Derivative liability describes situations where a person becomes responsible for another person's tax debt because of their relationship or dealings with the original tax debtor. It is distinct from a person's own assessed tax; the liability is derived from someone else's obligation.
The two principal forms in Canadian tax law are the directors' liability rules, which can make a director responsible for a corporation's unremitted source deductions and GST/HST, and the non-arm's-length transfer rules, which can make a recipient of undervalued property responsible for the transferor's tax debt. Because derivative liability flows from an underlying obligation, a defence often examines whether that underlying debt is valid and whether the conditions for derivative liability are actually met.