Sweezey v Sweezey, 2016 ABQB 131

Court of Queen ’ s Bench of Alberta Citation: Sweezey v Sweezey, 2016 ABQB 131 Date: 20160307 Docket: 4803 153527 Registry: Edmonton Between: Roxane Claretta Marion Sweezey Plaintiff - and - Corey Gene Sweezey Defendant _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice D.A. Yungwirth _______________________________________________________ Introduction [ 1 ] Corey Sweezey seeks to retroactively vary a child support order granted by Jerke J. on September 12, 2012 pursuant to s. 19 of the Federal Child Support Guidelines , SOR/97-175. Mr.

Sweezey submits that his actual annual income since January 1, 2012 has been lower than the $110,000 imputed to him, and seeks a variation commencing on that date. [ 2 ] Roxanne Parker (formerly Ms. Sweezey) applies for an order for retroactive payment of childcare expenses incurred since March 1, 2011, and for an increase in the child support from July 1, 2014 based on a determination of Mr. Sweezey’s income. Ms. Sweezey alleges that Mr. Sweezey has never provided sufficient financial disclosure to enable a proper determination of his actual income. She requests that Mr.

Sweezey’s annual income be imputed at $110,000 until July 2014, and at $200,000 thereafter. Background [ 3 ] The parties were married on August 26, 2006 and separated on May 25, 2010. Ms. Sweezey filed for divorce. There are two children of the marriage. [ 4 ] On June 12, 2012, Germain J. granted a parenting and child support order, noting that Mr. Sweezey had advised the Court that his annual income would be between $90,000 and $100,000. Clause 5 of the order provided that

Mr. Sweezey was to pay 60% of the children’s childcare costs commencing on June 1, 2012. [ 5 ] On September 12, 2012, Jerke J. granted an order for child support, imputing annual income to Mr. Sweezey of $110,000, noting that Mr. Sweezey anticipated completing his financial statements within the following week. [ 6 ] On November 13, 2012, Burrows J. granted an order for joint custody with a parenting schedule. Clause 9 provided that Ms.

Sweezey could hire a live-in caregiver/nanny and that if she did do so, the cost of the nanny up to a maximum of $1,260 per month (net cost of $9,400 per year) would be shared by the parties proportionate to their income, with Mr. Sweezey to pay 63.81%. If the cost of the nanny exceeded $1,260 per month, Mr. Sweezey’s contribution was capped at $500 per month. [ 7 ] The parties subsequently signed Minutes of Settlement dated July 9, 2013. The agreement dealt with parenting, spousal support (which was waived by both parties), division of matrimonial property, and child support.

Clause 3.1 confirmed that Jerke J.’s child support order of September 12, 2012 would remain in effect until maintenance was adjusted and confirmed upon both parties completing their 2012 income tax returns. Clause 3.2 provided that each party would pay any extracurricular activity in which they determined to register the children. [ 8 ] Mr. Sweezey filed this application on December 16, 2014 for a family law chambers date of January 7, 2015.

On January 19, 2015, Browne J. signed a consent order adjourning the matter to a special chambers hearing and staying enforcement of child support arrears until the hearing, provided that Mr. Sweezey continued to pay Maintenance Enforcement $1,020 per month. [ 9 ] On June 2, 2015, Manderscheid J. adjourned the application to a half day special chambers hearing, noted that Mr. Sweezey had not yet provided sufficient financial disclosure to properly determine his Guideline income, and ordered that he provide certain additional financial information. Manderscheid J. continued the stay of enforcement so long as Mr.

Sweezey continued to make ongoing support payment of $1,661 per month. Evidence of Income [ 10 ] Ms. Sweezey is employed with Edson Forestry Products. The only evidence regarding her income is that she earned $86,266 in 2013 and $90,466 in 2014. [ 11 ] Mr. Sweezey is a truck driver operating through CTS Enterprises Limited, a corporation he owns jointly with his new partner, Patricia McCurry. Corporate registry searches indicate that CTS was incorporated on June 27, 2011. At the time of incorporation, Ms. McCurry owned 80% of CTS and Mr. Sweezey owned 20%. Ms. McCurry now owns 60% of CTS, and Mr.

Sweezey owns 40%. [ 12 ] Mr. Sweezey was questioned on February 24, 2015 by counsel for Ms. Sweezey for the purposes of the special chambers application. His evidence may be summarized as follows: - At the date of separation (May 25, 2010), he had been working as a manager for DC Energy, an oil field rental company, for 3½ to 4 years. - He earned $107,650 in 2009, and $144,714 in 2010. - DC Energy was bought by Total Oilfield Rentals in 2010. He received $50,000 as a signing bonus, but his employment with Total ended a few months after it began because he was not needed. - Mr.

Sweezey then worked for a number of other companies. He did oil field supervision and he drove for Mojo Trucking for 10 months for $28 per hour. - CTS was incorporated in June 2011. This was done to provide Mr. Sweezey more stability, and to enable him to work 12 months of the year. - In 2011, CTS purchased a 2012 Kenworth truck as well as miscellaneous tools. - Ms. McCurry owns a greater percentage of CTS because her home was used as collateral for the purchase of the Kenworth truck. - CTS currently transports oil on a daily-production basis from production facilities to production refineries.

CTS has been contracted only to Gibson Energy since October 2011. CTS is paid by the load on volume. The average income is $900 per trip (between the three plants). - At the end of each month, Mr. Sweezey receives a statement from Gibson Energy showing all of the loads hauled by each truck. Gibson’s fuel card is used to purchase fuel and then Gibson Energy deducts the fuel amount from the gross pay to CTS. - Mr. Sweezey earns all of his income through CTS. - Mr. Sweezey works seven days a week. He lives in Drayton Valley and the truck he drives is kept just outside of town at a rented place. - Ms.

