Demetre Kiliaris v. Her Majesty the Queen; Zacharias Kiliaris v. Her Majesty the Queen; Gregoris Tricoris v. Her Majesty the Queen; Richard Taperek v. Her Majesty the Queen; Helen Moulas v. Her Majesty the Queen; Helen Kiliaris v. Her Majesty the Queen; And Isidoros Moulas v. Her Majesty the Queen, [1996] 3 CTC 2743, 97 DTC 7

P.R. Dussault J.T.C.C.: — The appeals were heard on common evidence. They are appeals from assessments for the 1986, 1987, 1988 and 1989 taxation years by each of the appellants, referred to collectively as “the appellants”. Helen Kiliaris had also initially appealed from an assessment for the 1990 taxation year. Her counsel informed the Court at the hearing that it was discontinued.

Points at Issue

The principal point raised by these various appeals is whether during the years in question the appellants received a special remuneration or a gratuity, the value of which should have been included in their income under section 5 of the Income Tax Act (the “Act”). The respondent maintained that the value of preferred shares in the capital stock of the company 125190 Canada Inc. (“125190”), issued in payment of bonuses [1] to the appellants, should be included in their respective incomes as employment income, pursuant to that provision.

The appeals by Demetre Kiliaris (No. 93-2213(IT)G - “D. Kiliaris”) from assessments for the 1988 and 1989 taxation years also deal with whether the appellant should have included certain amounts in his income pursuant to subsection 15(2) and section 80.4 of the Act in connection with advances received from Hellas Food Inc. (“Hellas”), in which he was the principal shareholder.

Further questions are also raised in most of the appeals. Thus, in all the appeals from the assessments for the 1986 and 1987 taxation years, except those of Helen Moulas (No. 93-226 l(IT)G) and Helen Kiliaris (No. 93-2265(IT)G), it must also be decided whether the assessments could be issued after the usual three-year deadline mentioned in paragraph 152(4)(c) of the Act on the ground that the appellants made a misrepresentation that was attributable to neglect, carelessness or wilful default, or committed fraud in filing their returns. That point is not raised in the appeals of Helen Moulas and Helen Kiliaris because the assessments from which the appeals were brought for those years were initial assessments.

For the 1986, 1987 and 1988 taxation years, except in the case of Helen Kiliaris, it must also be determined whether the Minister of National Revenue (the “Minister”) was right in assessing a penalty pursuant to subsection 163(2) of the Act in connection with the unreported employment income.

In the case of D. Kiliaris, a late filing penalty was assessed for his 1989 taxation year.

In the case of Helen Kiliaris, a late filing penalty was assessed for her 1986 to 1989 taxation years inclusive.

In the case of Helen Moulas, the assessments were made on the basis that she was entitled neither to any child tax credits for her 1986 to 1989 taxation years inclusive nor to any sales tax credits for her 1989 taxation year.

In the case of Helen Kiliaris, the assessments were made on the basis that she was entitled neither to any child tax credits nor to any sales tax credits for her 1986 to 1989 taxation years inclusive.

Of course, the various Notices of Appeal and Replies to each of those Notices of Appeal discuss the points raised in so far as they are relevant to one or other of the taxpayers concerned in accordance with the distinctions just mentioned. To simplify the analysis, I refer now to the Reply to the Notice of Appeal in the case of D. Kiliaris and the facts which the Minister assumed in making the assessments in respect of him. These facts, set out in subparagraphs (a) to (y) of Paragraph 9 of that document, are described as follows:

(a) up to 1977, Mr. Demetre Kiliaris carried on business under the trade name “Hellas Food Products Reg’d”;

(b) in 1977, Mr. Demetre Kiliaris caused the incorporation of Hellas Food Inc. (hereinafter referred to “Hellas”) under the Canada Business Corporations Act; Mr. Demetre Kiliaris held all the voting shares of “Hellas”;

(c) “Hellas” carried on business as a food distributor;

(d) from 1980 to 1985, “Hellas” practised a policy of paying key employees by way of salary cheques and reasonable bonuses paid by way of preferred shares fully paid in the capital stock of “Hellas”;

(e) in payment of bonuses, “Hellas” issued inter alia the following preferred shares to the following key employees:

			Hellas Food Inc.
	Preferred Class B shares issued at $1.00 each in payment of bonuses
Name			Date of issuance and number of shares
	29-02-80	28-02-81	29-02-82	25-02-83	30-12-83	24-02-84	24-02-85
Demetre Kiliaris	53,377	—	20,801	18,997	7,997	71,500	83,493
Helen Kiliaris	19,649	14,400	14,06]	26,041	22,546	71,500	83,370
Isodoros Moulas	9,681	10,500	10,088	18,940	15,799	70,991	83,091
Helen Moulas	2,760	14,400	13,766	25,747	20,909	70,991	82,808
Zacharias Kiliaris	11,841	10,500	10,046	18,968	15,340	70,991	79,679
Richard Taperek	9,921	10,500	10,088	18,968	15,339	70,991	79,249
Gregoris Tricoris	11,841	10,500	10,028	18,968	9,887	70,99]	87,961

(f) each of the individuals referred to in the above subparagraph e) included in their taxable income for each taxation year as remuneration an amount equal to the fully paid value given to each preferred shares when issued, namely $1.00 per share;

(g) on August 8, 1983, Mr. Demetre Kiliaris caused the incorporation of 125190 Canada Inc. (hereinafter referred to as “125190”) under the Canada Business Corporations Act; Mr. Demetre Kiliaris held all the voting shares of “125190”;

(h) “125190” carried on business as a management company rendering services to “Hellas”;

(i) “125190” financial year ends on September 30 each year;

(j) during the course of the 1985 calendar year, “Hellas” key employees became key employees of “125190” and the following persons played an active role in the affairs of “125190”:

Name	Relationship to Mr.	Responsibilities in 125190
	Demetre Kilians	Canada Inc.
Demetre Kilians		President
Helen Kiliaris	Wife.	Responsibie tor information
		processing (informatique)
Isodoros Moulas	Brother-in-law	Responsible for shipping
Helen Moulas	Sister; wife of Isodoros	Responsible for purchase orders
Zacharias Kiliaris		Responsible for the warehouse
	Brother
Richard Taperek	Brother-in-law, brother of	Responsible for the warehouse
	Helen
Gregons Tnconis	Cousin	Responsible for transportation

(k) during the calendar year 1985 up to and including 1989, “125190” adopted the same policy that was previously followed by “Hellas” namely to pay key employees by way of salary cheques and reasonable bonuses claimed first as expense by “125190” and then afterwards paid by way of preferred shares issued fully paid in the capital stock of “125190”;

