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A Director Penalty Notice is a formal warning issued by the Canada Revenue Agency when a corporation fails to pay its tax obligations. It holds company directors personally responsible for unpaid taxes, including GST/HST remittances and payroll deductions.

Once served, directors have 21 days to address the unpaid amounts before becoming personally liable. This means the CRA can collect directly from a director's personal assets if the company doesn't pay. Directors can only escape liability by resigning, declaring bankruptcy, or proving they took reasonable steps to prevent the tax default.

The Canada Revenue Agency issues Director Penalty Notices when a corporation repeatedly misses tax payments or shows signs of financial distress. These notices serve as a critical tool for collecting unpaid corporate taxes, particularly when companies struggle with GST/HST remittances or employee payroll deductions.

The CRA typically sends these notices after multiple attempts to collect from the corporation have failed. They're especially common during corporate restructuring, when businesses face cash flow problems, or when directors appear to be extracting funds while leaving tax obligations unpaid. Early communication with the CRA can often prevent these notices from being issued.

• Initial Warning Notice: Flags unpaid tax obligations and gives directors 21 days to arrange payment before personal liability kicks in
• Lockdown DPN: Issued when a company fails to report tax obligations within 3 months, making directors immediately liable
• Standard Collection Notice: Details specific amounts owed and payment options, typically for GST/HST or payroll tax defaults
• Multiple Director Notice: Addresses shared liability when multiple directors are responsible for the same tax debt
• Resignation Impact Notice: Explains how recent director resignations affect liability for unpaid taxes

• Canada Revenue Agency (CRA): Issues and enforces Director Penalty Notices when corporate tax obligations remain unpaid
• Corporate Directors: Bear personal liability for unpaid taxes and must respond to notices within specified timeframes
• Tax Lawyers: Advise directors on their rights, obligations, and defense options when faced with these notices
• Corporate Accountants: Help identify and address tax issues before notices are issued, and assist with payment arrangements
• Insolvency Practitioners: Guide directors through options when notices arrive during financial distress or restructuring

• Tax Details: Gather exact amounts owed, including type of tax (GST/HST, payroll), periods involved, and payment history
• Director Information: Compile full legal names, addresses, and dates of appointment for all current and recent directors
• Corporate Records: Confirm company registration details, business number, and registered office address
• Collection History: Document previous attempts to collect from the corporation and communication records
• Timeline Verification: Check filing deadlines, payment due dates, and director resignation dates if applicable
• Notice Format: Use CRA-approved templates to ensure all mandatory elements are included and properly formatted

• Director Identification: Full legal name, address, and position of each liable director
• Tax Particulars: Specific amounts owed, tax periods, and type of tax obligations (GST/HST, payroll)
• Corporate Details: Company's legal name, business number, and registered address
• Liability Statement: Clear explanation of personal liability and the 21-day response period
• Payment Instructions: Detailed payment options and consequences of non-payment
• Legal Authority: Reference to relevant sections of the Income Tax Act and Excise Tax Act
• CRA Information: Contact details for the issuing office and file reference numbers

A Director Penalty Notice differs significantly from a Notice of Default in both purpose and legal implications. While both documents signal serious compliance issues, they serve distinct functions in Canadian business law.

• Legal Authority: Director Penalty Notices are exclusively issued by the CRA for tax obligations, while Notices of Default can be issued by various parties for any contractual breach
• Personal Liability: DPNs specifically target directors' personal assets for corporate tax debts, whereas Notices of Default typically maintain the corporate veil
• Response Timeline: DPNs give directors exactly 21 days to act before personal liability attaches; Default notices often allow negotiable cure periods
• Remedy Options: DPNs require either payment or specific defenses under tax law, while Default notices usually permit various cure methods depending on the contract terms