McCurry handles the financials, the books, and also drives truck. She works from “a couple to four days in a week” depending on what is going on with her children. She does not drive much in the last week of the month or so, because she has bookkeeping to look after for CTS. - “Management salaries” indicated on the income statements are paid to Ms. McCurry.

- Another truck was purchased in March 2014 due to engine problems with the first one. They hired another driver. Currently, Mr. Sweezey and Ms. McCurry drive one truck and the other driver drives the other truck. - In the 2014 financial statements, the subcontractor amount of $20,500 was for the first driver CTS hired. - The current driver started in August 2014. He is an employee, and earns 30% of the total amount earned with the truck. He works 10 days on and 4 days off, for an average of 20 to 22 days per month. Mr.

Sweezey works on the weekends when the driver is off. - In addition to the two large trucks, CTS has one company pickup truck, a 2009 Ford F350.

This truck is also used for personal reasons, including driving to Edson to pick up the children. - CTS’ insurance costs include the insurance for the 2009 Ford truck. - CTS also owns a tractor, and a utility/horse trailer used for tools as well as for horses. - Telephone expenses on the financial statements include the home phone. - The PACCAR Financial debt relates to the 2012 Kenworth. - The Community Futures debt is for the truck purchased most recently. - The TD Auto Finance debt is the loan for the 2009 Ford truck. - The AGCO debt is the loan for the tractor. - All of the loans are in the name of CTS. - Two of Ms.

McCurry’s three children live with Mr. Sweezey and Ms. McCurry. [ 13 ] Mr. Sweezey filed an Affidavit dated December 16, 2014, attaching his Notices of Assessment for 2012, 2013 and 2014, and the financial statements for CTS for the years ending June 30, 2012, 2013 and 2014. As noted above, in questioning on his affidavit he was asked about his 2009 and 2010 tax returns. Mr.

Sweezey’s total income since 2009 has been as follows: 2009 $107,650 2010 $144,714 2011 no evidence 2012 $ 50,880 2013 $ 50,249 2014 $ 55,845. [ 14 ] The CTS financial statements indicate “wages/benefits” for the June 2012 year end of $36,993 whereas his tax return shows income of $50,880. There was no evidence to explain the discrepancy, but Mr. Sweezey relies on the amount indicated in his personal income tax return for 2012. His personal incomes on his tax returns for 2013 and 2014 are close to the amounts under “wages/benefits” on the CTS statements for years ending 2013 and 2014. [ 15 ] Mr.

Sweezey deposed that he had repeatedly told Ms. Sweezey that the imputed annual income of $110,000 was too high, but she had been unwilling to negotiate a reduction of the ongoing or retroactive child support. As at December 16, 2014, his support arrears amounted to approximately $40,000. [ 16 ] There was no explanation provided in his 2014 Affidavit as to how the corporate expenses were calculated, or as to whether any expenses paid by the corporation included amounts paid to or for any non-arm’s length persons. This would include any amounts paid to or on behalf of Mr. Sweezey or Ms.

McCurry for their own personal expenses. [ 17 ] Ms. Sweezey filed an affidavit sworn on March 12, 2015 stating that she had been unwilling to agree to an income for Mr. Sweezey which was lower than that imputed to him, due to his failure to provide adequate financial information. [ 18 ] Manderscheid J. ordered further disclosure on June 2, 2015. For the two corporate year ends of June 2013 and June 2014, Mr.

Sweezey was to provide: a. all general ledgers printed out by category or code; b. copies of all cell phone bills claimed as a corporate expense; c. copies of all invoices for repair or maintenance of all vehicles, with the invoice clearly identifying which vehicle; d. copies of all invoices for Field and Travel Expense; e. copies of all vehicle insurance statements clearly showing the cost of insurance coverage for each vehicle; f. copies of all expense receipts or invoices;

g. documentation confirming all amounts advanced by each shareholder and any monies re-paid to each shareholder; and h. copies of all records from Gibson Energy Ltd. confirming the number of days each shareholder and any employees drove the truck. [ 19 ] Manderscheid J. also ordered that Mr. Sweezey provide the same information for the June 2015 year end upon completion of the related financial statements. [ 20 ] Counsel for Mr. Sweezey advised that information was provided to Ms. Sweezey’s solicitor pursuant to the order with a letter dated September 10, 2015. [ 21 ] Mr.

Sweezey filed an affidavit sworn on November 10, 2015 in response to the Plaintiff’s concise letter of November 4, 2015, providing further information regarding the CTS financial statements. [ 22 ] Counsel for Ms. Sweezey indicated during this application that Mr. Sweezey had provided receipts only for the corporate year ending June 2013. There was also an issue about the driver information for the trucks, which was only provided for the years ending June 2014 and 2015. In this regard, Mr. Sweezey explained that Gibson Energy did not record co-driver information until 2014. Parties’ Positions [ 23 ] Mr.

Sweezey’s position is that the expenses indicated in the financial statements that he has provided are valid corporate expenses, and that he has provided all of the backup documentation that it is within his power to provide. He maintains that Ms. Sweezey has the onus of establishing that the corporate expenses were not valid, and she has not provided any evidence to support her claim that some of the corporate expenses were in fact personal expenses. Mr. Sweezey also takes the position that his partner’s income should not be imputed back to him, because she actually drives truck for CTS. [ 24 ] Mr.

