Hrynkow v Gosse, 2017 ABQB 675

Court of Queen’s Bench of Alberta Citation: Hrynkow v Gosse, 2017 ABQB 675 Date: 20171103 Docket: 4803 164008 Registry: Edmonton Between: Rebecca Elizabeth Hrynkow aka Rebecca Elizabeth Offord-Gosse Applicant/Cross-Respondent - and - Robert Edward Gosse Respondent/Cross-Applicant _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice R. Khullar _______________________________________________________ I. Introduction [ 1 ] The parties were married in 2004 in the City of Edmonton and a divorce was granted to them in June 2013.

There are two children of the marriage: a son, born in 2005 and a daughter, born in 2007. There are three issues in this application: 1. For a retroactive reduction of the child support, how far back should the Court go – what is the effective date? 2. What is the Guideline income of Mr. Gosse for child support given that he is a self-employed welder? 3. What s 7 expenses are properly payable by Mr. Gosse?

II. Judicial History [2] There is a history of court orders on this matter which are relevant to review – with respect to the issue of child support. [3] The first is the Divorce Judgment of 2013 wherein Mr. Gosse has a Guideline income of $200,000 and an obligation to paychild support of $2,769 per month. The Judgment is silent with respect to s 7 expenses. [4] On August 21, 2014, there is a Consent Order to vary child support granted by Sulyma, J. where Mr. Gosse agrees that hisGuideline income is $300,000. The Order provides that Mr.

Gosse will pay $4,300 per month child support and he will pay 100% of the s 7 expenses, including child care, extraordinaryextracurricular activities, education costs and medical costs in excess of $100. [5] On August 14, 2015, Mr. Gosse applied to vary Sulyma, J.’s Order in relation to child support. [6] On September 3, 2015, Read, J. issued an Interim Without Prejudice Consent Order that Mr.

Gosse pay $2,000 per monthchild support effective September 1, 2015, and the s 7 expenses payable were to be $250 per month in addition to $150 per month forchild care. [7] On February 11, 2016, Nielsen, J. issued an Interim Without Prejudice Order staying enforcement of maintenance until April15, 2016 and reducing child support to $1,633 per month based on an imputed income of $115,000 for 2016. An amount of $300 permonth towards child care expenses were ordered to be continued to be paid. [8] The next order was September 21, 2016 by Macklin, J. where Mr.

Gosse’s Guideline income was set at $164,057 for 2016,resulting in s 3 child support of $2,287 per month. The Order also addressed s 7 expenses on a without prejudice basis and provides: thats 7 expenses be split 85% for Mr. Gosse and 15% for Ms. Hrynkow; to include dance fees, school fees, summer camp fees, musiclessons, gymnastics, swimming and soccer fees; and were capped at $4,000 per annum.

The issues of whether the s 7 expenses includedthe child care expenses, and retroactive s 3 and s 7 support were adjourned to a special chambers application. [9] The three issues identified above arise from the application and cross-application of the parties. The application of Ms.Hrynkow is for an order setting the quantum for ongoing s 3 and s 7 child support, an order specifying s 7 expenses, and an order confirming the amount of retroactive s 3 and s 7 child support. Mr.Gosse applies for a retroactive variation of s 3 and s 7 child support based on actual earnings and expenses for 2014, 2015, 2016 and2017.

III. Retroactive Reduction of Child Support [10] Mr. Gosse’s position is that he has never earned $300,000 and when he agreed to the August 2014 Order of Sulyma, J. he wasself-represented. He would like a retroactive variation/reduction of child support based on his actual income from the time of the divorcejudgment. [11] Ms. Hrynkow’s position is that if a retroactive award is going to be granted, it should be only from when she had real and/oreffective notice which is August 14, 2015 when Mr.

Gosse filed his application to vary. [12] The Supreme Court of Canada set out the principles to apply for a retroactive variation of child support in circumstanceswhere the payor’s income had increased but the child support payments had not.