(1) for its fiscal years ending September 30, 1985, 1986, 1987 and 1988, “125190” claimed as an expense bonuses and declared the following taxable income:

Date	Amount of	Taxable income (after deduction
	bonuses deducted	of bonuses and other expenses
		such as salary)
30-09-85	470,000	($19,582)
30-09-86	621,000	$1,468
30-09-87	588,000	$519
30-09-88	975,000	$1,682

(m) during the calendar year 1985 and to and including 1989, “125190” deducted reasonable bonuses as an expense and paid key employees by way of salary cheques and bonuses paid by way of preferred shares issued fully paid in the capital stock of “125190” at the following dates:

	125190 Canada Inc.
Amount of bonuses	Fiscal period	Date of issuance of	Number of preferred
deducted in income	ending	preferred shares in	shares issued in payment
tax return		payment of bonuses	of bonuses
$470 000	30-09-85	31-03-86	470 000
$621 000	30-09-86	30-09-87	621 000
$588 000	30-09-87	31-03-88	588 000
$975 000	30-09-88	31-03-89	975 000

(n) the total amount of the remuneration to key employees, the amount of bonuses, the issuance of preferred shares in payment of the bonuses were correctly and duly recorded in “125190”’s accounting records, the corporation’s minutes of resolutions, the shareholder’s ledger and financial statements;

(o) during the calendar years 1985 to 1989, “125190” duly issued the following preferred shares at a value of $1.00 each to the following key employees:

	125190 Canada Inc.
	Preferred shares issued at $1.00 each in payment of bonuses
Name		Date of issuance and number of shares
	30-09-86	30-09-87	31-03-88	31-03-89
Demetre Kiliaris	67 143	88 715	84 000	139 285
Helen Kiliaris	67 143	88 715	84 000	139 285
Isodoros Moulas	67 143	88 714	84 000	139 286
Helen Moulas	67 143	88 714	84 000	139 286
Zacharias Kiliaris	67 142	88 714	84 000	139 286
Richard Taperek	67 143	88 714	84 000	139 286
Gregoris Tricoris	67 143	88 714	84 000	139 286
Total :	470 000	621 000	588 000	975 000

(p) in submitting his 1986, 1987, 1988 and 1989 income tax returns, Mr. Demetre Kiliaris declared the following gross employment income and the following total income:

Year	Gross employment	Total income
1986	$10.775	$10.878

1987	$9,100	$23,205
1988	$9.100	$9,726
1989	$148385	$176,185.41

(q) Mr. Demetre Kiliaris’ gross employment income of $148,385 in 1989 included the value namely of $139,286 of the preferred shares issued to, and owned by him in payment of his share of the bonuses and was duly included by him in his 1989 income; consequently, his 1989 income tax return is assessed as submitted;

(r) Mr. Demetre Kiliaris negligently failed to include in his 1986, 1987 and 1988 income tax return a taxable amount of $67,143 in 1986, $88,714 in 1987 and $84,000 in 1988;

(s) further, he was also grossly negligent in failing to include in his taxable employment income the amount above- mentioned representing the value of the preferred shares issued to and owned by in the capital stock of “125190” and therefore the Minister of National Revenue levies a penalty pursuant to section 163(2) of the Income Tax Act;

(t) from 1985 up to and including 1989, Appellant received advances and/or loans from “Hellas Food Inc.” which advances increased from $172,339.11 on December 31, 1985 to $935,695.58 on January 28, 1989 which were duly recorded in the accounting records of Hellas;

(u) Appellant or “Hellas” have not submitted any proof that Appellant’s advances account was not credited for expenses that would have been incurred by the Appellant out of his advances for the purpose of earning “Hellas” business income;

(v) Appellant’s advances from “Hellas” did not meet any of the exceptions of section 15(2)(a) of the Income Tax Act and consequently having failed to reimburse “Hellas” within the delays prescribed by section 15(2)(b) of the Income Tax Act an amount of $349,210.00 becomes taxable in the 1988 taxation year;

(w) as a consequence of the advances received by Appellant from “Hellas”, he is also deemed to have received an additional taxable advantage of $30,676.00 in 1988 and $65,303.00 in 1989 representing deemed interest pursuant to section 80.4 of the Income Tax Act.

(x) Appellant filed his 1989 income tax return on November 16, 1990;

(y) Appellant having failed to file his 1989 income tax return within the delays prescribed by the Income Tax Act a late filing penalty of $6,252.64 applies.

Preliminary Point

Before summarizing the main points in the adduced evidence, it seems to me to be advisable to mention at once that counsel for the respondent asked me to dismiss forthwith the appeals by Zacharias Kiliaris (No. 93-2214(IT)G) on the ground that he was not present at the hearing and so could not testify about the bonus system. Further, in his submission, as that appellant now resides outside the country, he couldn’t be examined on discovery either. As the parties agreed that the group of appeals should be heard on common evidence, there does not seem to be any justification for that application. First, on the principal point raised, the adduced evidence, as a whole, is applicable to each of the appellants, subject to the distinction applicable in the case of D. Kiliaris. Second, as regards the assessments issued after the usual three- year deadline under subparagraph 152(4)(a)(i) and the penalties assessed under subsection 163(2) of the Act, the Minister and not the appellant has the burden of establishing the facts necessary to make those provisions applicable.

Summary of Evidence

Ronald Thibault, comptroller of the companies in which D. Kiliaris was the principal shareholder, namely Hellas and 125190, testified in reliance on the protection provided by section 5 of the Canada Evidence Act, [2]

Mr. Thibault first testified on the functions of various appellants as employees of 125190. All the appellants, formerly employees of Hellas, allegedly became employees of 125190 during 1985, when that company took over all management of Hellas as of that time. The compensation paid to 125190 by Hellas for its management services was allegedly paid in the form of preferred shares in its own capital stock. Mr. Thibault said that the two companies and the businesses operated by them were actually the responsibility of one man (“a one-man-show”), D. Kiliaris, as he was the only shareholder holding ordinary shares in both companies and took in fact all the decisions. Mr. Thibault said that the other appellants only had the responsibility of carrying out duties and took no part in decisionmaking, contrary to what he had himself indicated in a document dated October 31, 1990 and sent to Francis Granlinard, investigator for Revenue Canada, in which he gave them a title such as data processing, purchase orders, warehouse or transportation manager. Thus, for example, Mr. Thibault said, Gregoris Tricoris was only a “driver and deliveryman” [translation], that is, he simply drove a truck and made deliveries to customers, as was true of the five or six other employees who had the same duties. In actual fact, therefore, he was not responsible for transportation. In the case of Richard Taperek, he was not co-manager of the warehouse, the description given of his duties in the same document, but simply made up orders in the warehouse for delivery. All the appellants, except for

D. Kiliaris, Helen Kiliaris and Helen Moulas, were paid at the rate of $150 a week. D. Kiliaris’ weekly pay was $175 a week. Helen Kiliaris and Helen Moulas did not work on a permanent or full-time basis and were only paid when they worked.

