation does not qualify. Running the company as your alter ego is not, on its own, enough. Ontario judges pierce the veil a handful of times a decade, almost always where the corporation was created to do the wrong in the first place.
How the protection is bypassed — the four routes
| Route | Who can come after you | Authority | How far it reaches |
|---|---|---|---|
| Unremitted source deductions and GST/HST | Canada Revenue Agency | Income Tax Act s. 227.1, Excise Tax Act s. 323 | Every director, jointly and severally, for the full amount plus interest and penalties |
| Unpaid wages | Employees, or the Ministry of Labour on their behalf | CBCA s. 119 / OBCA s. 131; Ontario ESA Part XX | Up to six months' wages (plus up to twelve months' vacation pay under the ESA); no termination or severance pay |
| Regulatory offences | Ministry of Labour, Ministry of the Environment, securities regulators | e.g. Ontario OHSA s. 66 | Fines up to $1,500,000 per director or officer, and up to twelve months in jail |
| Personal guarantees and indemnities | Bank, landlord, key supplier, equipment lessor | Your signature | Whatever the document says — usually unlimited, usually joint and several |
Route one: the CRA does not need the corporate veil
Section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act make directors jointly and severally liable, with the corporation, for source deductions and GST/HST the corporation collected and failed to remit. Parliament's reasoning is that this money was never the company's to begin with — it was your employees' tax and your customers' GST, held in trust for the Crown — and when a struggling business uses it to make payroll, the directors have effectively borrowed from the government without asking.
Three things about this liability surprise people. It does not extend to the corporation's own income tax; a director is not personally liable because the company could not pay its corporate tax bill, only for amounts withheld from others. CRA must first try to collect from the corporation and come up short, which in practice means a certificate registered in Federal Court and a writ returned unsatisfied, or a bankruptcy. And there is a two-year limitation running from the day you cease to be a director — which is the reason resigning properly, in writing, filed with the corporate registry, matters far more than most departing directors realise.
The only defence is due diligence, and the Federal Court of Appeal in Canada v. Buckingham, 2011 FCA 142 made it an objective standard: what a reasonably prudent person would have done in your circumstances to prevent the failure to remit. Not to cure it afterwards. The director who let remittances lapse to keep the doors open for another quarter while the big contract failed to land has made exactly the decision the statute was written to punish. CRA's own Information Circular IC89-2R3 walks through how the agency assesses this, and it is worth reading before you take a board seat, not after.
Route two: six months of your employees' wages
Section 119 of the Canada Business Corporations Act, and its Ontario counterpart in section 131 of the OBCA, make directors personally liable to employees for up to six months' unpaid wages for services performed while they were directors. Ontario's Employment Standards Act adds accrued vacation pay of up to twelve months. The liability does not cover termination pay or severance — a point the Ontario Ministry of Labour's policy manual is explicit about — so the exposure is bounded, but for a company with twenty employees at $5,000 a month it is still $600,000 spread across whoever was on the board.
The conditions are procedural and easy to trip over. Under the CBCA the employee must have sued the corporation and failed to recover, or the corporation must be in liquidation or bankruptcy, and the action against the director must be started within two years of leaving the board. Directors who resign the week before the wage claims crystallise are still liable for the months they served.
Route three: fines written to reach the director
A growing number of regulatory statutes name directors and officers directly, and Ontario's Occupational Health and Safety Act is the one owners underestimate most. Since 2022, section 66 of the OHSA permits a fine of up to $1,500,000 against a director or officer, and up to twelve months' imprisonment, against a $2,000,000 maximum for the corporation itself. The director's duty under section 32 is to take all reasonable care to ensure the corporation complies — a personal duty, not something the veil has anything to say about. Environmental statutes, securities legislation and the Competition Act use the same design. Where the legislature wants a person to answer, it names the person.
Route four: the guarantee you signed to get the loan
This is the one that actually empties houses, and it is the one no court has to decide, because you agreed to it. The Canadian Federation of Independent Business found in its 2023 Small Business Financing Indicators report that 52% of micro businesses had to give a personal guarantee to be approved for financing, and 29% had to pledge their primary residence as collateral. Read those figures against how rarely the veil is pierced and the picture inverts: the corporation protects you from the creditors you did not promise to pay, and the ones that matter most made you promise.
