TT v JT, 2013 ABQB 669

Court of Queen ’ s Bench of Alberta Citation: TT v JT, 2013 ABQB 669 Date: 20131114 Docket: 4803 150043 Registry: Edmonton Between: TT Applicant - and - JT Respondent _ ________________________________________ ______________ Supplemental Reasons for Judgment of the Honourable Mr. Justice Robert A. Graesser _________________________________________ ______________ Introduction [ 1 ] This decision is a follow-up to my decision, TT v. JT, 2012 ABQB 668 , dated October 31, 2012.

In that decision, I dealt with a change in custody to shared parenting, and gave some directions with respect to s. 3 and s. 7 Guideline support. [ 2 ] That decision was a follow-up to a special chambers application held on June 11, 2011. [ 3 ] It is obvious that since June, 2011, these parties have been able to agree on virtually nothing regarding finances and their children. It was a major undertaking to get the minutes settled, and settling the minutes did nothing to settle matters down between the parties. At one stage, Mr. Mawani, counsel for Ms. T, got off the record before the minutes were settled by me.

He got back on the record because of dissatisfaction by Ms. T as to some of the provisions in the order I signed. There were numerous case management meetings until a lengthier hearing could be heard on October 9, 2012. [ 4 ] In my decision as cited above, I gave the parties until the end of November, 2012 to agree on Guideline incomes and s. 7 expenses. They were unable to do so. Mr. Kampitsch, counsel for Mr. T, then got off the record. The parties then used the services of Case Management Counsel, to no avail.

[5] The main stumbling point appears to be determining Ms. T (now P)’s Guideline income as she runs a day-home as aproprietorship and has significant expenses which she deducts from the gross income of her business. Mr. T argues that the expensesshould not be deducted from her income for child support purposes. [6] That determination is holding up the recalculation of s. 7 expenses for 2011, 2012 and on an ongoing basis. Thatdetermination is also holding up calculation of Mr. T’s child support obligations based on shared parenting of the children commencingJanuary 1, 2013.

In my decision above, I declined to make any adjustment to s. 3 payments for 2012. The Law [7] The starting point here is the Guidelines themselves. Sections 18 and 19 provide: 18.

(1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of thespouse’s annual income as determined under

section 16 does not fairly reflect all the money available to the spouse for the payment ofchild support, the court may consider the situations described in

section 17 and determine the spouse’s annual income to include (

a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recenttaxation year; or (

b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed thecorporation’s pre-tax income. Adjustment to corporation’s pre-tax income

(2) In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries,wages or management fees, or other payments or benefits, to or on behalf of persons with whom the corporation does not deal at arm’slength must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances. Imputing income 19.

(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstancesinclude the following: (

a) the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required bythe needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse; (

b) the spouse is exempt from paying federal or provincial income tax; (

c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada; (

d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines; (

e) the spouse’s property is not reasonably utilized to generate income; (

f) the spouse has failed to provide income information when under a legal obligation to do so; (

g) the spouse unreasonably deducts expenses from income; (

h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate thanemployment or business income or that are exempt from tax; and (

i) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust. [8] Issues relating to attribution of income using sections 18 and 19 have been decided in the Court of Appeal in two recentcases. [9] Chekowski v. Howland, 2013 ABCA 299, holds at para. 14 that while there are common themes in the cases under thesesections, each case will depend on its own facts. [10] At para. 13, the Court approved the approach taken in Koester v.

Koester, (ON SC), [2003] O.T.C. 1140(O.S.C.J.): 13 This motion, commenced by the applicant, concerns itself primarily with the practical application of the order of Mr. JusticeSteinberg, dated June 7, 1999. The notice of motion, issued on July 22, 2002, seeks three forms of relief. Firstly, it is a motion forcontempt based on non-production of financial statements of a corporation in which the respondent is a 50 percent shareholder.Secondly, it requests a variation of the quantum of child support.

Thirdly, it requests payment as an extra expense for tutoring feesincurred in 2000 and 2001 by the applicant for the daughter on a pro-rata basis, based on income. [11] At para. 22, the Court commented on the absence of evidence that the respondent was trying to avoid his child supportobligations, although it would appear that comment was obiter dicta, as the Court had already determined that the amount taken by Mr.Howland out of the corporation he controlled was reasonable, and that the level of retained earnings was appropriate to keep within thecorporation.