DBS v SRG, 2006 SCC 37 , [2006] 2 SCR 231(DBS). [13] In order to determine the effective date of a retroactive application, I obtain guidance from the decision of Renke, J. in Brownv Barber, 2016 ABQB 687 wherein Renke, J. dealt with a retroactive variation application when the payor’s income was decreased.Renke, J. reviewed DBS and subsequent court decisions considering how DBS applies to a situation of retroactive reduction of childsupport.

After commenting on the importance of certainty and reliability of child support for the child, Renke, J. held that effectivenotice would be notice of the claim with reasonable proof to support the claim so that the recipient would have enough information tomake adjustments if necessary to their lifestyle in light of potentially reduced income.

I agree with this analysis and think it achieves thebalance between the certainty of the amount of child support for the recipient child and parent against the recognition that the payor’scircumstances can change and such a change may result in a reduction of child support. [14] In the circumstances of this case I find that such effective notice did not occur until August 14, 2015 when Mr. Gosse filed hisapplication to vary child support. [15] Mr. Gosse argues that under DBS it is possible to grant a retroactive order up to three years from effective notice.

Thereforeeven if the effective notice is August 2015, the court can vary the child support orders back to 2013, the date of the Divorce Judgment. [16] I do not agree that the retroactivity would go back three years in an application for a reduction of child support as this wouldbe unfair and potentially detrimental to the children. This is obvious from this case. Until Mr. Gosse filed his application almost one yearafter agreeing to Sulyma, J.’s Order, his children, and Ms. Hrynkow as primary caretaker for the children, thought they could rely on theamount of child support that he had agreed to pay.

To drastically reduce that amount retroactively with no notice to them so that theycould make adjustments to their expectations would be grossly unfair to the children in these circumstances. However, once he put themon notice, it is reasonable for the children to be ready for a potential variation of child support. Therefore my decision is that anyvariation will only be retroactive to August 14, 2015.

IV. Guideline Income [ 17 ] Given my ruling on retroactivity, it is necessary to determine Mr. Gosse’s Guideline income for 2015, 2016 and 2017. This is a challenge because Mr. Gosse obtains his income from a corporation he controls. Ms. Hrynkow asks me to exercise my discretion to impute income to him under s 19 of the Child Support Guidelines, because of his failure to provide information justifying expenses, and the expenses deducted from corporate income are unreasonable. Mr. Gosse’s position is that he has done the best he can in explaining and justifying his income. [ 18 ] Mr.

Gosse is a welder who provides his services through Revolution Fabricators Ltd. Mr. Gosse has had an accountant fill out his income tax returns for the corporation over the years but his corporate record’s statements of expenses is lacking. He has provided corporate and personal income tax information from 2013 to 2015 (no 2016 tax returns had been filed as of date of hearing).

He has provided handwritten lists of what his business expenses are but without any backup documentation. [ 19 ] This application was filed in August 2015 and originally scheduled to go to Special Chambers in February 2016, but it was adjourned in light of the Alberta Court of Appeal decision in Cunningham v Seveny , 2017 ABCA 4 . In that case the Court of Appeal held that the onus of proving reasonable expenses is on the payor who receives his income from a corporation of which he is the controlling mind. The payor has the knowledge about the expenses and is in the best position to explain them.

Prior to this case, most parties thought the onus was on the party challenging the reasonableness of the expense. The hearing scheduled for February was adjourned to give the parties an opportunity to consider and respond to Cunningham v Seveny . [ 20 ] The position of Ms. Hrynkow is that Mr. Gosse has failed to establish the reasonableness of many of the expenses used by his corporation to reduce his corporate income and therefore this Court should impute a higher income to him than his line 150 income. Mr.

Gosse, on the other hand, contends that he has done his best in providing what information he has available to justify expenses. While he acknowledges that some expenses can be properly attributable to his gross income, he says there are two factors to keep in mind as to why this Court should be cautious in imputing income at the level asked by Ms. Hrynkow. First, he has been disadvantaged by his accountants upon whom he relied and trusted to take care of all of his corporate records for him.

