Sideris v. Her Majesty the Queen, [1996] 3 CTC 2138, 97 DTC 609

Bowman J.T.C.C.: - These appeals are from reassessments for the appellant’s 1985, 1986, 1987 and 1988 taxation years. By those assessments the Minister of National Revenue included in Mr. Sideris’ income the following amounts:

1985: $28,910

1986: $16,234

1987: $12,981

1988: $18,394

Of these amounts, the following came from the payroll account of Service d’Entretien Nord-Rive Inc. (“Nord-Rive”):

1985: $23,300

1986: $4,944

1987: $1,048

1988: $1,193

The following amounts came from the current account of Nord-Rive:

1985: $5,610

1986: $11,290

1987: $11,933

1988: $17,201

Penalties were imposed under subsection 163(2) of the Income Tax Act in respect of the amounts that came from the payroll account. Moreover, the assessments were made beyond the three year “normal reassessment period”. Accordingly, the burden is upon the respondent to justify the making of the reassessments on the basis that the appellant, in failing to include the amounts in question, made a misrepresentation of the type contemplated by subsection 152(4) of the Income Tax Act. Also, the respondent has the onus of justifying the penalties under subsection 163(2).

The appellant also contended that the onus of proof with respect to the correctness of the assessment of tax rested on the respondent because at the time of making the assessments he was not provided with details justifying the assessments. I do not think this contention is correct. The validity of an assessment does not depend on what details were furnished to the taxpayer, and the failure to provide adequate details to a taxpayer does not shift the onus of proof to the Crown. The Minister of course has an obligation to inform a taxpayer of the basis of the assessment but I do not think that there is any evidence of information being withheld from the taxpayer if he had asked for details. In any event if he were dissatisfied with the information he received, the rules of this court permit him to examine an officer of the Department of National Revenue for discovery.

The Minister, in assessing, relied upon the following assumptions of fact:

(a) During his 1985, 1986, 1987 and 1988 taxation years (hereinafter “the relevant period”), the Appellant was an employee as well as one of the two leading minds and managers of Service d’Entretien Nord-Rive Inc. (hereinafter “Nord-Rive”).

(b) The other leading mind and manager of Nord-Rive was the Appellant’s brother-in-law, Kosta Malotsis.

(c) Nord-Rive had two accounts from which its expenses were paid; a “payroll account” bearing number #121590-4 and a “current account” bearing number #121588-8.

(d) Nord-Rive’s salary expenses were paid out of the payroll account.

(e) During the relevant period, approximately 300 cheques drawn from the payroll account were either payable to persons who did not work for Nord-Rive or to persons who never cashed the cheques payable to them.

(f) Many of the cheques referred to in the above paragraph bore a false signature and all of them were endorsed by either the Appellant, Kosta Malotsis or Vasilios Stratopoulos.

(g) Those cheques endorsed by Vasilios Stratopoulos were cashed by him but the money was given back to Nord-Rive’s managers.

(h) The Minister added to the Appellant’s income the amount of the cheques cashed by himself as well as half of the cheques cashed by Vasilios Stratopoulos.

(i) Thus, the following amounts from the payroll account were added to the Appellant’s income for the relevant period:

1985: $23,300.00

1986: $4,944.00

1987: $ 1,048.00

1988: $ 1,193.00

(j) Nord-Rive’s expenses other than salaries were paid out of its current account.

(k) The Appellant has admitted to have imitated the signature of one “S. Kazis” as well as having cashed cheques payable to S. Kazis.

(l) In computing his income for each of the taxation years in dispute, the Appellant knowingly or under circumstances amounting to gross negligence, has omitted to declare amounts of income obtained from the payroll account of Nord-Rive.

(m) In the absence of representations from the Appellant as to the exact amounts paid to himself, the Minister added to his income half of the cheques drawn from the current account and payable either to “Cash”, the Appellant or Kosta Malotsis.

(n) Thus, the following amounts from the current account were added to the Appellant’s income for the relevant period:

1985: $ 5,610.00

1986: $11,290.00

1987: $11,933.00

1988: $17,201.00

The appellant’s position in the notice of appeal was that some of the amounts were income of members of his family and that some of the amounts represented the repayment of loans that he had made to Nord- Rive. The evidence adduced does not support either of these positions. At trial the argument was largely confined to the proposition that Mr. Sideris, an employee of Nord-Rive, a company that supplied cleaning services to a number of businesses in Montreal, received the amounts and paid them over to an unnamed person or persons to secure cleaning contracts. They were variously described as bribes, kickbacks, commissions or pots de vin. This new theory was not pleaded in the notice of appeal. Mr. Sideris declined to name the person or persons to whom the payments were allegedly made on the grounds that if he did so his life would be in danger. It was not made clear whether there was one czar or kingpin who controlled the granting of such cleaning contracts who exacted a commission, or whether the payments were made to a variety of individuals employed by the companies to whom Nord-Rive supplied cleaning services. The story was told to the officials of the Department of National Revenue, but Mr. Sideris refused to name the persons to whom the payments were allegedly made. He did not mention the possible danger to his life in his discussions with the Department of National Revenue. The position briefly is not that Mr. Sideris did not receive the amounts in question, but that they were not his income but rather the income of the undisclosed recipients.

The evidence was confused and contradictory, but the story that emerged, so far as I can tell, may be summarized as follows.

In 1961, Mr. Sideris began to work for Acme Services and Maintenance which was owned by a Mr. Isaac Lutterman. When Mr. Lutterman retired he and a partner, Mr. Louis Gicas, took over the business. In 1981, Mr. Sideris bought out Mr. Gicas’ interest in the business. The business evidently went bankrupt in 1982 or 1983. Accordingly to Mr. Sideris the cleaning business was taken over by a Mr. Malotsis. I find Mr. Malotsis alleged ownership of the business difficult to believe. Mr. Sideris’ involvement in and control of the business — including the finding of contracts, his control of the bank accounts, his signing of the financial statements as well his alleged investment in the company is far more consistent with his being an owner or co-owner of Nord-Rive. Mr. Malotsis was not called as a witness.