Sweezey opposes Ms. Sweezey’s claim for s. 7 expenses retroactive to March 2011 on the basis that she could have applied for reimbursement when the matter was before Jerke J. in September 2012, but she did not do so until May 22, 2015, after he had brought the application to vary child support. He submits that no expenses more than three years prior to May 22, 2015 should be considered, citing DBS v SRG , 2006 SCC 37 , [2006] 2 SCR 231. He was not notified of the expenses in question, nor did he consent to them. Further, he maintains that Ms.

Sweezey incurred the childcare expenses through payment to family members and other non-arm’s length childcare providers. He also argues that such expenses should be divided between the parties based on the parties’ actual incomes for the periods in question. [ 25 ] Ms. Sweezey argues that Mr. Sweezey has not provided the required disclosure to enable her to properly determine his income, some of the expenses indicated in the financial statements of CTS are properly considered personal expenses for the purposes of child support, and part of the income paid to Ms. McCurry should be included in Mr.

Sweezey’s income. [ 26 ] Regarding the retroactive claim for s. 7 expenses, Ms. Sweezey argues that she works shift work and relies on third party caregivers to provide child care. She argues that Mr. Sweezey has known all along that 2011 and 2012 childcare expenses were ultimately in issue, and she did not require Mr. Sweezey’s consent to incur these expenses. Law

Section 18 of the Guidelines [ 27 ]

Section 18 of the Guidelines provides: 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 the spouse’s annual income as determined under

section 16 does not fairly reflect all the money available to the spouse for the payment of child 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 recent taxation year; or (

b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the 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’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances. [ 28 ] Section 18(1)(

a) allows the court to pierce the corporate veil to address a payor’s potential diversion, manipulation or sheltering of income through the use of a corporate structure in order to avoid the payment of adequate child support: Goett v Goett , 2013 ABCA 216 at para 16 . The Court in Goett held that s. 18 is inextricably linked with s. 19 which allows a court to impute income. [ 29 ] In an analysis under s. 18, the court must consider if the annual income as determined under s. 16 (sources of income set out under the heading “Total Income”(line 150) in the T1 General form issued by Canada Revenue Agency, adjusted in accordance with

Schedule III of the Guidelines) fairly represents the amount of income available to pay child support. [ 30 ] If the court is of the view that the income determined under s. 16 does not fairly reflect all the money available for the

payment of child support, the court may also consider the shareholder spouse’s pattern of income and non-recurring losses (s. 17) and determine whether or not it is appropriate to find that the spouse’s annual income includes all or part of the pre-tax income of the corporation for the most recent taxation year.

In determining the pre-tax income, payment to or on behalf of non-arm’s length parties must be added to the pre-tax income unless the spouse establishes that the payments were reasonable in the circumstances. [ 31 ] Therefore, the onus is placed squarely on the shareholder spouse to establish that the non-arm’s length salaries, wages, management fees, and other payments and benefits were reasonable in the circumstances, failing which those amounts must be added to the pre-tax income of the corporation. [ 32 ] Section 18(1)(

b) contemplates an alternative approach whereby the spouse’s annual income is deemed to include an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation's pre-tax income. Who bears the onus to provide the information relevant to the s. 18 analysis? [ 33 ] The analysis required under s. 18 cannot be completed unless the court is provided with sufficient information. [ 34 ] Sections 21(1)(

f) and 21(2) of the Guidelines provide in part: 21

(1) A spouse who is applying for a child support order and whose income information is necessary to determine the amount of the order must include the following with the application: …(

f) where the spouse controls a corporation, for its three most recent taxation years (

i) the financial statements of the corporation and its subsidiaries, and (ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length; …

(2) A spouse who is served with an application for a child support order and whose income information is necessary to determine the amount of the order, must, within 30 days after the application is served if the spouse resides in Canada or the United States or within 60 days if the spouse resides elsewhere, or such other time limit as the court specifies, provide the court, as well as the other spouse or the order assignee, as the case may be, with the documents referred to in subsection (1). [ 35 ] These provisions impose immediate and mandatory obligations upon an applicant or respondent shareholder spouse who controls a corporation to provide a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, non-arm’s length persons or corporations.

This includes any personal benefits received from the corporation by the shareholder or the shareholder’s spouse and other family members. Underlying this disclosure requirement is the assumption that the shareholder who controls a corporation, and often others close to that shareholder, may receive some personal benefit through payment of certain corporate expenses appearing in the financial statements. [ 36 ] In my view, the requirement under s. 21(1)(

f) extends to providing an explanation, and where applicable a breakdown, of all amounts paid to the benefit of non-arm’s length persons or corporations in relation to each and every category of corporate payment or expense. Where there is no non-arm’s length component, the explanation would simply indicate that all payments in a particular category were for corporate purposes and no personal benefit was derived from them.

For those categories in relation to which no explanation or breakdown has been provided, the shareholder runs the risk that, depending on the other available evidence, the court may presume that the payments have a personal benefit component unless the shareholder provides information upon which the court can conclude otherwise. [ 37 ] This approach is in keeping with s. 23 of the Guidelines which allows the court to draw an adverse inference against the spouse who fails to comply with the requirements of s. 21, and to impute income to that spouse in such amount as it considers appropriate. [ 38 ] It ensures that the other spouse and the court are provided with enough information to determine whether the pre-tax income amount (required for the analysis in s. 18(2)) is as reflected in the financial statements for the corporation.

Section 18(2) requires the court to add back non-arm’s length payments and benefits if the shareholder spouse does not establish that those payments were reasonable in the circumstances.

Though arm’s length expenses are not caught by this provision, the other spouse and the court are entitled, as part of the s. 18 analysis, to consider the nature of other corporate expenses as part of the process of verifying the pre-tax income of a corporation, and the court is expressly authorized to draw inferences where there is a lack of relevant information. [ 39 ] The onus at the child support hearing itself is intertwined with the issue of disclosure.