He has had to change accountants because that was not done, including previously paying GST to Revenue Canada which has now put him in arrears position with Revenue Canada. Second, with the law changing midway through his application, he has done his best to try to address the onus but that this onus issue is not something he would have been alive to or aware of at the relevant time of keeping relevant and accurate records, and he should not be unduly disadvantaged by the change of law in this area. [ 21 ] The parties’ respective positions on Mr.

Gosse’s income can be summarized in this way: Year Line 150 Corporate Gross Corporate Net Ms. Hrynkow’s Position Mr. Gosse’s Position 2015 $100,689.42 $241,472 $148,993 $193,144.50 $165,176 2016 $164,057 (imputed by Macklin, J. – 2016 income tax not filed) $185,853.37 $135,531.84 $155,886.04 $144,338.10 2017 est. $135,000 est. $98,556 $155,887.04 $98,556 [ 22 ] In arriving at the numbers in the chart, Ms. Hrynkow has gone through the expenses and in the absence of supporting receipts, argues that many expenses should be added back into his income level.

That is how her numbers are arrived at. [ 23 ] In arriving at the numbers in the chart, Mr. Gosse’s position is based on the net corporate income plus a gross-up for adding back in business expenses for which he would have received a benefit. Instead of doing an analysis of each business expense claimed he takes the position that somewhere between 15% - 20% of the global business expense can be attributed to personal expenses. He has taken the mid-point, of 17.5% and added that number to the net corporate earnings to determine his Guideline income.

It should be noted that this concession about recognizing some personal benefit from the business expenses, was only made during oral argument. [ 24 ] While recognizing the onus is on Mr. Gosse, I am sympathetic to the quandary he finds himself in that his accountant has not served him well. As his counsel said, he is not a bad man but he is a bad businessman. However, it is appropriate to attribute some of the business expenses to his personal income. In these circumstances, I do not find that Mr. Gosse is hiding documentation or avoiding providing documents.

He has provided what he has and what he can, but he has been ill served by his accountants. I find the percentage approach is a reasonable approach to take in these types of circumstances in attributing personal benefit to some of the business expenses claimed. I agree that a range of 15% - 20% is appropriate, but I would attribute 20% of his business expenses as giving him a personal benefit and add that amount back to his income. [ 25 ] For 2015, Mr. Gosse’s Guideline income is $167,488.08.

This amount is based on net corporate income of $148,993 plus adding 20% of business expenses ($92,479). [ 26 ] For 2016, based on the information that has been provided in terms of earnings and expenses (with no income tax returns filed, personal or corporate), I am setting Mr. Gosse’s income at $145,596.14. This is based on his calculation of his net corporate income plus 20% of his business expenses ($50,321.53). [ 27 ] Calculating income for 2017 is trickier. Ms. Hrynkow suggests that 2016 provides the best guide and that the court should use this number. Mr.

Gosse deposes that he has not worked as much, and when he does work the pay rates are lower than they were previously. I was also advised by counsel for Mr. Gosse, without objection from counsel for Ms. Hrynkow, that

Mr. Gosse has recently declared bankruptcy. I accept the information from Mr. Gosse, and set his Guideline income at $98,556. I make no adjustment for the personal benefit arising from business expenses because based on the documentation provided far fewer expenses are claimed, and on their face seem reasonable. [ 28 ] Ms. Hrynkow has asked me to draw an adverse inference about Mr. Gosse’s income because of information she obtained from her children that Mr. Gosse had picked her children up from school in an expensive car. Her counsel had written to Mr.

Gosse’s counsel looking for an explanation about this and there had been no response to the date of hearing. In the absence of any detailed evidence on this issue, I decline to draw such an inference. V.