During each of the years at issue, Mr. Thibault, who was responsible for the in-house accounting would see that the financial statements and tax returns for Hellas and 125190 be prepared by the outside accountants Bergeron & Snral. For the avowed purpose of reducing the amount of tax payable, the income of 125190, consisting primarily of the management fees charged to Hellas, was reduced to a minimal and almost nominal amount by a deduction of bonuses of several hundred thousand dollars, payable to the various appellants as indicated in subparagraphs (1) to (o) of Paragraph 9 of the Reply to the Notice of Appeal. In fact, the management fees billed to Hellas were fixed at an amount such that its taxable income was less than $200,000 and the lower tax rate applicable to small businesses could thus apply to it. As I have already noted, the management fees billed to Hellas by 125190 were not the subject of any transfers of funds by Hellas, which instead paid them by issuing to 125190 preferred shares in its own capital stock.

According to Mr. Thibault, the bonuses payable to employees had eventually to be paid by the issuance of preferred shares in the capital stock of 125190. However, unlike what took place when the appellants were employees of Hellas, no amount was shown on the T4 information slip of each individual, and no source deductions made in this connection, because the company did not have sufficient liquid funds to advance or pay the tax on these bonuses as Hellas had usually done in previous years. Accordingly, no amount was allegedly reported by the appellants for the 1986, 1987 and 1988 taxation years. Mr. Thibault stated that Hellas experienced considerable difficulty during the years at issue, in particular because of speculation on foreign prices engaged in by D. Kiliaris and the subsequent drop in the markets when huge quantities of goods had been bought. He said that the impossibility of disposing of the goods already imported from South Africa, because of the embargo on that country, caused the company significant damage and, like 125190, it finally went into bankruptcy in 1991.

Mr. Thibault also stated that, as 125190 did not have the liquidity necessary to pay the tax allegedly owed by the appellants if the bonuses had been paid by issuing preferred shares in its capital stock, absolutely nothing was done in this connection during the years at issue. In his submission, no resolutions were adopted, no shares in the capital stock issued and no share certificates made up. He said that the resolutions [3] and share certificates [4] adduced in evidence were not completed until 1990, during the audit conducted by Mr. Granliénard. Indeed, according to Mr. Thibault, Mr. Granliénard himself raised the question of the bonuses claimed as expenses by 125190 and not included in the appellants’ income. As Mr. Granlinard took the position, he said, that the expenses so claimed had to be “approved” [translation] by the company, Mr. Thibault stated that it was decided at that time, after a discussion with D. Kiliaris, to make up resolutions certifying that bonuses had been declared and paid in the form of preferred shares and to backdate the share register and share certificates. It may be noted that Mr. Thibault admitted to signing himself, for 1986 and 1988 inclusive, these resolutions with the signature of the sole director,

D. Kiliaris, with the latter’s express authorization.

The resolutions, which are all in the same form, contain an anomaly to which I drew the attention of counsel at the close of the hearing. Indeed, they deal with the declaration of a bonus in a single overall amount and their payment in the form of preferred shares “having a par value of $1.00 each” [translation], which are then distributed equally between the seven appellants. As 125190 was a company created pursuant to the Canada Business Corporations Act, [5] its capital stock could not consist of par value shares. According to Mr. Thibault, the corporate documents prepared in 1990 in this way were given to Mr. Granlinard during his audit. Mr. Thibault stated that Mr. Granlinard knew that they had just been prepared. Mr. Granlinard’s testimony on this point is rather vague, since he did not remember whether he learned of the existence of the documents at the start of his audit or whether they were subsequently given to him after being prepared. However, he admitted in this connection that corporate documents were quite often not complete at the time of an audit. His report simply indicates that during his audit he allegedly had in his possession and examined the resolutions providing for the issuance of shares dated August 8, 1983 and then September 30 in each of the years 1985, 1986, 1987 and 1988. It should be noted that Exhibit A-2, obtained from Mr. Granlinard, contains a photocopy of these resolutions with his certification and that there is also with them a final unsigned resolution dated, at the start, September 30, 1989 and at the end, September 30, 1990. Provision is made to pay bonuses in the amount of $434,000 payable by the issuance of preferred shares on March 31, 1990. At all events, we need only note for the moment that it is clear that all these documents, and in particular the share certificates, were contained in the company books under the control of Mr. Thibault or the accountants and were never given to the appellants who, as we shall see, stated in their testimony, except of course for

D. Kiliaris, that they had not been made aware of any of this and had never received or even seen a single share certificate.

In cross-examination, Mr. Thibault admitted to having signed himself the resolutions and share certificates in D. Kiliaris’ name, as was also the case with certain of the 125190 tax returns during the years at issue. He said that D. Kiliaris had specifically authorized him to sign on his behalf.

Mr. Thibault further admitted that the unaudited initial financial statements [6] reflected for each taxation year, from the year ending September 30, 1986 to that ending September 30, 1989, the increase in the company’s capital stock resulting from what was agreed between himself, D. Kiliaris and the accountants Bergeron & Sénécal, regarding the distribu tion of profits in the form of bonuses payable by the issuance of preferred shares in the company. It may be noted that supplementary note 6 in the various financial statements does mention the issuance, during the current fiscal period, of preferred shares “for a total consideration in money...” [translation] of an equivalent amount. Despite that fact, Mr. Thibault stated that the shares were never issued and that actually they were trying to gain time since the decision to deduct the bonuses had been made, but with the intention of paying them later by issuing preferred shares, since the company had a certain time in which to do this.

In his testimony, Mr. Thibault stated that, apart from D. Kiliaris, the appellants were neither consulted nor informed when the corporate documents were prepared in 1990 and that no share certificate was issued to them at that time. In cross-examination, Mr. Thibault repeated that the management fees billed to Hellas by 125190 were paid in the form of shares in the capital stock of Hellas, but that he did not recall whether the minute book of that company was as incomplete as the one for 125190. He also stated that he did not remember the circumstances or context in which the amended returns for the 1986 to 1990 taxation years, accompanied by the amended and unaudited financial statements [7] of 125190, were filed on May 28, 1991. In those amended financial statements, it can be seen that the bonuses are reversed, the preferred shares rescinded and the company’s taxable income for each of the years in question increased proportionately. We may note here that the filing of these amended returns took place only a few weeks before the company made an assignment of its property on June 17, 1991.