[ 12 ] In my view, there is a distinction between attributing income to someone who is underemployed (or even unemployed) and someone who has minimized income taken from a corporation or by disallowing business expenses the payor has deducted from income. In the former situation, Hunt v. Smolis-Hunt , 2001 ABCA 229 , is applicable to the underemployment situation. That case applies to s. 19 of the Guidelines. In the latter scenario, s. 18 of the Guidelines apply. It is not necessary to find that the deductions are for the purpose of avoiding child support obligations.

A sole proprietorship is akin to a corporation in situations where it is the proprietor or the controlling director or shareholder who determines expenses or retentions within the entity. The court in determining Guideline income is not bound to accept the deductions claimed by the taxpayer, regardless of whether they fall within income tax guidelines. Child support Guidelines and income tax guidelines may be different. [ 13 ] In the case at bar, there is no evidence that Ms. T is attempting to avoid child support obligations by the manner in which she has allocated business expenses.

Her practices are not uncommon and not badly motivated and are more a reflection of taking advantage of income tax rules than of trying to minimize her obligations or maximize Mr. T’s obligations. But as I have held above, her motives do not have to be suspect before the court can look at adjustments to income from self-employment. [ 14 ] A year earlier, in Goett v. Goett , 2013 ABCA 216 , the court reversed a chambers decision where the chambers judge had concluded that he did not have sufficient information to attribute income.

The court reviewed the evidence submitted to the chambers judge and made adjustments to the payor’s guideline income by disallowing an income split with his current spouse, adjusting the car allowance and personal use of the home taken and attributing pre-tax income to the payor. [ 15 ] There, the chambers judge had made the express finding that the actions were taken by the payor with the intent of reducing or minimizing support obligations. But in my view, that was not necessary to make the adjustments. Motive is important for s. 19, but not 18. Application Here [ 16 ] Ms.

T’s income tax returns show incomes as follows: Line 150 Gross 2009 $10,353 $20,315 2010 $23,610 $41,422.50 2011 $20,293 $40,352 2012 $32,502 $56,502.50 [ 17 ] She runs a day-home from her residence. As a result, she is able to claim, for tax purposes, a portion of the cost of renting and maintaining the home, together with taxes, insurance, utilities, cable, et cetera. She is also able to deduct the cost of a vehicle for business purposes.

The business use of the home deduction is based on the percentage the area used for the business bears to the area of the entire residence. [ 18 ] Her deductions for business use of the home have been as follows: 2009 $1,563 2010 $4,949.59 2011 $7,546.64 2012 $6,682.41 [ 19 ] She claims 80 percent business use of a vehicle.

There is undoubtedly some driving required of day-home operators: to take children to and from school or playschool, and to activities. [ 20 ] Her deductions for the vehicle have been as follows: 2009 $528 2010 $2,786.36 2011 $2,444.34 2012 $2,178.09 [ 21 ] Within her repetitive expenses, there is a substantial amount claimed annually for food costs. Undoubtedly, day-home operators are required to provide snacks and lunches for the children in their care. It is unclear if there is any personal benefit to the food costs, although I would expect that Ms.

T and the children benefit from them to some extent by using left-overs or surplus food and drink items. [ 22 ] While the day-home may require greater use of utilities and may increase maintenance costs, the largest item of expense is rent and utilities. I recognize that the home use deduction reflects something between 75 and 80 percent of the total home costs.

[ 23 ] Mr. T does not enjoy the benefit of being able to deduct his car expenses or a portion of his household expenses from his income for child support purposes. I recognize that Ms. T’s expenses have been reviewed by the accountant who prepares her tax returns, and the deductions may well be legitimate for tax purposes. However, in my view, there is a component of the deductions which still should be added to Ms. T’s income for child support purposes. In my view, she reaps benefits from her home-based business which should be included in her income for support purposes.