In Snow v Wilcox , 1999 NSCA 163 , 181 NSR (2d) 92, the Court noted that the onus is on the applicant on an application to vary child support, and held that the self- employed spouse in that case could not rely solely on his income tax return. In other cases not involving applications to vary, appellate courts have placed the onus on the shareholder to establish the reasonableness of disputed expenses, in keeping with the spirit of s. 18(2): see for example Henderson-Jorgensen v Henderson-Jorgensen , 2013 ABQB 213 , and on appeal: 2013 ABCA 328 .

Other courts have placed the onus on the shareholder to establish that retained earnings and net income are required by the company and are therefore not available for child support purposes: Nesbitt v Nesbitt , 2001 MBCA 113 at para 21 ; Miller v Joynt , 2007 ABCA 214 at para 37 ; Hausmann v Klukas , 2009 BCCA 32 at paras 51-61 , leave denied [2009] SCCA No 135; Gosse v Sorensen-Gosse , 2011 NLCA 58 at para 102 . [ 40 ] I note that the purpose of the cultural shift identified in Hryniak v Mauldin , 2014 SCC 7 , [2014] 1 SCR 87 is to create an environment which promotes timely and affordable access to litigation.

This is reinforced by Rule 1.2 of the Alberta Rules of Court , Alta Reg 124/2010 which requires the parties to identify the real issues in dispute and facilitate the quickest means of resolving the claim at

the least expense. Complete disclosure as described above is necessary to meet these objectives in the determination of a shareholder’s child support obligation and should be the rule and not the exception.

It is inefficient and unreasonable for the shareholder spouse to identify some non-arm’s length expenses, leaving the other spouse to be put to the expense of questioning and hiring experts with regard to all other expenses in order to lay a foundation for that spouse and the court to be in a position to complete a thorough s. 18 analysis. [ 41 ] This approach to disclosure is particularly justified in the case of small private corporations where the shareholder is the controlling shareholder and the main revenue earner.

In such cases, the corporation has likely been created in part to provide personal tax advantages which are not otherwise available. The shareholder obtains certain advantages by deducting allowable business expenses from which the shareholder and family members may well also have derived a personal benefit. [ 42 ] I am mindful of the line of cases requiring the claiming spouse to first establish that arm’s length corporate expenses are prima facie unreasonable, following which the burden shifts to the shareholder spouse to prove reasonableness.

The courts in such cases have reasoned that placing the onus on the shareholder to establish the reasonableness of expenses could result in virtually all business expenses being added back to pre-tax income: Bekkers v Bekkers , [2008] OJ no 140 (Sup Ct Just) , McCaffery v Dalla Longa , 2008 ABQB 183 , Hrenyk v Berden , 2011 SKQB 305 . [ 43 ] However, in my view this ignores the initial onus on the shareholder to provide adequate disclosure and undermines the purpose behind s. 21(1)(f).

The shareholder who controls a corporation has control over the information which provides the basis upon which to determine what portion of each category of expenses and other payments represents a personal benefit to a non-arm’s length person or corporation. If there is no such personal benefit in relation to a certain category, the shareholder, in explaining the nature of the expense, need only indicate this. [ 44 ]

Section 21(

f) applies to a controlling shareholder.

Section 21(

d) imposes the same disclosure requirements on self-employed spouses. The intent of s. 21 is clearly to require, to the extent possible, disclosure of the information necessary for the s. 18 analysis. A spouse who has de facto , but not legal, control is arguably not caught by s. 21(f): Bates v Welcher , 2001 MBCA 33 . Therefore, there is an apparent gap with respect to situations where the spouse has de facto control of a corporation, but does not hold the majority of shares.

A court in the child support context may look beyond the share structure of a closely held corporation where it appears that it may have been designed in part to shelter, or has the effect of sheltering, the shareholder spouse from liability for child support. Therefore, minority shareholders in these situations should anticipate that failing such disclosure, a court will order disclosure along the lines of s. 21(

f) in appropriate situations, similar to Manderscheid J.’s order in this case. Costs may well result where the court making such an order finds that the shareholder’s previous disclosure was inadequate for the purposes of the requisite analysis. [ 45 ] While even a minority shareholder is entitled to receive annual financial statements from the company ( Verwey v Verwey , 2007 MBCA 102 , 41 RFL (6th) 29), the spouse who is a minority shareholder in a larger corporation does not necessarily have the same kind of control over the release of the type of information required for the s. 18 analysis as described above.

The payment of personal expenses is often less of an issue in these types of cases, and where personal expenses are paid for by the corporation, the evidence supporting those payments will usually be available to the shareholder spouse through the disclosure of benefits provided through things such as vehicles, cell phones, and expense accounts. The limitations on a shareholder spouse’s access to corporate information is a factor that must be considered by the other spouse and by the court when considering the disclosure provided by the shareholder spouse in those cases.

How does the shareholder spouse discharge his/her onus to provide the required information? [ 46 ]

Section 21(

f) requires disclosure of the financial statements of the corporation, as well as a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length. [ 47 ] Personal tax returns and corporate financial statements alone do not satisfy the disclosure requirements under s. 21(f). A “statement showing a breakdown” is also required.

This is not satisfied by relying on an accountant’s, or Canada Revenue Agency’s, acceptance of the deduction of certain expenses. Nor is it satisfied by providing a copy of the general ledger without more. The disclosure provided under s. 21(

f) must be sufficiently meaningful and clear to allow the other spouse, and the court, to draw the necessary conclusions. [ 48 ] As a general rule, the shareholder should provide at least the following: 1. a brief explanation concerning each payment category, including: a. the nature of the payment/expense; b. how it was calculated; c. why it was a reasonable corporate expenditure; d. whether any amounts paid or owing in relation to that category provided or resulted in a personal benefit to the shareholder or other non-arm’s length person (common examples of such expense categories in closely held corporations are vehicle, travel, promotion, phone, and insurance).

