Banack v Johnson, 2016 ABQB 576

Court of Queen’s Bench of Alberta Citation: Banack v Johnson, 2016 ABQB 576 Date: 20161012 Docket: FL12 00226 Registry: Wetaskiwin Between: Jody Ann Marie Banack Applicant - and - Brian Randall Johnson Respondent _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice G.H. Poelman _______________________________________________________ I Introduction [ 1 ] Ms. Banack applies for variation of child support. My decision relates only to current obligations, the scope of the application filed on February 4, 2016. [ 2 ] Ms. Banack and Mr.

Johnson lived in a common law relationship from October 1998 to June 2007, about nine years. They have two children, a daughter who is seventeen years old, and a son who has just turned fifteen. The children have resided primarily with Ms. Banack since the separation. [ 3 ] Until this application, child support was addressed only in a “Property and Support Agreement” signed by the parties in May 2008. In addition to child support, the agreement addressed custody and access, waiver of spousal support, and property division.

Each party received legal advice before signing the agreement. [ 4 ] The agreement provided that “Brian shall pay to Jody the sum of $500.00 per month as child support based upon his annual

income of $34,600.00.” They agreed “to share the

Section 7 expenses for the children pursuant to the Child Support Guidelines,” although there is no indication of Jody’s income. They agreed to provide each other with complete copies of their income tax documents annually. [ 5 ] Mr. Johnson has been a farmer at all material times, including the entire duration of the common law relationship. The issue on this application is what approach should be taken to determining his annual income for the purpose of determining child support under the Family Law Act, S.A. 2003, c. F-4.5. II Method of Determining Guid e line Income [ 6 ] Mr.

Johnson’s child support obligations are based on the Alberta Child Support Guidelines , Alta Reg 147/2005 (“ Child Guidelines ”).

Section 16 provides that the “total income” or “line 150” income is the presumptive basis for calculation, but the following sections prescribe different approaches where line 150 income would not result in the fairest determination of income. [ 7 ] One variation is to “have regard to the parent’s income over the last 3 years and determine an amount that is fair and reasonable” in light of patterns, fluctuations and non-recurring items: section 17(1). The parties agree that averaging incomes is the proper approach in this case. [ 8 ] They differ, however, on what figures to use to calculate these averages. Mr.

Johnson submits that line 150 incomes should be used. His evidence contains income tax returns for five years: $21,033.00 (2011), $10,435.28 (2012), $77,910.48 (2013), $42,702.40 (2014) and $27,035.03 (2015). The five year average is $35,823.23, and the most recent three year average is $49,215.97. [ 9 ] Ms. Banack, on the other hand, argues that the proper way to calculate Mr. Johnson’s guideline income is to impute income pursuant to section 19(1)(

g) of Child Guidelines , allowing the court to impute income where “the parent unreasonably deducts expenses from income.” As section 19(2) makes clear, reasonableness of expense deductions for purposes of calculating guideline income is not the same thing as reasonableness for income tax purposes. [ 10 ] An approach based on section 19(1)(g), is common when determining guideline income for self-employed parents such as farmers or sole-proprietors.

The approach has the benefit of probably more accurately reflecting a fair determination of income for child support purposes than line 150 income, which can be determined arbitrarily for legitimate tax planning purposes. Further, it reflects the fact that the table amounts for child support adopted in the Child Guidelines are based on gross income, and most payors of child support are unable to deduct expenses from income used for support calculations. [ 11 ] It has been suggested that imputing income under section 19(1)(

g) is an improper deviation from the approach the parties took in their 2008 agreement. As noted earlier, it provided for child support based upon annual income of $34,600.00, which I am asked to infer was probably line 150 income, as Mr. Johnson was a farmer then as well. However, there is no evidence before me about how the 2008 income was determined; neither party gave direct evidence on the point, and there are no financial statements or income tax returns from 2008 or the years before.

All I have is the figure used in the agreement and financial statements and income tax returns for 2011 and years following. [ 12 ] Thus, while I am mindful of the need to give weight to an agreement between parents regarding child support, the absence of evidence about the factual matrix of that agreement means I can do little with it. [ 13 ] It is clear, however, that currently child support is much less than it would be if it was based on imputing income under section 19(1)(g). There is no evidence Mr. Johnson would be prejudiced by changing the method of calculation.

The 2008 agreement discloses little in the way of trade-offs, particularly as partner support was waived. The Agreement states that unenforceable clauses may be severed without affecting the integrity of the overall agreement.

Child support is the right of the child and cannot be bargained away, and there is nothing in the evidence to explain why the parents might have determined a lower child support payment to be in the best interests of their children – something that would be required for me to give deference to their decision, at least this number of years later. [ 14 ] In my view, based on the financial information included in evidence, it has been established that the expense deductions from income are unreasonable for the purposes of determining income available for child support, and thus it is necessary to impute income. [ 15 ] If variation of child support required a change in circumstances, it exists based on my findings about the difference between Mr.

