GST/HST Director Liability: Lessons from the Ayoub Case

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If you are the only director of a company and believe that advancing personal funds later will protect you from GST penalties, this case shows why that is a mistake.

In 2025, the Tax Court of Canada decided Ayoub v. HMK. The court held Michael Ayoub personally liable for more than $330,000 in unremitted GST/HST from his construction company. Between 2014 and 2016, the company failed to remit GST on both home sales and rental properties.

Ayoub claimed that he was diligent and had even advanced personal funds. The court did not agree.

What went wrong

One issue came from three homes where GST was collected at sale but not fully remitted. Another came from renting newly built homes. Under self-supply rules, GST is due on the fair market value of those rentals, even if no cash is collected.

Ayoub filed most returns late and without payments. He said he only learned from his accountant after renting the homes that GST was due. The court said a prudent person would have checked before leasing, especially given the company’s financial stress.

Why the director was liable

The judge gave several reasons:

  • Funds advanced to the company went mostly to cover old tax shortfalls, not to prevent new failures.

  • Ayoub focused on paying trades and mortgages while ignoring GST/HST obligations.

  • He failed to instruct his lawyer to hold back GST/HST on closing or to keep it separate from operating funds.

  • The company was undercapitalized, but that was not an excuse. Weak financial position increases the duty to plan ahead.

The court concluded he did not act as a reasonably prudent director. Personal sacrifices after the fact did not matter. The law requires directors to take steps to prevent remittance failures, not only to fix them later.

Lessons for business owners

  • Always separate GST/HST funds from general operating money.

  • Plan remittances before financial stress makes them harder to pay.

  • Never use tax funds as business cash flow.

  • Consult your accountant before entering leases or sales that may trigger GST obligations.

GST/HST belongs to the Crown, not your business. Directors are responsible for ensuring it is remitted on time. For more information on Directors Liability -Please read https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic89-2/director-s-liability.html

At Cloudiverse CPAs Inc, we work with business owners to avoid costly GST/HST mistakes. Contact us if you need guidance on compliance or director liability risks.