This would include an explanation for: i. what portion of the total expense formed the personal or non-arm’s length benefit; ii. how this was calculated;

iii. a description of any services performed for the corporation by a non-arm’s length person (such as a new partner/spouse of the shareholder), and information regarding whether the salary s/he was paid for the services was commensurate with the market value of the services; and 2. documentation to support all of the above explanations, such as invoices and receipts regarding non-arm’s length payments. [ 49 ] The same principles apply to the disclosure obligations placed on a self-employed spouse under s. 21(d), which contains essentially the same wording as s. 21(f). [ 50 ] I am mindful that courts in cases such as Bekkers v Bekkers have cited concerns over increased litigation costs and use of judicial resources if the shareholder is obliged to provide detailed documentation and explanations.

However, many typical corporate expenses will not be in issue, and therefore will not require any detailed accounting exercise. As well, the vast majority of these types of cases that come before the courts involve small, closely held corporations with relatively straightforward expenditures. In addition, production of adequate information should reduce litigation costs, as there will be less need for questioning on corporate expenses and fewer court applications to compel production of corporate information.

Finally, it is the obligation of the litigants to complete the calculations that support their respective positions and this should not be left to the court. [ 51 ] It should be noted that expert evidence is not necessarily required to determine whether a particular corporate expenditure is reasonable. Absent expert evidence as to the personal benefit received by non-arm’s length persons, a court may look to the supporting documentation or deduct a percentage based on what is deemed an appropriate estimate.

The court may employ common sense in conducting its analysis: Riemersma v Riemersma , 2013 BCSC 474 at para 39 . Courts are entitled to consider their own assessment of the sufficiency of the explanations of the spouse, and the other available evidence: see for example CJR v SPJ , 2009 BCSC 264 .

What are the consequences to the shareholder spouse for failing to provide the required information? [ 52 ] Where a spouse fails to comply with the disclosure obligation under s. 21 of the Guidelines as outlined above : • the other spouse may apply to have the application for a child support order set down for a hearing, move for judgment, or apply for an order requiring the shareholder spouse to provide the court with the required documents: s. 22; • where a hearing is ordered, the court may draw an adverse inference against that spouse and impute income to that spouse in such amount as it considers appropriate: s. 23; • where a spouse fails to comply with an order to provide the court with required documents, the court may strike pleadings, make a contempt order against the spouse, proceed to a hearing, draw an adverse interest and impute income to the spouse, and award costs in favor of the other spouse up to an amount that fully compensates that spouse for all costs incurred in the proceedings: s. 24. [ 53 ] If the court is required to determine a shareholder spouse’s annual income, and s/he has fulfilled his or her disclosure obligations under s. 21(

f) in a meaningful way, the court should be in a position to determine the reasonableness of the payments in question.

If not, the shareholder spouse risks being unable to establish which payments were or were not non-arm’s length expenses, and whether or not the non-arm’s length payments were reasonable: s. 18(2). [ 54 ] As noted in Goett , s. 18 is inextricably linked with s. 19 which allows the imputation of income in a variety of circumstances, including where: • it appears that income has been diverted which would affect the level of child support; • the spouse has failed to provide income information when under a legal obligation to do so; and • the spouse unreasonably deducts expenses from income. [ 55 ] In terms of the amount a court may impute, the court may choose to use the other spouse’s calculations or may choose an amount based on the best information that is available, even if incomplete.

In those cases, the shareholder spouse who is dissatisfied with the result must have the matter returned to the court on an application to vary, having provided the required information, and must in that case establish a change in circumstances as required under s. 17(4) of the Divorce Act , RSC 1985, c 3 (2nd Supp).

When will the court add all or part of the corporation’s pre-tax income to the shareholder spouse’s income? [ 56 ] Factors which courts have considered in determining whether all or part of a corporation’s pre-tax income should be included in a shareholder’s income for child support purposes include : a. the nature of the corporation’s business; b. the historical spending patterns of the corporation; c. the role the shareholder spouse plays in the corporation; d. whether the shareholder spouse is the sole shareholder; e. the degree of control the shareholder spouse exercises, including his/her relationship with the controlling shareholder;

f. the benefits received by non-arm’s length persons as a result of payment of corporate expenses; g. whether payments to non-arm’s length persons were for services for which the corporation would otherwise have had to obtain from a third party; h. whether the company’s pre-tax income is required to manage the business and ensure its ongoing financial viability. See Kowalewich v Kowalewich , 2001 BCCA 450 , Goett v Goett , Krupa v Krupa , 2010 BCSC 1400 at para 87 . Analysis Mr. Sweezey as Shareholder of CTS [ 57 ] Mr. Sweezey’s income prior to incorporating CTS was $107,650 in 2009 and $144,714 in 2010.

Since June 2011, Mr. Sweezey has earned all of his income through CTS. W hen this matter came before Germain J. on June 12, 2012, a year after incorporation of CTS, Mr. Sweezey projected that his annual income would be between $90,000 and $100,000. In fact, he declared income for tax purposes in amounts between $50,000 and $55,000 for 2012 to 2014. The CTS income statements show net losses for the years ending June 2012, 2013 and 2014. [ 58 ] Although Mr. Sweezey does not own the majority of the shares in CTS, the evidence supports the conclusion that he and his new partner run the company together.