In 1991 Mr. Sideris pleaded guilty to a major unemployment insurance fraud and was fined $75,000. I need not go into the details of the fraud. It involved cheques going to people who were not employed by the company but were ostensibly on the payroll long enough to qualify for unemployment insurance benefits. Many of the cheques were made out to Mr. Stratopoulos, Mr. Malotsis’ brother- in-law, allegedly for other people who may or may not have been on the payroll. I think the evidence is more consistent with the view that some, if not all of the money from the cheques cashed by Mr. Stratopoulos found its way back to Mr. Sideris or Mr. Malotsis.

The RCMP investigation into the unemployment insurance fraud led to an investigation by the officials of the Department of National Revenue and it is from that investigation that the present assessments emanated. The relationship among the various family members, with other employees, with Mr. Malotsis and his brother- in-law, Mr. Stratopoulos, with respect to the cashing of cheques seems to have been rather fluid, to put it mildly. Mr. Stratopoulos worked for the Toronto-Dominion Bank as a parking lot attendant, and it is alleged that this facilitated his dealings with the bank, including the cashing of cheques for other persons and the obtaining of loans. It was alleged that he arranged a $50,000 line of credit for Mr. Malotsis. Mr. Sideris testified that some of the bogus cheques went to people who never were on the payroll and some were used for the alleged payment to the undisclosed person or persons for the cleaning contracts.

There were extensive negotiations between the Department and Mr. Sideris’ accountant, but ultimately he stopped making representations and Mr. Albert, the auditor with the Department of National Revenue in charge of the file, issued the assessments in question. He divided the amounts received from the current account in two and assessed Mr. Sideris and Mr. Malotsis equally irrespective of who cashed the cheques. In many cases it was Mr. Stratopoulos. He did not assess the other members of Mr. Sideris’ family. Concerning the payroll account, Mr. Albert assessed Mr. Sideris or Mr. Malotsis on the amounts of the cheques that they cashed, and he divided the balance between them equally.

I am satisfied that Mr. Sideris received at least the amounts assessed in his hands and that he received them in his capacity either of employee or of shareholder. I am also satisfied that he failed to declare these amounts in his income in circumstances that justify the reopening of the statute-barred years.

In arriving at this conclusion, I am aware that the onus of justifying the opening of the statute-barred years and the imposition of penalties lies upon the Crown, whereas the onus of showing that the assessments were otherwise wrong is on the appellant. In light of the highly contradictory nature of the evidence and of the necessity of forming an opinion of the credibility of certain of the witnesses, I believed that in addition to observing the witnesses it was necessary that I review the transcript in some detail.

I shall begin with the evidence of Mr. Stratopoulos. He agreed that he cashed cheques for both Mr. Sideris and Mr. Malotsis and that he gave them the money. He agreed that the amounts “could be” as high as $100,000. This evidence is consistent with what he told Mr. Pierre Chartrand, the RCMP officer who investigated the unemployment insurance fraud.

Second, I come to the evidence of Mr. Lapointe, the chartered accountant. There is no doubt in my mind that although his fees were paid by Nord-Rive, he had the authority to represent, and did represent, Mr. Sideris and Mr. Malotsis and that he stated to Mr. Albert, the Revenue Canada investigator, that his clients had misappropriated substantial sums of money from Nord-Rive and that they were co-owners of that company. I accept this as a fact for several reasons. In the first place it is consistent with other evidence relating to Mr. Sideris’ control of and involvement in the company. It is consistent with Mr. Sideris’ participation in a major unemployment insurance fraud whereby substantial sums of money were taken both from the company and from the Government of Canada. Moreover, I draw an inference from the failure of Mr. Malotsis to testify. I should have thought that where it is alleged that Mr. Sideris was at least a co-owner of Nord-Rive. If the allegations were false, Mr. Malotsis’ evidence would have been crucial.

My acceptance of Mr. Albert’s testimony to this effect is buttressed by Mr. Lapointe’s abrupt cessation of communication with Mr. Albert and by Mr. Lapointe’s development, in his testimony before the court, of a severe case of amnesia. He had the authority to make the admissions on behalf of his client and I am satisfied that they were true.

Finally, there is Mr. Sideris’ own testimony. He originally contended that the amounts attributed to him were a repayment of loans, or that they were payments to members of his family. Finally he stated that the amounts which he received were used by him to pay bribes, or commissions or kickbacks to persons who were in a position to award contracts for cleaning buildings. The person or persons receiving these amounts were not named and indeed it is not clear whether there was one person with centralized control of cleaning contracts or several individual employees of. client companies. I find it significant that if the amounts taxed in Mr. Sideris’ hands were in fact amounts he received for the purpose of paying bribes he did not say so in his notice of appeal. Moreover, the amount of the bribes was said to be some 4%, declining with volume, of the gross receipts from the various cleaning contracts allegedly purchased, but the figures were not established to bear any mathematical relation to Nord-Rive’s gross revenues.

In my view the appellant has not established that the amounts which he received were used to pay bribes. I realize that one cannot realistically expect the recipient of a bribe to give a receipt. [1] Nonetheless, the evidence of bribes must be cogent and in this case it is far from persuasive. I think that very substantial amounts, probably in excess of the amounts assessed, found their way into Mr. Sideris’ pocket, were not reported by him, and were properly subject to the penalties imposed.

The appeals are therefore dismissed with costs.

Appeal was dismissed.