In the payroll book, which Mr. Granlinard obtained a copy [8] of during his audit, it can be seen that the bonuses were added to the appellants’ income between the regular entries. However, in the original [9] filed subsequently by M.E.B. Miller, trustee in bankruptcy, it can be seen that the entries have been struck out. This change clearly occurred after Mr. Granlinard’s audit and immediately before the bankruptcy, when it was decided to cancel everything which had been done.

D. Kiliaris’ testimony essentially corresponded to that of Mr. Thibault, who he said he trusted completely in any matters concerning administration and accounting, including giving him authority to sign on his behalf, since he did not personally look after such matters, being concerned only with buying and selling the products. He discussed at some length the commercial and financial problems of Hellas from 1985 because of the price speculation in foreign products and the impossibility of disposing of goods from South Africa, as well as the lack of liquidity to pay taxes associated with the payment of bonuses in the form of preferred shares. He further stated that the corporate documents, including the resolutions regarding bonuses and the issuance of preferred shares as well as the share certificates, were only prepared at the request of Mr. Granlinard, since absolutely nothing of that kind had been done up to that point. D. Kiliaris then stated that he told Mr. Thibault to do whatever was necessary to meet the auditor’s demands. D. Kiliaris further explained that the use of bonuses to lower Hellas’ income in the early 1980s had initially been challenged by Revenue Canada but, with the help of his counsel, he finally won his case so that he was able to continue using the same system in 125190 to lower the company’s taxable income as far as possible. However, according to him, as the company could not pay the taxes of individuals associated with the bonuses, these taxes were the subject of a deduction by the company but were never reported or paid so that they were never included in the returns of the individuals concerned. In cross-examination, D. Kiliaris even questioned the fact that the corporate documents were prepared by Hellas in earlier years. It is only when such documents were subsequently produced by his counsel that he was forced to admit their existence and the fact that they bore his signature. [10]

It does not appear from D. Kiliaris’ testimony, which was quite vague and imprecise on various points, that he really told the members of his family the details of the system developed concerning the bonuses and issuance of shares. It is far from clear that he really wished to benefit them by this system. He simply stated that his intention was to eventually give them something when the company was in better shape.

The testimony of Leopold Sénécal, C.A., accountant for Hellas and 125190, does not really throw any light on the already confused situation regarding the declaration and payment of bonuses by the issuance of preferred shares in the 125190 capital stock. Though he had been responsible for preparing the financial statements, he did not consult the corporate documents since he said he had no instructions to conduct an audit. He allegedly simply acted on the instructions and information received from Mr. Thibault. According to him, the amount of the bonuses was decided on after the fact, once the profit for the year was known and in order that the deduction could reduce the taxable income to zero. Although he stated that he updated the corporate registers in September or November 1989, since this had not been done for some years and he was asked to [TRANSLATION] “reconstitute” the minute book and prepare the share certificates, it is not clear whether he was speaking at that time of Hellas’ corporate documents rather than those of 125190, since he then stated that he consulted the 125190 minute book after March 1990. Asked to locate the documents in his file, he was only able to find those relating to Hellas. At this point it can be seen that the confusion was only getting worse. However, one thing was certain: the initial financial statements for the years 1985 to 1989 [11] prepared by him do indicate not only the deduction of bonuses but also, in the following year, the increase in preferred shares issued during the year in payment for bonuses deducted the previous year. Clearly Mr. Sénécal can not have simply made this up: he obviously received instructions to indicate that preferred shares had in fact been issued each year in payment of bonuses deducted the previous year. Contrary to the statements of Mr. Thibault and D. Kiliaris, these financial statements indicate much more than the deduction of bonuses while simply intending to pay them later. They indicate that this was done regularly each year.

Mr. Sénécal admitted that he prepared not only the financial statements and initial returns of 125190 but also the amended financial statements and amended returns for May 1991, recording the cancellation of the bonus deduction, the loss of the preferred shares issued and the proportionate increase in the income of 125190. He also allegedly prepared the appellants’ tax returns, both the returns in which the bonuses are indicated and the amended returns of May 1991 in which their inclusion is cancelled. The only explanation given was that Mr. Thibault told him that the bonuses would never be paid.

In a letter dated February 28, 1991 and sent to Mr. Granliénard of Revenue Canada by the law firm Mnard, Allard concerning the adjustments which he wished to make to the 125190 income for the 1987, 1988 and 1989 taxation years, the firm states that, as they understand the facts, all the formalities regarding the declaration of bonuses have been duly completed before the end of each of the applicable years, and that the bonuses have been paid on a regular basis as shares.

The testimony of Gregoris Tricoris, Isidoros Moulas, Richard Taperek, Helen Moulas and Helen Kiliaris is to the same effect in all cases. First, it seems clear that they never held any positions of responsibility with Hellas or 125190. They were simply operational employees who were paid (those who worked regularly) a salary of some $150 a week. All said that they placed full confidence in D. Kiliaris and Mr. Thibault and it was the latter who, among other things, prepared their tax returns. What is more, they stated that the signature appearing on some of their tax returns entered in evidence was not their own. Indeed, Gregoris Tricoris stated that the signature on the return for the 1987 to 1989 taxation years is not his own, though he did sign the amended return for the 1989 taxation year. Isodoros Moulas admitted that he signed the returns for the 1986 and 1987 taxation years and the amended return for the 1989 taxation year, and he stated that the signature on the return for the 1988 taxation year and on the initial return for the 1989 taxation year is not his own. As for Richard Taperek, only the initial return for the 1989 taxation year and the amended return for the same year actually bears his true signature. Helen Moulas stated that she signed all her returns except for the initial return for the 1989 taxation year. Helen Kiliaris also made the same statement. It should be noted here that the initial returns [12] of these various appellants for the 1989 taxation year bear an indication that they were prepared by the accounting firm Bergeron & Sénécal. They are all dated April 21, 1990 (that is, before the start of the audit by Mr. Granliénard of Revenue Canada). Nevertheless, they were apparently not received by Revenue Canada until November 16, 1990. In all these initial returns for the 1989 taxation year, a bonus of $139,286 is added to the earnings, actually to be paid on March 31, 1989 according to the resolution contained in Exhibit A-2. As we know, these bonuses were cancelled in the appellants’ amended returns [13] prepared by the same accounting firm on May 23, 1991, and a corresponding lump amount was then added to the income of 125190 for its 1985 to 1989 taxation years. [14]

In the case of Helen Kiliaris, the spouse of D. Kiliaris, there is a difference in that a bonus appears in each of her initial returns for the 1986, 1987 and 1988 [15] taxation years and not only, as was true in the other cases, for the 1989 taxation year. Helen Kiliaris stated that, at Mr. Thibault’s request, she signed all her returns without looking at their content.