His evidence was that CTS was incorporated in order to provide Mr. Sweezey more stability, and to enable him to work 12 months of the year. It appears that Ms. McCurry’s majority ownership relates primarily to her home being used as collateral for the purchase of the Kenworth truck. [ 59 ] Clearly, CTS was incorporated primarily as a vehicle through which Mr. Sweezey would earn a livelihood. It is Mr. Sweezey’s own work which has resulted in most of CTS’ revenue for the years in question. [ 60 ] Mr. Sweezey acknowledged that he derived a personal benefit with respect to at least some of the corporate expenses.

Given this acknowledgement, and the nature of a number of the expenses set out in the financial statements, I am satisfied that Mr. Sweezey’s annual income as determined under s. 16 does not fairly reflect all the money available to him for the payment of child support. Therefore, I will review the expenses in issue in order to determine whether part or all should be added back to his income. Advertising and Promotion [ 61 ] The advertising and promotion expense was $2,280 for the 2013 fiscal year and $957 for the 2014 fiscal year. [ 62 ] Mr.

Sweezey submits that the corporate expense amount for advertising and promotion is reasonable given CTS’ gross income. However, CTS has been on contract to Gibson Energy since 2011. Mr. Sweezey presumed the expense related to some meals or other gifts he may have purchased for Gibson or other individuals with whom he works. No supporting documentation was provided. [ 63 ] As no more detailed evidence of this expense has been provided, the full expenses of $2,280 for the 2013 fiscal year, and $957 for the 2014 fiscal year will be added to the pre-tax income.

Amortization [ 64 ] The CTS amortization expense was $80,290 in the 2013 fiscal year and $82,790 in the 2014 fiscal year. [ 65 ] Whether or not the amortization or depreciation amount should be added back to the pre-tax income of the corporation will depend on the circumstances of each case: Trueman v Trueman , 2000 ABQB 780 at para 19 . Ms. Sweezey submits that only half of the amortization amount is appropriate. [ 66 ] In this case, there is no doubt that amortization is appropriate in a business of this type.

The large trucks operated by CTS are essential to CTS’ operations and have to be replaced from time to time. However, I have not been provided with evidence as to the realistic useful life of these trucks, nor any detailed calculations or expert evidence in relation to amortization. The notes to the CTS financial statements indicate the cost, rates of depreciation, accumulated depreciation and net book value for four categories of assets: equipment, vehicle, large vehicle, and computer. Detailed information was not provided regarding which assets are included in these categories.

I note that CTS owns the Ford truck, tractor and utility trailer which are clearly used for personal purposes, although there is some evidence that they are also sometimes used for corporate purposes. [ 67 ] In the absence of more detailed information, I allow 70% of the amortization amount indicated in the financial statements as a corporate expense and add 30% of the amortization amount to Mr. Sweeney’s income .

Admittedly this is somewhat arbitrary, but in the absence of the information required by the Court to make a proper assessment, this is the best that can be done on the information that has been provided. The amortization amount to be added back to the pre-tax income will be $24,087 for the 2013 fiscal year and $24,837 for the 2014 fiscal year. Field and Travel Expenses [ 68 ] Field and travel expenses are shown as being $7,336 for the 2013 fiscal year and $5,759 for the 2014 fiscal year.

[ 69 ] Mr. Sweezey provided evidence that he occasionally has to work out of town overnight. He has also deposed that there are occasions when a truck will break down and he will have to spend a night in a different town or city. Mr. Sweezey has attached to his Affidavit as an exhibit, a letter from Gibson Energy Partnership confirming that there are times when the driver does a haul and is required to spend the night away from home. [ 70 ] Ms.

Sweezey points out that the Kenworth truck has a sleeper and that some of the hotel receipts provided are for places like Edson (where the children live with their mother), Red Deer, and Drayton Valley – all places that are relatively close to where Mr. Sweezey lives. Ms. Sweezey also points to a hotel receipt for $400 for a night at the Ramada in Edmonton. [ 71 ] While I accept Mr.

Sweeney’s evidence that he does incur expenses for out of town stays, he has provided insufficient evidence to establish that there is not a considerable personal benefit to him reflected in the amount claimed as field and travel expense. I therefore add back 50% of the indicated amounts for these expenses to Mr. Sweeney’s income. This will add $3,668 for the 2013 fiscal year and $2,879 for the 2014 fiscal year fiscal year. Fuel Expense [ 72 ] The total fuel expense for CTS was $108,221 in the 2013 fiscal year and $153,861 in the 2014 fiscal year. [ 73 ] Mr.

Sweezey’s evidence confirmed that the corporate fuel expenses included fuel for the Ford truck and the Suburban driven by Ms. McCurry, both of which are used for both business and personal reasons. He also indicated that most fuel expenses are deducted directly by Gibson Energy. He indicated that when the 2009 Ford truck and Ms. McCurry’s Suburban are used for company purposes, fuel is written off. However, he provided no explanation for the total fuel expenses for these vehicles, nor did he identify the portion of the total fuel expenses that could be considered as personal. Mr.

Sweezey also indicated that he pays directly for “additives” for the large truck but he does not explain how this is accounted for in the financial statements for CTS. [ 74 ] Ms. Sweezey asks the Court to compare the fuel amounts deducted by Gibson Energy for the same 12 months applicable to the CTS financial statements, to the amount deducted for fuel expenses on the financial statements and to consider the difference as personal fuel costs. Other than his general statement that fuel is written off on the Ford truck and Suburban when they are used for company purposes, Mr.

Sweezey did not provide an explanation for the difference between the fuel expenses deducted by Gibson, CTS’s only client, and the fuel expense in the financial statement. [ 75 ] I find that Mr. Sweezey has not provided sufficient information to justify a finding that any portion of the fuel expense relates to business use of the Ford and Suburban. I accept the approach suggested by Ms. Sweezey. The fuel expense amount deducted by Gibson Energy was $74,613 for the 2013 fiscal year. The difference is $33,608, which will be added to the pre-tax income CTS for the 2013 fiscal year.