Section 7 Expenses [ 29 ] The Court must take into account the necessity of the s 7 expense in relation to the child’s best interest and the reasonableness of the expense in relation to the means of the parties’ and those of the child, and to the family spending pattern prior to separation. Further it is necessary to consider if an expense is truly extraordinary, or an ordinary expense that would otherwise be included in s 3 child support. [ 30 ] Mr. Gosse paid 100% of the s 7 expenses at one point, and then under Macklin, J.’s order they were split 85%/15%, on a without prejudice basis.

Macklin, J.’s Without Prejudice Order capped Mr. Gosse’s s 7 expenses at $4,000 and left it to the special application to determine whether child care expenses were included in that amount. [ 31 ] Ms. Hrynkow has no income at this time as she is a full time student. During argument, Ms. Hrynkow agreed to pay 25% of the s 7 expenses and is seeking that Mr. Gosse pay 75%. Ms.

Hrynkow seeks reimbursement for the following expenses: dance classes for both children; gymnastics for both children; community swimming for both children; community soccer for Jacob; school transportation costs for both children; school fees for both children. She also seeks an order directing payment for child care costs and medical expenses. [ 32 ] Mr. Gosse’s position is that he has paid child care costs in the past, 2014-2016 and is content not to revisit the issue. He takes the position that the school and transportation fees are subsumed under s 3 child support.

Further he argues that other expenses are not legitimate s 7 expenses (gymnastics, swimming, soccer, dance) but have been paid for in the past, but should not continue to be paid in the future given the means of the parties. [ 33 ] I find the following to be allowable s 7 expenses: a. child care costs [s 7(1)(a)] because child care is required while Ms.

Hrynkow is in school; b. costs related to new glasses that exceed any insurance reimbursement by at least $100 annually [s 7(1)(c)] because it is provided for in the Guidelines; c. costs associated with dance classes [s 7(1.1)]; and d. costs associated with gymnastics [s 7(1.1)]. Both dance and gymnastics are activities that the children have been in for some time and would qualify as extraordinary expenses. [ 34 ] The other claimed expenses for s 7 as set out in the Affidavit of Ms. Hrynkow of September 7, 2016 are not allowed: a. Elk Island Public School transportation; b. Elk Island Public Schools; c.

Strathcona County swimming; and d. Community soccer. All of these amounts are typical expenses for any child that would not be considered extraordinary under s 7(1.1) and therefore are not allowed. They are expenses subsumed under s 3 child support. [ 35 ] Mr. Gosse asks for a cap on the s 7 expenses, and I agree that a cap of $4,800 is appropriate given the reduced means of the parties. VI. Conclusion [ 36 ] In conclusion, Mr. Gosse’s Guideline income for 2015-2017 is: • 2015 - $167,488.08; • 2016 - $145,596.14; and • 2017 - $98,556. [ 37 ] Mr.

Gosse’s s 3 child support is to be adjusted retroactively to September 1, 2015, the first month after he filed his application to vary child support.

[ 38 ] With respect to s 7 expenses there is no retroactive variation. For the purposes of Macklin, J.’s Order, I find that the $4,000 cap included child care costs. On a go-forward basis the following s 7 expenses will be paid to be split 75% by Mr. Gosse and 25% by Ms. Hrynkow: • child care costs; • costs related to new glasses that exceed any insurance reimbursement by at least $100 annually; • costs associated with dance classes; and • costs associated with gymnastics. [ 39 ] Mr.

Gosse’s share of s 7 costs is capped at $4,800 annually. [ 40 ] If the parties wish to address costs, they should do so in writing within 30 days of this decision. Heard on the 31 st day of August, 2017. Dated at the City of Edmonton, Alberta this 3 rd day of November, 2017. R. Khullar J.C.Q.B.A. Appearances: Barry M. King Strathcona Law Group for the Applicant/Cross-Respondent Christopher J. Skrobot Jomha Skrobot LLP for the Respondent/Cross-Applicant