Otherwise, she would be paying a disproportionately small percentage of s. 7 expenses, and would receive a higher amount of child support from Mr. T than is warranted by reason of the shared parenting of the children. [ 24 ] Mr. T should appreciate that he undoubtedly benefits from Ms. T’s decision to operate a day-home as he has not been required to contribute to child care expenses. [ 25 ] From my review of Ms. T’s tax returns and statement of business income and expenses, I conclude that 50 percent of the car expenses claimed and 50 percent of the home use expenses claimed should be added back to Ms.

T’s income for Guideline purposes. That reflects my best estimate as to the benefits Ms. T and the children have from the vehicle and home beyond what may be attributed for tax purposes. [ 26 ] That would have Ms. T’s income for child support purposes being as follows: 2009 $11,398.50 2010 $27,477.97 2011 $25,918.50 2012 $36,830.25 [ 27 ] Mr. T’s line 150 incomes have been as follows: 2009 $66,250 2010 $60,582 2011 $78,010 2012 $86,975 [ 28 ] It should be simple to calculate the percentages for s. 7 purposes for all s. 7 expenses incurred to the end of 2012. [ 29 ] As ordered in the June, 2011 order, Mr.

T’s child support was fixed as at June 30, 2011 and arrears were fixed to that date. Now that Mr. T’s actual line 150 2011 income is known, his s. 3 obligations are to be recalculated on the basis of his actual line 150 2011. Similarly, his 2012 s. 3 obligations are to be recalculated on the basis of his 2012 actual line 150 income. I have already ruled that there is to be no reduction on account of the small portion of 2012 when the parents had shared parenting. [ 30 ] For s. 3 payments for 2013, Mr. T’s obligations to Ms. T should provisionally be based on his 2012 line 150 income. Ms. T’s obligations to Mr.

T should provisionally be based on her 2012 income, as adjusted above. [ 31 ] The payments to each other should be netted, so that Mr. T will have a reduced obligation to Ms. T. [ 32 ]

Section 7 expenses will be based on the relative proportions of the parties’ incomes as adjusted above. The provisions of my June 11, 2011 order concerning a $40 threshold for s. 7 expenses requiring prior consent or approval should be noted, as should the right of each parent to select one extracurricular activity for each child without the prior approval of the other. For greater certainty, the cost of such activities shall be treated as s. 7 expenses without the prior approval of the other party. Approval of s. 7 expenses or other activities should not be unreasonably withheld.

Any unreasonableness on the part of one of the parents will likely result in cost penalties in the event further court applications are required. [ 33 ] As noted in para. 90 of my earlier decision, any unresolved s. 7 issues for 2011 will be adjusted on the basis of the incomes noted herein. 2012 and 2013 s. 7 expenses will be adjusted on the same basis. [ 34 ] The information before me suggests that Mr. T does not have health insurance. To the extent that the parties have health insurance (whether directly or through a new partner), the cost of adding the children to the health insurance is a s. 7 expense.

Only unrecovered expenses are s. 7 expenses. [ 35 ] Unfortunately, because the parties are unable to agree on child support issues, it will likely be necessary for them to have annual reviews after their tax information has been exchanged. That will require adjustment to the previous year’s payments based on their actual incomes. [ 36 ] The parties may not have access to the courts on s. 3 or s. 7 incomes without first going through the Child Support Recalculation Program. [ 37 ] Ms.

T’s income on an ongoing basis shall be adjusted by adding to her line 150 income 50 percent of the business use of the home deduction and 50 percent of the automotive deduction. [ 38 ] Calculations of the appropriate amounts and adjustments should be made by Mr. Mawani within 30 days of this decision and submitted to Mr. T for review and approval. Approval is as to the calculations, and not the basis of the calculations.

[ 39 ] Any arrears determined as a result of this process are to be immediately enforced through Maintenance Enforcement. [ 40 ] It is unfortunate that these parties are continuing their hostilities towards each other. They should realize the extent of the damage they are doing to their children by maintaining an environment of conflict between them. [ 41 ] The prohibition on further court applications shall continue indefinitely, subject only to leave being granted by myself as case management judge or by the Associate Chief Justice or his designate.

Dated at the City of Edmonton, Alberta, this 13 th day of November, 2013. Robert A. Graesser J.C.Q.B.A. TT on his own behalf Karim Mawani for the Respondent