The fuel expense deducted by Gibson Energy for the 2014 fiscal year was $84,103. The difference is $69,758, which will be added to the pre-tax income for the 2014 fiscal year. Insurance [ 76 ] The insurance/registration/fees expense is shown as $18,054 for the 2013 fiscal year and $20,708 for the 2014 fiscal year. [ 77 ] It is clear from the evidence that Gibson Energy deducts the insurance for the large trucks from the gross amount it pays to CTS. The deduction by Gibson Energy was $10,280 in the 2013 fiscal year and $13,219.99 in the 2014 fiscal year. Though it was not clear from Mr.

Sweezey’s Affidavit, he indicated through his Counsel during the application, that all insurance for the 2009 Ford truck is paid by CTS and that he takes his accountant’s advice in this regard. Gibson Energy does not pay the registration for the trucks, and receipts for registration have been provided by Mr. Sweezey, showing an expense of $1,735 for 2013 and $956 for 2014. [ 78 ] As Mr.

Sweezey has not provided an explanation attributing to corporate purposes the difference between the amounts deducted by Gibson Energy and the amounts indicated in CTS financial statements, the difference less the registration amount shall be added to pre-tax income. That amount is $6,339 for the 2013 fiscal year, and $6,531 for the 2014 fiscal year. Interest and Bank Charges [ 79 ] Interest and bank charges are shown as $1,603 for the 2013 fiscal year and $4,380 for the 2014 fiscal year. [ 80 ] Ms. Sweezey argues that all of this should be added to the pre-tax income of CTS but she does not explain why. Mr.

Sweezey’s evidence is that he has separate interest and bank charges related to his personal banking. [ 81 ] I make no adjustment in relation to this expense. Interest on Long Term Debt [ 82 ] Interest on long term debt was $20,371 in the 2013 fiscal year and $21,464 in the 2014 fiscal year. [ 83 ] Mr. Sweezey maintains that this expense relates solely to company owned assets. Ms. Sweezey argues that the evidence supports a finding that for the 2013 fiscal year, only $13,029 relates to the two Community Futures loans on the big trucks and that the rest should be added to the pre-tax income of CTS.

For the 2014 fiscal year, Ms. Sweezey has calculated that only $9,406 relates to the big trucks. [ 84 ] In the absence of better evidence from Mr. Sweezey regarding use, for company purposes, of the assets aside from the two big trucks, $7,342 will be added to pre-tax income for the 2013 fiscal year and $12,058 for the 2014 fiscal year.

Office Expense [ 85 ] The office expense amounts in the CTS financial statements are $3,594 for the 2013 fiscal year and $6,845 for the 2014 fiscal year. [ 86 ] Mr. Sweezey operates his office from his home. He provided receipts for only $377.38 for office expenses for the 2013 fiscal year and none for the 2014 fiscal year. However, he submits that if the office was not located in his home, CTS would be incurring higher expenses renting space. Ms. Sweezey is prepared to concede an office expense of $1,200 for the 2014 fiscal year. [ 87 ] I am satisfied that Mr.

Sweezey derives a personal benefit from some portion of this expense. In the absence of more detailed evidence, $3,217 will be added to pre-tax income for the 2013 fiscal year and $5,645 for the 2014 fiscal year. Repairs and Maintenance [ 88 ] The expense for repairs and maintenance indicated in the CTS financial statement for the 2013 fiscal year is $29,552. For the 2014 fiscal year, it is $74,281. [ 89 ] Mr. Sweezey’s evidence is that only some of the repair costs are deducted by Gibson Energy.

He stated generally that when the 2009 Ford truck and the Suburban are used for company purposes, the costs of vehicle repairs are written off through the company. He has not provided the information required for any personal component of this expense to be calculated. Ms. Sweezey proposes that the court attribute 30% of the repairs and maintenance expenses to Mr. Sweezey as a personal benefit for the costs of repairs and maintenance for the personal vehicles and equipment.

She points to $2,436.17 in the 2013 fiscal year as a personal expense paid by CTS. [ 90 ] In the absence of more detailed information from Mr. Sweezey, 20% of these expenses will be added to pre-tax income, amounting to $5,910 for the 2013 fiscal year and $14,856 for the 2014 fiscal year. Management Salaries [ 91 ] According to the CTS financial statements, Ms. McCurry was paid a management salary of $32,361 in the 2013 fiscal year and $46,427 in the 2014 fiscal year. [ 92 ] Ms. McCurry is a shareholder and director of CTS.

The evidence indicates that she does bookkeeping for CTS for the last week of each month and that she also drives truck. It is not completely clear how many days a month Ms. McCurry drives truck for CTS. Although Mr. Sweezey has stated that she works two to four days a week, no documentary evidence has been provided confirming how much of that time Ms. McCurry spends driving truck for CTS. Mr. Sweezey has also not provided evidence that Ms. McCurry’s contribution to the business is commensurate with the salary she is paid, and that the amount paid to her is not solely for income splitting and tax purposes. Ms.

Sweezey concedes that an annual salary of $18,000 for a bookkeeper would be appropriate for the work involved. She asks that in the absence of evidence regarding the amount of time Ms. McCurry drives, the difference between $18,000 and the expense claimed for each year should be added to Mr. Sweeney’s income. [ 93 ] There is a clear onus on Mr. Sweeney to justify his payments to Ms. McCurry. Given the sparse evidence on this point, in my view it is fair to add to pre-tax income $10,000 for the 2013 fiscal year and $20,000 for the 2014 fiscal year.