The five appellants mentioned all stated that they never knew they were shareholders either of Hellas or of 125190. They maintained that they never received any shares. They said that Mr. Thibault and D. Kiliaris never told them about it or even discussed the question of shares or profit-sharing with them. They all submitted that they had never seen the share certificates, entered in evidence, in their respective names. They stated that they had never received anything but their regular pay and had not been aware that their names were being used in connection with the payment of bonuses and the issuance of shares.

In January 1991, following his audit, Mr. Granliénard, who, at Mr. Thibault’s request, had not contacted the appellants directly, assumed that each appellant had deliberately neglected to include the amount of the bonuses received in his or her tax return and, accordingly, decided to assess penalties under to subsection 163(2) of the Act. This fact, of course, also justified the reopening of the 1986 and 1987 taxation years, which would otherwise have been prescribed in respect of all the appellants except for Helen Moulas and Helen Kiliaris. In his testimony, Mr. Granliénard stated that he did not dispute the reasonableness of the bonuses, although they were for large amounts. The description of the appellants’ duties given to him by Mr. Thibault, and the fact that the appellants were members of the same family, led him to conclude, based on his experience, that in the circumstances the bonuses were not disproportionate. According to him, as the bonuses paid by Hellas had been reported from 1980 to 1985, it was clear that the appellants were aware of the situation. The minute book also showed, he said, that the bonuses had been reported each year. However, he admitted that he had not checked the authenticity of the signatures on the tax returns of the various appellants.

On the question of the advances by Hellas to D. Kiliaris, Mr. Granliénard calculated that an amount of $349,210 should be included in the latter’s income for his 1988 taxation year, under subsection 15(2) of the Act. He further calculated that additional amounts of $30,676 and $65,303 should be included in his income for the 1988 and 1989 taxation years respectively, under section 80.4 of the Act. His worksheets entered in evidence [16] set out the calculations made on the basis of details obtained inter alia from the financial statements submitted. Mr. Granliénard stated that he asked Mr. Thibault to file the source documents and explain the origin of certain repayments apparently made to the company by

D. Kiliaris, when Hellas and 125190 were still in operation. He said that he received nothing in this connection.

In their testimony, both Mr. Thibault and D. Kiliaris stated that the amounts of advances could vary considerably in a year but never rose to more than $50,000 at the end of a given year. They also argued that these were not really advances but essentially repayments by 125190 of money actually advanced by D. Kiliaris or expenses allegedly incurred by him on its behalf. Several expenses were thus allegedly paid with the proceeds of cash withdrawals from credit cards. It can be seen, from examining the worksheets submitted by Mr. Granliénard, that a very high number of credit card bills was paid by 125190. Here again, however, no source document was submitted and no more detailed explanations, based on documentation of any kind, provided. The testimony of the trustee in bankruptcy, M.E.B. Miller, casts no further light on the true nature of the advances, as he did not conduct any audit concerning them. Furthermore, no document or source document, that he may have had in his possession following the bankruptcy, was requested by counsel for the appellants.

Arguments

On the principal point of whether the appellants should include in their income under section 5 of the Act the amount or value of a special remuneration received during the 1986 to 1989 taxation years, their counsel argued first that the taxpayers had received absolutely nothing of the sort during the years at issue since the bonuses payable have not been paid by the issuance of shares during each of the years at issue. Referring to the decisions in Cliffe™ [17] Rousseau,™ [18] Caldwell Trust™ [19] and Phillips?® [20] they based that argument on the principle that mere entry in the books does not constitute a form of payment. Counsel then argued that even if it could be concluded that they have received something, what they received is worthless since it is shares in the capital stock of a bankrupt company. The position taken by the Minister, they said, that the appellants should be assessed for several hundred thousand dollars, was nothing but a waste of time since they would subsequently have to be allowed a loss for a business investment, the effect of which would be to offset the tax payable in recent years.

Counsel next argued that, if the Court were to decide that the shares have been issued, they have not been validly issued as no valuable consideration was received by the company. The reason is it was clear that the services rendered by the various appellants could not have the value in question and justify bonuses in such amounts. Thus, for example, counsel referred to the case of the appellant Gregoris Tricoris, who according to his own testimony was only a truck driver and who, in addition to his ordinary pay in 1986 to 1989, was thus allegedly paid over $379,000.

In their written arguments submitted after the hearing, counsel for the appellants enlarge further on the fact that the shares were not validly issued as not only do the resolutions authorizing their issue give them a par value, which is not possible in the circumstances, but most importantly no consideration was in fact given for their issuance. The judgment of the Supreme Court of Canada in Société Coopérative Agricole du Canton de Granby [21] and that of the Tax Court of Canada in Ball [22] are cited in support of that argument. There was also no agreement between the company and the appellants regarding the issuance of these shares and no valuable consideration was given for their issuance, so that under section 25 of the Canada Business Corporations Act the latter is void. In this connection, counsel for the appellants refer in particular to the judgment in Javelin International. [23] Moreover, they argued, the share certificates, in any case invalid because they were neither properly authorized by a valid resolution nor issued for full consideration, were never given to the appellants and, in their submission, that was an essential condition imposed on the company by subsection 49(3) of the said Act.

In short, counsel conclude that the resolutions authorizing the issuance of shares are ultra vires, the certificates do not represent shares in the company’s capital stock since their issuance was not properly authorized, no shares were received and finally, if the appellants did receive any shares, they are worthless.

On the question of the reassessments issued after the usual three- year deadline and the penalties, counsel simply stated that if the Court were to find that the preparation of resolutions and share certificates constitutes payment, the amount of which should have been included in the appellants’ income, the fact that they had no knowledge of receipt of the amounts in question can not be interpreted as a basis for applying subparagraph 152(4)(a)(i) and subsection 163(2) of the Act.

The question of the advances to D. Kiliaris was not discussed at any length except for a reference to the testimony of Mr. Thibault, which they said corroborated that of D. Kiliaris when he said that far from the company advancing money to him the reverse was actually the case. Counsel further noted that Mr. Granliénard’s worksheets, submitted as a reconciliation, indicate for example a balance of a little over $44,000 at February 28, 1989, not an amount of $340,000 to $350,000 as assessed.

Counsel for the respondent disputed the position taken by the appellants in that they were relying essentially on their own turpitude in pursuit of their interests, by alleging the opposite of their earlier claims. Accordingly, he said, the question of the payment of bonuses by Hellas to members of the immediate family had, according to D. Kiliaris, finally been resolved with Revenue Canada. He even noted the fact that in 1985 the average bonus paid to the appellants amounted to $80,000. As the information regarding the importance of the duties of each appellant had been confirmed by Mr. Thibault in a document sent to Mr. Granliénard at the time of the audit, he considered it is much too late now to suggest that the services rendered did not have a value equal to the bonuses. Moreover, counsel for the respondent noted that Hellas was not in any way bankrupt between 1986 and 1990, that the company was even profitable after the payment of substantial management fees to 125190 and that the latter company was also not operated at a loss even after deducting the bonuses.