Guarantees hide in genuinely ordinary documents. The commercial lease has an indemnifier's clause. The equipment lease has a personal covenant on the last page. The supplier credit application has a guarantee in the small print above your signature. The bank's general security agreement is corporate, but the loan letter beside it is not. Most of these are unlimited in amount, joint and several among guarantors, and continuing — they survive renewal, refinancing and your departure from the company unless you get a release in writing. Negotiating them down is actually possible far more often than owners assume: a cap, a sunset when the business hits a covenant, a release of a departing partner, a carve-out for the family home. None of that is available after default.
Where directors get hit that owners forget about
The oppression remedy under CBCA s. 241 and OBCA s. 248 can land on a director personally, not just on the corporation. In Wilson v. Alharayeri, 2017 SCC 39 the Supreme Court upheld an order of roughly $650,000 against a director personally, because he had been implicated in the oppressive conduct and had benefited from it. Fiduciary breaches, unlawful dividends paid while the company was insolvent, and improper share redemptions are all personal under the corporate statutes. None of these involve piercing anything; they are duties the statute puts on you by name.
What to actually do about it
Keep the trust money sacred. Source deductions and GST/HST go out on the day they are due, before the rent, before your own salary; a business that cannot do that has a solvency problem, not a cash-flow problem, and the directors need to know that on the day it starts. Get every guarantee in a single file, know its cap and its release conditions, and renegotiate at every refinancing. Document board decisions, because due diligence is proven with minutes and not with memory. If you leave a board, resign in writing, file the notice of change, and diarise the two-year mark. And if you have partners, put director exposure into the shareholder agreement — indemnities, insurance, and who carries which guarantee — while everyone still likes each other.
The veil, in the end, holds up rather well. It is the four doors around it that were never locked.
Common questions
Can my corporation's creditors come after my personal assets in Canada?
For ordinary trade debts, no. A corporation is a separate legal person and its creditors are limited to its assets. Personal exposure comes from specific statutes (CRA remittances, unpaid wages, regulatory fines), from personal guarantees you signed, and in rare cases from a court piercing the corporate veil where the corporation was used for fraud.
When will a Canadian court pierce the corporate veil?
Rarely. The Ontario Court of Appeal in Yaiguaje v. Chevron (2018) confirmed a two-part test: the individual must completely dominate the corporation, and the corporation must have been used as a shield for fraudulent or improper conduct. Poor judgment, undercapitalisation or a one-person company is not enough, and there is no general “just and equitable” ground.
Am I personally liable for my corporation's unpaid taxes?
For unremitted source deductions and GST/HST, yes — directors are jointly and severally liable under Income Tax Act s. 227.1 and Excise Tax Act s. 323, once CRA has failed to collect from the corporation. You are not personally liable for the corporation's own income tax. The only defence is due diligence, judged objectively.
How long after I resign as a director can CRA assess me?
Two years from the date you cease to be a director. The clock runs from an effective, documented resignation, so resign in writing and file the notice of change with the corporate registry. Resigning does not remove liability for remittances that fell due while you were on the board.
Are directors liable for employees' wages if the company cannot pay?
Yes, up to six months' wages under CBCA s. 119 or OBCA s. 131, plus up to twelve months' accrued vacation pay under Ontario's Employment Standards Act. Termination and severance pay are excluded. The employee generally must first have tried and failed to recover from the corporation, or the corporation must be bankrupt or in liquidation.
Does a personal guarantee survive if I sell my shares or leave the company?
Usually, yes. Most bank, landlord and supplier guarantees are continuing guarantees that bind you until the creditor releases you in writing. That release should be a condition of any sale or exit, and it belongs in the shareholder agreement before the exit happens.
Can a director be personally liable under the oppression remedy?
Yes. In Wilson v. Alharayeri (2017 SCC 39) the Supreme Court of Canada upheld a personal award of about $650,000 against a director who was implicated in oppressive conduct and benefited from it. Personal liability is available where it is a fair way to remedy the oppression.
Does incorporation still make sense given all these exceptions?
Almost always. The exceptions are specific and mostly within your control: remit on time, keep guarantees capped and documented, comply with safety and regulatory statutes. Against that, the corporation shields you from every ordinary commercial claim, which is the majority of what can go wrong in a business.