Telephone [ 94 ] The telephone expense was $6,619 in the 2013 fiscal year and $5,998 in the 2014 fiscal year. [ 95 ] Mr. Sweezey submits that he uses his cell phone almost exclusively for business and requires service in many remote locations at an increased cost. [ 96 ] Ms. Sweezey notes that the only receipts provided were the 2013 receipts for Ms. McCurry’s cell phone and she submits that these bills average $123 to $160 per month and should all be added to the pre-tax income for CTS. She points out that Ms.

McCurry has children and that it is not clear if cell phones for the children are included in the phone expense. There is also evidence from Mr. Sweezey during his questioning, that the costs of the home phone are included as part of this expense. Ms. Sweezey concedes that cell phone charges of $100 per month for Mr. Sweezey are a legitimate corporate expense. [ 97 ] I am satisfied that the home phone and shareholders’ cell phones are used for both business and personal purposes. In the absence of more detailed information from Mr.

Sweezey about the CTS telephone expenses, 30% of those expenses will be added to pre- tax income: $1,985 for the 2013 fiscal year and $1,799 for the 2014 fiscal year. Net Income (Pre-tax Income) [ 98 ] As noted previously, CTS was established to provide steady income to Mr. Sweezey, and his own work has generated most of the revenue over the period in question. Ms. McCurry owns the majority of shares as her house was used as collateral for the purchase of the Kenworth truck. However, there was no evidence as to the lender’s requirements in this regard. Mr.

Sweezey exercises considerable control over CTS and his interests align with those of the controlling shareholder, Ms. McCurry. The corporation is young and has historically shown a loss, but there is no suggestion that it has had difficulty meeting any of its obligations. There was also no suggestion that CTS needs to retain any monies beyond what it requires to pay its corporate expenses. Therefore, I find that all of the net (pre-tax) income as a result of this analysis is available for child support purposes.

Calculations of Guideline Income [ 99 ] Mr. Sweezey seeks downward variation of child support from January 1, 2012. [ 100 ] Ms. Sweezey seeks retroactive child support commencing July 1, 2014 based on Mr. Sweezey’s income as determined under s. 18. [ 101 ] Mr. Sweezey argued that his annual income since January 1, 2012 has been lower than $110,000. The parties’ arguments and evidence during the hearing focused on the corporate years ending June 2013 and 2014.

As a result, I have insufficient information regarding 2012 which would support a variation of the child support payable between January and December 2012. [ 102 ] The CTS income statement indicates that for the year ending June 30, 2013, it had a net loss before taxes of $26,493. If the above amounts relating to the 2013 fiscal year are added back, the total pre-tax net income is $71,943. If this CTS net income is added to the $50,249 indicated on Mr. Sweezey’s tax return, his Guideline income for child support purposes in 2013 would have been $122,192. I am satisfied that Mr.

Sweeney did not overpay child support in 2013. [ 103 ] For the 2014 fiscal year, CTS had a net loss before taxes of $55,845. After the above amounts are added back, the pre-tax net income becomes $103,475. Adding this amount to the income of $55,845 which Mr. Sweezey reported in 2014, his total income for child support purposes in 2014 is $159,320. [ 104 ] Therefore, there is no basis upon which to vary child support from June 2012 to July 1, 2014. [ 105 ] For 2015, as no information has been provided, Mr. Sweezey’s Guideline income will be set at $159,320.

After the complete disclosure required by s. 21 of the Guidelines has been provided for 2015, this number can be adjusted. [ 106 ] For 2016, Mr. Sweezey will continue to pay child support based on an income of $159,311. Once the income number for 2015 has been finalized, the Guideline income amount for 2016 will be adjusted and the child support amount for 2016 will change accordingly. [ 107 ] Mr. Sweezey shall pay Ms. Sweezey retroactive child support pursuant to s. 3 of the Guidelines based on these findings from July 1,

Section 7 Expenses [ 108 ] Mr. Sweezey shall also pay his proportionate share of child care expenses commencing January 1, 2013. I am satisfied that the child care expenses being claimed by Ms. Sweezey are proper expenses pursuant to s. 7(1)(

a) of the Guidelines because they were incurred as a result of Ms. Sweezey’s employment. I note that child care costs were addressed by Germain J. in his order of June 12, 2012 and again by Burrows J. in his order of November 13, 2012. According to the order of Germain, J, Mr. Sweezey should have been paying $439.80 for child care costs commencing on September 1, 2012. In addition, the parties contemplated in clause 3.1 of their Minutes of Settlement dated July 9, 2013, that maintenance was to be adjusted and confirmed upon both parties completing their 2012 income tax returns.

That would normally have occurred by April 30, 2013. Mr. Sweezey cannot reasonably claim to be surprised by Ms. Sweezey’s claim for a retroactive contribution to the costs of child care. Conclusion [ 109 ] Mr. Sweezey’s application to vary child support is dismissed. [ 110 ] Ms. Sweezey’s application for retroactive child support and s. 7 expenses is granted. Mr. Sweezey shall pay Ms. Sweezey retroactive child support based on the above findings from July 1, 2014. Mr. Sweezey shall also pay his proportionate share of child care expenses commencing January 1, 2013.

Costs and Calculations [ 111 ] If the parties are unable to agree on the calculations and a payment plan for Mr. Sweezey’s retroactive child support amount, or on the costs of this application, they may speak to those issues within 30 days of receiving this decision. Heard on the 19 th day of November, 2015. Dated at the City of Edmonton, Alberta this 7 th day of March, 2016.

D.A. Yungwirth J.C.Q.B.A. Appearances: Micia T. Kawulka for Roxane Sweezey Jason R. Thomas for Corey Sweezey