Counsel for the respondent also questioned the credibility of both Mr. Thibault and D. Kiliaris regarding the time when the corporate documentation, providing for the issuance of preferred shares in payment of bonuses, was prepared, in view of the indications contained in the financial statements, despite the lacunae in Mr. Granliénard’s testimony on that point. He also maintained that the similarities in the corporate documents submitted as Exhibit A-2 are not uncommon, and noted that those of Hellas submitted as Exhibit A-14 also have the same layout. He referred to the lapses of memory of the appellants, except for D. Kiliaris, since no one remembered bonuses declared by Hellas up to 1985 and that have been included in their tax returns.

On the validity of the resolutions, counsel for the respondent considered that the fact that a par value had been indicated was only a clerical error which was of no consequence, since it was clear that the sole director intended to issue the preferred shares in the company’s capital stock in payment of bonuses. He further submitted that subsection 55(2) of the Canada Business Corporations Act actually gives share certificates priority over adopted resolutions. Indeed, that subsection reads:

A security is valid in the hands of a purchaser for value without notice of any defect going to its validity.

His conclusion on this point was that the appellants held valid preferred shares in the capital stock of 125190. Finally, according to him, it is not necessary for the appellants to be in possession of the share certificates: it suffices that the shares had been issued.

He argued that the penalties were justified for all the appellants even though they did not know what was happening. In his submission, it is

D. Kiliaris who dragged the members of his family into his dealings and they trusted him absolutely, displaying a complete lack of concern for their responsibilities. He said that D. Kiliaris should be regarded as their agent or trustee, and his personal knowledge of the situation should be attributed to the others.

On the question of the advances to D. Kiliaris, counsel for the respondent observed that counsel for the appellants have misunderstood the situation in that the assessments in this connection were made on the basis that certain repayments made by D. Kiliaris were disputed by Mr. Granliénard and no source document or explanation of any kind whatsoever was provided, though it was requested.

Analysis

First, it seems to me that a comment should be made on the question of credibility. When individuals, for the avowed purpose of lowering taxes payable, provide specific information, submit apparently valid documents in support of their claims and obtain the desired benefits, and then, because the circumstances have changed and they now see their interests differently, state that the whole thing was merely a fiction designed to deceive, it is natural not only that their testimony be accepted with the greatest caution, but also that the facts adduced in evidence carry a high degree of probability independently of their testimony. [24]

Here is a company, Hellas, which during the years 1985 to 1990 reduced its income as far as possible by sizable management fees paid to 125190. D. Kiliaris is the only shareholder in both companies, holding the voting shares in their respective capital stock. Hellas was paying the management fees by giving 125190 preferred shares in its capital stock. 125190 itself reduced its income (as Hellas did directly in earlier years) by deducting sizable bonuses payable to the appellants, who were all related to each other. Hellas had previously justified the bonuses to Revenue Canada, they were included in the income of each of the appellants and Hellas advanced or paid the tax for them. The bonuses payable by 125190 were to be paid by issuing preferred shares in its capital stock. In fact, we realize that these shares, though enjoying priority rights as to the declaration and payment of a dividend and their redemption in any liquidation, contained the limitation that they could only be redeemed or purchased in the company’s discretion. [25] That point, to which I will briefly return below, was not commented on in the testimony and was not the object of any representation in argument by counsel for the parties.

Then, in September 1990, Mr. Granliénard’s audit began and the question arose of not including the bonuses deducted by the company in the appellants’ income. The financial statements submitted by the company with its tax returns mentioned the issuance of shares during the year, and an increase in the preferred capital stock each year can be seen, corresponding to the total amount of the bonuses deducted the previous year. Mr. Granliénard examined the corporate documents which were apparently quite valid. Mr. Thibault sent Mr. Granliénard a letter in which he describes the duties of each of the appellants, with reference to a position of responsibility in the company, in an obvious attempt to justify the reasonableness of the bonuses. In February 1991, counsel for the company repeated to Mr. Granliénard that their understanding of the situation was that everything was in order, in particular that all the corporate documentation have been duly prepared, the bonuses paid and the shares issued. At that time, Mr. Granliénard was not disputing whether the bonuses should be deducted, but the year in which they should be deducted. It should be noted here that even before Mr. Granliénard’s audit began, the tax returns of most appellants (except for D. Kiliaris) for their 1989 taxation year, dated April 21, 1990, in fact mentioned the receipt of bonuses. As we know, all these appellants, except for Helen Kiliaris, stated that they did not sign their returns themselves. Moreover, in the latter’s case, we note the inclusion of bonuses in her return for the 1986 taxation year which is not dated, in that for the 1987 taxation year which is dated June 9, 1990 and in that for the 1988 taxation year which is dated November 8, 1989. These are all indications that, before Mr. Granliénard’s audit, much more was done than simply deducting bonuses for the company without ever doing anything more, as Mr. Thibault and D. Kiliaris attempted to suggest, arguing that it was not until then that they undertook to prepare the documentation connected with the issuance of the shares. Even the outside accountant, Mr. Sénécal, gave a different version of the facts in testimony, which unfortunately did not offer all the necessary clarification.

D. Kiliaris even questioned the fact that the corporate documentation has allegedly been prepared in Hellas for the earlier years, and it was not until his own counsel produced documents that he had to admit their existence and acknowledge that they bore his signature.

In May 1991, some weeks before the bankruptcy of Hellas and 125190, there was a change of approach and an attempt made to cancel everything done previously both for 125190 and for the appellants. Amended tax returns were submitted both for the company and for the individuals. The bonuses were cancelled, the preferred shares rescinded and the company’s income increased proportionately. Assuming that bankruptcy was imminent, it is readily understandable that an increase in the income of 125190 would probably not have had any fiscal consequences whatsoever for the company. However, the hope may have been by this means to free the appellants of all fiscal liability.

At the hearing, it was argued not that this about-face in May 1991 was valid but that the preferred shares were never issued at the proper time by validly completed documents. It was also stated that their issuance is void and ultra vires, in view of the complete absence of consideration. Counsel went further, noting that no share certificates were ever given to the appellants and, if despite this it is considered that they have received shares, the latter were worthless in view of the bankruptcy both of Hellas and of 125190.

In the circumstances, I am not prepared to accept that the corporate documentation was not duly prepared at the proper time for the issuance of the preferred shares. Perhaps it was not. I am not satisfied of that in view of the documentation filed, the representations made and the other evidence, already mentioned, resulting from examination of the documents entered in evidence and indications to the contrary.