Johnson’s agreed 2008 guideline income and the proper guideline income based on evidence of current circumstances, pursuant to section 19(1)(g). However, in my view it is not necessary to establish a change in circumstances. [ 16 ] The Act allows parents to enter into a written agreement for child support, and provides that such agreement does not preclude applying for a child support order: sections 53(1) and (2). [ 17 ] Variation of “child support orders” is governed by

section 77, and requires a “change of circumstances” since the last order or “evidence of a substantial nature” not available at the previous hearing. However, by virtue of sections 46(

c) and (d), a “child support agreement” is not the same as a “child support order.” Thus, where there has been no prior order an application for child support is an initial application, and not subject to the change of circumstances test of

section 77. The different

definitions and the fact that both orders and agreements are binding upon an estate, under

section 80.1 of the Act , indicates that the legislature intended to differentiate between prior orders and agreements in variation proceedings. [ 18 ] My conclusion that a change in circumstances is not necessary before varying child support paid by agreement under the Act , where there are no prior orders, is supported in Jane Doe v Alberta , 2007 ABCA 50 . There, in the context of the Act , the court noted that agreements made under

section 53 may be upheld, incorporated into an order, and heavy weight may be given to them; however, “no agreement between the parents can oust the jurisdiction of the court . . . to depart from written agreements about child support”: para. 26.

III. Calculations [ 19 ] The evidence contains different forms of financial statements for Mr. Johnson’s farm. In my view, it is preferable to use those prepared on a cash basis, because they appear to be the ones adopted by Mr. Johnson for certification when filing his tax returns. They were also used by his accountant as the basis for his explanations in questioning. [ 20 ] Neither party adduced expert evidence about how to recalculate Mr. Johnson’s net income, through adding back into income various expenses. Mr. Johnson’s accountant was questioned only to explain some of the entries and concepts.

He gave no opinions on the correct approach to take. [ 21 ] The overall approach suggested on behalf of Ms. Banack in her written and oral arguments is reasonable. Mr. Johnson’s counsel, quite properly and fairly, did not suggest otherwise, although he takes a different approach to some of the calculations. The parties agree that an averaging over three years is required. [ 22 ] The starting point is Mr. Johnson’s net operating income for each of the years 2013, 2014 and 2015.

These amounts are given before deduction for capital cost allowance (“CCA”), to enable easy comparisons among the different years’ financial statements. Thus, without considering CCA, the annual net operating income is $113,561.52 (2013), $136,769.44 (2014) and $144,659.95 (2015). [ 23 ] It is well recognized that CCA is a non-cash expense deduction. The amount deducted is discretionary, and tax provisions often allow very rapid depreciation of an asset well before the end of its useful life.

As noted by Graesser J. in CGL v DKL , 2016 ABQB 71 (a judicial dispute resolution decision), the range of “add-backs” in the cases ranges from 10 percent to 100 percent (para. 61). Where dealing with pre-deduction of CCA income, as here, that means the cases support CCA deductions ranging from 90 percent to zero. Further, the cases often involve expert analysis on CCA and other expenses being added back, as in CGL v DKL . [ 24 ] With the assistance of expert analysis, in CGL v DKL Graesser J. allowed a 50 percent CCA deduction. Ms. Banack proposes the same. However, it must be remembered that Ms.

Banack has the onus of showing that expenses are unreasonable: McCaffrey v Dalla Longa , 2008 ABQB 183 , paras. 237-43 ; Wildeman v Wildeman , 2014 ABQB 732 , para. 33 . I am satisfied that not all of the CCA deductions are reasonable for the purpose of calculating Mr. Johnson’s guideline income, but given the range of deductions available and the lack of specific evidence, find that 70 per cent of the amount claimed is a reasonable deduction for present purposes. [ 25 ] With that adjustment, the revised net operating income becomes $71, 428.52 (2013), $76,320.94 (2014) and $68,844.35 (2015). [ 26 ] Ms.

Banack also proposed adding back to net operating income all of the amounts shown for deducted home expenses in the income tax returns, 30 percent of cellphone charges to reflect personal use time, and $4,800.00 per year to reflect personal use of vehicle expenses (insurance, fuel and maintenance), expenses which were entirely deducted for tax purposes. These three categories of add backs are relatively minor, and seem not to be in dispute assuming a calculation under section 19(1) (

g) of the Child Guidelines is undertaken. I find them reasonable for my purposes. [ 27 ] With those further adjustments, the calculation of total income for each of the years is as follows: 2013: $71,428.52 + $28,145.00 + $569.18 + $4,800 = $104,942.70 2014: $76,320.94 + $6,584.47 + $834.47 + $4,800 = $88,539.88 2015: $68,844.35 + $6,224.98 + $673.56 + $4,800 = $80,542.89 [ 28 ] A three-year average of the revised total income for each of these years is $91,342. In my view, that is the proper guideline income for Mr. Johnson.

IV Conclusion [ 29 ] I therefore determine that child support is payable based on the Alberta table amount for two children in the Child Guidelines , according to annual income of $91,342. Taking into account that the application was filed February 4, 2016, I set the effective date of the change at February 1, 2016. [ 30 ] I assume the parties, through their counsel, will be able to agree on the calculations arising from my decision. I am also hopeful that my decision will enable them to agree on adjustments for future years. [ 31 ] The parties, of course, may

schedule a further attendance before me if necessary to deal with calculations and costs. Heard on the 1 st day of August, 2016. Dated at the City of Calgary, Alberta this 12 th day of October, 2016.

G.H. Poelman J.C.Q.B.A. Appearances: Diane Ridley, Ridley Law for the Applicant Jeremy D. Lewsaw, Skovberg Hinz for the Respondent