Tymko v Gilbert, 2020 ABQB 773

Court of Queen’s Bench of Alberta Citation: Tymko v Gilbert, 2020 ABQB 773 Date: 20201211 Docket: FL03 05750 Registry: Edmonton Between: Brett Tymko Plaintiff/Respondent - and - Destiny Gilbert Defendant/Applicant _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice Robert A. Graesser _______________________________________________________ Introduction [ 1 ] This decision results from a Special Family Chambers application in which Destiny Gilbert sought retroactive and ongoing child support from Brett Tymko.

The child support was ordered by Justice Inglis in an “interim without prejudice” order pronounced December 5, 2019. Mr. Tymko’s income was set at $39,300 (presumably based on the 2018 Financial Statements for his company). He was ordered to pay $315 per month to Ms. Gilbert for the then 16-year-old child of the marriage commencing January 1, 2019. [ 2 ] Mr. Tymko failed to pay the ordered child support. Ms. Gilbert seeks retroactive and ongoing child support on an imputed

income resulting from Mr. Tymko’s failure to provide the personal benefits information required by Cunningham v Sevigny , 2017 ABCA 4 , as his income is solely derived from a corporation he owns and controls. [ 3 ] The parties are agreed that their daughter is now independent, and there are no current applications regarding parenting or ongoing child support. Background [ 4 ] Until mid-January 2019, the child lived with Mr. Tymko. She had been in her father’s day-to-day care for over six years. Ms. Gilbert did not pay any child support as her income was below the minimum level in the Child Support Guidelines.

In mid-January 2019, the child began to live with Ms. Gilbert on a full-time basis. Mr. Tymko did not offer to pay any child support, and she served a Notice to Disclose in July 2019 and later filed a Notice of Application seeking retroactive and ongoing child support. That application was heard on December 5 th , 2019 and Mr. Tymko was ordered to pay $315 per month. [ 5 ] Ms. Gilbert’s claim for retroactive support was adjourned to a Family Law Special, as was Mr.

Tymko’s cross-claim. [ 6 ] The Family Law Special was set for March 20, 2020. [ 7 ] In mid-February 2020, the child returned to live with her father on a day-to-day basis. Ms. Gilbert’s application morphed into one for imputing income to Mr. Tymko and for

Section 3 child support from mid-January 2019 to mid-February 2020 (13 months). [ 8 ] The March Special Chambers application was adjourned due to the Covid pandemic, and was eventually heard by me on November 26, 2020. [ 9 ] Mr. Tymko earns his income through his construction company. He is apparently the sole shareholder and director. His income tax returns show Line 150 incomes as follows: 2016 $26,782.74 2017 $23,162.43 2018 $27,312.73 [ 10 ] Included in his Line 150 incomes for 2017 and 2018 are RRSP withdrawals. For 2018, it was $800. For 2017, it was $1,754.96. I note that Mr.

Tymko had RRSP contribution deductions for 2018 of $1,500, for 2017, $1,500, and $1,500 for 2016. As such, it appears that the withdrawals are generally from the previous year’s contributions. I thus include the RRSP withdrawals as part of his income for Child Support purposes. [ 11 ] It is interesting that for the three years for which disclosure was provided, Mr. Tymko declares no income as an employee. Rather, his earnings are described as “business income”. For 2018, the gross business income is $39,300 and he has about $3000 in deductions from that.

The $39,300 figure appears to come for the corporate Financial Statements, there described as “wages”. I infer from this that Mr Tymko is treated as an independent contractor to his own company as there is no indication that the company pays him wages or dividends as its sole shareholder and director. [ 12 ] His corporation had gross revenues as follows: 2018 $150,310 2017 $142,84 2016 $153,532 [ 13 ] In those three years, the company’s Financial Statements show “wages” of $39,300, $40,170, and $34,284.37 respectively. Those figures are shown in Mr.

Tymko’s personal tax returns as his gross income from his business activities, from which he makes further deductions. [ 14 ] Ms. Gilbert objects to use of the Line 150 incomes or the amount shown for “wages” in the Financial Statements, noting that Mr. Tymko has not provided sufficient information as to the personal benefits he receives from the corporation.

This information has been required to be provided by a party whose income is mainly derived from a proprietorship or business to avoid all of the income from the proprietorship or business being attributed to the owner since Roseberry v Roseberry , 2015 ABQB 75 and Sweezey v Sweezey , 2016 ABQB 131 . In Sweezey , Yungwirth J referenced s. 21(1)(

f) and s. 21(2) of the Child Support Guidelines and held at paras 35-37: [35] These provisions (s.21) 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 orbreakdown has been provided, the shareholder runs the risk that, depending on the other available evidence, the court may presume thatthe payments have a personal benefit component unless the shareholder provides information upon which the court can concludeotherwise. [37] This approach is in keeping with s. 23 of the Guidelines which allows the court to draw an adverse inference against thespouse who fails to comply with the requirements of s. 21, and to impute income to that spouse in such amount as it considersappropriate. [15] This approach was confirmed in Cunningham v Sevigny, 2017 ABCA at paras 25-26: [25] We endorse the dicta in Roseberry v Roseberry, 2015 ABQB 75 at paras 61-99, Alta LR (6th) 215 [Roseberry], rev’d on othergrounds 2015 ABCA 218, 68 RFL (7th) 30.

To establish a parent’s income for Guideline purposes, income declared at Line 150 of thedisclosing party’s annual tax return may not accurately reflect the value of personal benefits that parent receives from self-employment, apartnership or a corporation controlled by the parent, or over which the parent has more than a 1% interest. Common examples includepersonal use of corporate vehicles, computers, cellphones, personal benefits associated with travel, entertainment and promotionalexpenses, and other non-arm’s length expenditures.