Having said that, and assuming that the resolutions, securities register and share certificates were duly and validly completed, one undoubted fact remains: no share certificates were ever given to the appellants. All the share certificates were in the company’s possession at the time Mr. Granliénard became aware of them: he even made copies which bear his certification. These documents were given to him by Mr. Thibault. They were until then under his control, under the control of the accountant Mr. Sénécal or perhaps even that of the lawyers, all agents of the company and of D. Kiliaris, the only one of the appellants who was not only aware of the situation but who, with Mr. Thibault and the outside accountants, had developed the system for deduction of bonuses and payment of them in preferred shares. All the others said that they were not aware that shares had been issued in their names. They claimed that they had never received or even seen a share certificate. This fact does not surprise me as it never appeared, from analysing D. Kiliaris’ testimony, that he really intended to confer a benefit on the other appellants by sharing in seven equal parts the profits from Hellas or from 125190, which were essentially his own. Causing them to testify as to the simple nature of their duties and arguing that the value of their services could never constitute valuable consideration for the shares issued and entered in their names can only make the artificial nature of the entire operation more obvious. In such circumstances, it is hard to understand how D. Kiliaris would have adequately informed them of what he was doing, but had no intention of doing so. Thus, for example, I do not believe that D. Kiliaris ever intended to confer a benefit on his cousin Gregoris Tricoris in the amount of $379,000 during the years at issue, that he told him that shares in this amount had been issued in his name but were only redeemable or purchasable at the company’s discretion.

What I believe is that the system of bonuses, and in particular the issuance of preferred shares, was organized and maintained for several years by D. Kiliaris, unknown to the other appellants and without their being fully aware of the details, especially as regards the issuance of shares and the limitations attached to them, namely that they could only be redeemed or purchased at the company’s discretion. The obvious is that they could only be redeemed or purchased by the company at the discretion of the one shareholder who held the voting shares and who was the sole director of the company, D. Kiliaris.

Obviously, the evidence also indicates that several returns made in the appellants’ name do not actually bear their signatures, so that it is impossible to determine with the smallest amount of accuracy how much they knew about the system. Further, many returns are not even dated. One even ponders as to what extent the appellants have been made aware of what was happening within Hellas in earlier years. In the circumstances, it appears to me not at all unlikely that returns could have been submitted for them, falsifying their signatures in some cases. In fact, we know on the one hand that it was Hellas that was previously paying the appellants’ taxes and on the other, that the appellants’ returns submitted in evidence do not bear any indication that shares have been issued.

Based on these comments, I can now return to the fundamental question of whether, during the years at issue, the appellants received a special remuneration or a gratuity as employment income, connected with the issuance of preferred shares in the capital stock of 125190 in their names. If they did, the amount or value of that remuneration must be determined. Additionally, I must decide the question concerning assessments beyond the usual three-year deadline and penalties imposed under to subsection 163(2) of the Act. The determination of the additional points follows from the settlement of the fundamental question.

Did the appellants receive a special remuneration or a gratuity during the years at issue? The answer appears to be “no” for all appellants except

D. Kiliaris. It is well established that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”. [26] I consider that comon sense must also be used in interpreting the words. I do not think it can be said that a person received something when there is nothing to testify as to its receipt. The issuance of a share certificate appears to be the usual procedure conferring the title needed by a holder to assert his shareholder status under the Canada Business Corporations Act. The requirement of receipt of these shares, that is, the certificate representing them or the control over that formality that is on the fact that it did not take place in the present case appears to be absolutely essential in deciding whether a person has received the shares in question and, hence, something which could be regarded as a remuneration under section 5 of the Act. In this sense, the issuance of shares to an individual cannot be regarded as the receipt of a remuneration when he or she has not been told of it, has received no certificate, has never seen any and had no control over the transfer or receipt of a title, the existence of which was unknown to him or her. Though it is extremely difficult to separate what is true from what is false in analysing the evidence, I am inclined to think that the issuance of the shares was camouflaged and was made without the appellants’ knowledge. I therefore conclude that these appellants have not received a remuneration by the issuance of these preferred shares.

Obviously, that reasoning does not apply to the situation of D. Kiliaris. He and his agents developed the system of bonuses payable in shares, made up the necessary documentation and kept it under their control. I clearly cannot conclude here that there was no transfer and receipt of the share certificates made up on the instructions or with the express authorization of

D. Kiliaris, which with the other relevant documents always remained under his control or that of his agents.

In view of the circumstances surrounding this entire matter, already described at length, I do not consider that the evidence shows that

D. Kiliaris could have acted as the agent of the other appellants so that his own knowledge of the facts concerning the issuance of the shares could be attributed to them. They undoubtedly relied on him, as on Mr. Thibault and the outside accountants. As I have said, however, I believe that a great many things, including the issuance of the shares, were concealed from them.

My conclusion here is therefore that it can reasonably be said that D. Kiliaris received the certificates indicating that the preferred shares were issued in his name, since those documents were under his control. It is not the case for the other appellants.

That conclusion leads me, in the case of D. Kiliaris, to the validity of the issuance of the preferred shares, in view of the wording of the resolutions giving them a par value. I will then consider the question of the validity of the consideration given for them.

The anomaly, which I mentioned at the close of the hearing regarding the fact that the resolutions assigned a par value to the preferred shares issued and distributed to the appellants, appears to me to be simply an error that does not affect the validity of the shares issued, since the completed certificates do not contain that error. I agree with counsel for the respondent, who stated that subsection 49(3) of the Canada Business Corporations Act gives priority to the security in the hands of a holder for value. Reference might also be made to subsection 16(3) of the same Act, which provides:

No act of a corporation, including any transfer of property to or by a corporation, is invalid by reason only that the act or transfer is contrary to its articles or this Act.

As the company’s articles include only one class of preferred shares, which are obviously without par value, [27] the error found in the resolutions cannot lead to confusion and in my opinion is irrelevant.

Now, what of the argument that, according to counsel for the appellants, the issuance of the shares is void and even ultra vires, on the ground that no valuable consideration was paid for their issuance? It should be noted, first, that the shares were not issued directly in return for the services rendered by the appellants. In the resolutions adopted, bonuses are first declared in a lump sum which is mentioned, and it is then stated that they are payable by the issuance of preferred shares, which are then distributed equally between the various appellants. On the one hand, if there is anything questionable, it is not the issuance of the shares for a definite amount but from the very outset the setting of the amount of the bonuses, which would not have been regarded as a reasonable expense in the circumstances. The bonuses were presented as legitimate expenses of the company and were the subject of deductions which were accepted by the authorities. It must be understood that the company at that time acknowledged to receiving the full equivalent in value of what it was prepared to assign to the capital stock it was issuing. On the other hand, the evidence submitted and the arguments put forward by counsel for the appellants, to show that the services rendered could not justify the bonuses declared and the payment in preferred shares, related only to the duties and services rendered by the appellants, with the exception of D. Kiliaris. Moreover, it is hard to see how it could be argued in his case that the value of the services rendered did not constitute an adequate consideration for his share of the bonuses declared and paid by the issuance of shares in his name. This seems to me to be sufficient to dispose of the question, regardless of any other argument that could be made against the invalidity of the issuance of the shares, including the application of subsection 16(2) of the Canada Business Corporations Act mentioned above. Obviously, it is not necessary to take the analysis any further in respect of the other appellants, in view of the conclusion which I have come to above concerning them.

The question of the value of the preferred shares was discussed by counsel for the parties, solely from the standpoint of the financial health of Hellas and of 125190. Counsel for the appellants argued that the shares received were worthless because the companies were more or less in a virtual state of bankruptcy. Counsel for the respondent argued, on the contrary, that during the years at issue Hellas operated at a profit, despite the deduction of sizable management fees paid to 125190, and that that company also did not operate at a loss, despite the deduction of bonuses amounting to several hundred thousand dollars each year. While it is quite true that the two companies became bankrupt in June 1991 and encountered significant difficulties long before that time, the financial statements entered in evidence certainly do not show that the companies were insolvent, or on the point of becoming so, during the years 1986 to 1989. I therefore consider, based on the documentary evidence submitted and despite the financial problems referred to at length by Mr. Thibault and

D. Kiliaris in their testimony, that I must forthwith dismiss the argument of counsel for the appellants. No one decides to declare bonuses of several hundred thousand dollars to employees if things are going so badly. It could be said in reply that the management fees paid by Hellas to 125190 were paid by the issuance of shares and that the bonuses declared by the latter company were also paid by the issuance of shares. The deductions claimed by either company nonetheless reduced their respective real profits to a minimum for tax purposes.

This leads me to discuss the value of the preferred shares issued by 125190 in terms of their particular features, namely the rights and limitations they contain according to the articles of incorporation. Although counsel for the parties gave me these articles after the hearing, they did not see fit to make any comment in this connection. As we know, the preferred shares issued could not be redeemed or bought except at the company’s discretion, which in my opinion must have greatly affected their value, and hence the amount that can be thought of as income under section 5 of the Act. The question of the actual value of such shares has been raised in certain cases by Revenue Canada, [28] which took the position that they had no value. Fortunately, the problem here is more theoretical than practical, since D. Kiliaris, the only shareholder holding voting shares and the sole director of the company, was the only person who could decide, in his discretion, whether the preferred shares issued could be redeemed or bought. It can be seen that in the circumstances the limitation had no effect and, in his case, was not likely to affect the value of the shares issued. However, with respect to the other appellants who were not in that position, I consider that the question should have been raised since, but for my conclusion that they had not receive the shares during the years at issue, there would have had to be a ruling on the actual value of shares which the holder cannot insist on having redeemed at any time and in this connection is wholly at the mercy of a third party. One might well think that shares subject to such a limitation are worth much less than the stipulated redemption value, assuming that they are worth anything at all. In the circumstances of the instant case, it can also be seen that the issuance of such shares, even by the hundreds of thousands, was probably not likely to produce any significant real remuneration except for the person holding absolute control of the company in question. The real gratuity which the other appellants might hope to someday receive was left entirely up to that person: D. Kiliaris.

In view of my conclusion that section 5 does not apply in the case of the other appellants, the question of prescription and penalties only arises with respect to D. Kiliaris. I consider that the evidence described above makes it quite clear not only that he knew exactly what was happening but that, with Mr. Thibault, he was the instigator of a system which was manifestly intended to secure significant personal benefits for him. I could not see any concern whatsoever about complying with his tax obligations or those of the companies under his absolute control, companies which he used for his own purposes while allowing or directing his agents to make representations and file several documents, the misleading nature of which is only equalled by his present desire to repudiate them. I have no difficulty concluding, in his case, that there has been a misrepresentation of facts through neglect or deliberate omission on account of the failure to include income under section 5 for the 1986 and 1987 taxation years so that the Minister was justified in making reassessments in respect of those years after the usual three-year deadline. It also considers that there was an omission to report the value of the shares received in payment of the bonuses in 1986 to 1989, and that that omission was made knowingly or under circumstances amounting to gross negligence, so that the penalties assessed under subsection 163(2) of the Act would appear to be justified.

The last question concerns the amounts assessed under subsection 15(2) and section 80.4 of the Act for the 1988 and 1989 taxation years, in connection with the advances received by D. Kiliaris from Hellas. This requires only a brief comment. Neither the testimony of Mr. Thibault nor that of D. Kiliaris, the credibility of which, as I have indicated earlier, is open to question, persuaded me on a balance of probabilities that the assessments were not correct in this regard. No detailed explanation was provided. Moreover, no source document was ever submitted, whether at the hearing or even earlier, which could in any way indicate how Mr. Gxxranliénard’s calculations, on which the assessments were based, were wrong.

Based on the foregoing:

— with respect to D. Kiliaris (case 93-2213(IT)G), the appeals for the 1986, 1987, 1988 and 1989 taxation years are dismissed and the assessments affirmed;

— with respect to Zacharias Kiliaris (case 93-2214(IT)G), Gregoris Tricoris (case 93-2215(IT)G), Richard Taperek (case 93-2216(IT)G) and Isidoros Moulas (case 93-2266(IT)G), the appeals for the 1986 and 1987 taxation years are allowed and the reassessments for those years quashed, since the appellants, in connection with the issuance of preferred shares from 125190 Canada Inc.’s capital stock, received no special remuneration or gratuity, the amount of which was to be included in their income under section 5 of the Act. The appeals of these appellants for the 1988 and 1989 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment, on the basis that the appellants, in connection with the issuance of preferred shares from 125190 Canada Inc.’s capital stock, received no special remuneration or gratuity, the amount of which was to be included in their income under section 5 of the Act and that the assessments should be adjusted accordingly, in particular by cancelling the penalties;

— as regards Helen Kiliaris (case 93-2265(IT)G) and Helen Moulas (case 93-2261(IT)G), the appeals for the 1986, 1987, 1988 and 1989 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment, on the basis that the appellants, in connection with the issuance of preferred shares from 125190 Canada Inc.’s capital stock, received no special remuneration or gratuity, the amount of which was to be included in their income under section 5 of the Act and that the assessments should be adjusted accordingly, in particular by cancelling the penalties.

As the appeals were heard on common evidence and the result is divided, judgment with respect to the appeals will be entered after counsel on each side have had the opportunity to make representations as to costs. These representations must be submitted in writing no later than September 27, 1996.

Appeal allowed in part.