A parent whose income is derived from such a source, where the source deductedexpenses for income tax purposes that may have resulted in a personal benefit to the parent and, therefore, may be relevant indetermining child support obligations, must disclose those deductions.

In addition, if the parent takes the position that those deductionsdid not result in the parent obtaining a personal benefit, an explanation is required for why those expense deductions (or a part of them)should not be attributed to the parent’s income for child support purposes. [26] Furthermore, a parent challenging the reasonableness of the corporate or business expenses is not legally required to firstestablish a prima facie case that such expenses are unreasonable before disclosure becomes necessary.

Simply put, in matters concerningchild support, the required disclosure arises at the outset and continues to be the obligation of the disclosing parent throughout theduration of all child support proceedings. [16] Ms. Gilbert also cites Ripulone v Smith, 2018 ABCA 167 which criticized the chamber’s judge’s conclusions in the absenceof evidence supporting some of the deductions from the total revenues of the entity. [17] Here, Ms.

Gilbert challenges a number of items of expense from the 2018 statements: • Insurance $4,247 • Internet $1,639 • Life insurance $1,581 • Telephone $1,611 • Travel and entertainment $9,608 • Utilities $2,946 • Vehicle and Expenses $5,701 • Wages $39,300 [18] She argues that the only substantiation of these expenses is in the form of a general letter from Mr. Tymko’s accountant. Noinvoices or receipts have been provided. [19] Ms. Gilbert submits that Mr. Tymko’s income for 2018 should thus be set at $71,579. [20] Mr. Tymko’s cross application is for retroactive support from Ms.

Gilbert, as she had not paid him any child support for themore than six years while the child was in his care before January 2019. He argues that any child support owed to Ms. Gilbert under theDecember 2018 order should by offset by monies Mr. Tymko paid for their daughter’s school fees, clothing, food, personal products andcamping equipment, as well as retroactive child support due from Ms. Gilbert. [21] He seeks to impute income to Ms. Gilbert, citing Lachapelle v Vezina, (ONSC) and Savoie v Lamarche (1990), 71 DLR (4th) (QCA).

Lachapelle is an interesting case and is notable for its finding that a mother who chose to stay home with anewborn (from a new relationship) had not adequately explained why that was reasonable in the context of her child support obligationsand she was imputed her former income and directed to pay child support on that basis.

Her child support obligations started followingthe expiry of the statutory maternity leave. [22] Savoie involved somewhat similar circumstances to Lachapelle, and in that case the Quebec Court of Appeal noted at para35: [35] In my view it is also unacceptable to suppose, as the appellant has done in this case, that in principle the birth of a childautomatically gives a parent the right to be exempted from the obligation of financial support, by unilaterally deciding to cut herself offfrom any source of income by which she could provide for them.

Whatever the intrinsic merits of the reasons for her actions, theappellant must realize that she still has obligations to her other two children and that she can only fulfil those obligations by returning tothe workforce. [23] Lachapelle was cited by the Alberta Court of Appeal in Demers v Moar, 2004 ABCA 380, although that case turned on the

application of Hunt v Smolis-Hunt , 2001 ABCA 229 . The Court of Appeal allowed the appeal and did not impute income to the mother, as the father had not established that she was staying home to avoid child support obligations. I am bound by the Alberta Court of Appeal’s decision in Hunt v Smolis-Hunt and the bad faith approach mandated for imputing income for child support purposes. The onus is on the party seeking to impute income to establish the necessary bad faith on the part of payor. Both Lachapelle and Savoie must be distinguished on that point. [ 24 ] Here, there is insufficient evidence provided by Mr.

Tymko that Ms. Gilbert is intentionally unemployed or underemployed for the purpose of avoiding her child support obligations. [ 25 ] His application cannot succeed on the information provided. He could potentially apply with better information on Ms. Gilbert’s circumstances. I would observe, however, that having income imputed does not mean that ordered child support will be paid. Ms. Gilbert’s materials indicate that she is not employed and is on social assistance, so any further litigation at this stage may be a waste of time and resources. [ 26 ] In his affidavit of December 4, 2019, Mr.

Tymko provides information from his accountant regarding the expenses claimed by his business. The letter from his accountant dated November 11, 2019. says that she has prepared and submitted Mr. Tymko’s personal and business taxes for the past several years. She says “the only area where Mr. Tymko’s business and personal income and expenses intersect is with respect to his income”. She says that “allowable business expenses are assessed against business income… while allowable personal expenses are assessed against personal income on Mr.

Tymko’s personal tax return.” She also says that “the amounts deducted for travel and entertainment expenses reflected meals and travel related to business activities.” Analysis [ 27 ] The onus is on Mr. Tymko to justify the deductions from the gross revenues of the business he operates through his company. Mr. Tymko relies on the advice of his accountant. Simply put, the letter from his accountant does not satisfy me on anything other than that the accountant believes that the deductions from income are legitimate for tax purposes.

I have no interest in taxation matters when it comes to assessing a payor’s income for child support purposes. [ 28 ] The accountant’s letter does not explain in any way why Mr. Tymko’s earnings from employment as stated in his tax returns are significantly less than what the company has deducted from its income as “wages”. The letter makes no attempt to quantify any personal benefits Mr. Tymko may get from some of the corporate expenses. [ 29 ] If what the accountant describes in her letter is accurate, one would expect Mr.

Tymko’s income from employment to be equal to or greater than the wages attributed to him in the Financial Statements, not less. There is very little that can be deducted from T4 income. [ 30 ] In his affidavit, Mr. Tymko acknowledges that his income for 2018 was $39,300, the precise amount shown in the company’s Financial Statements for the year ended July 31, 2018. Yet his income tax return showed that amount as business income, with unexplained deductions. Mr.

Tymko’s accountant says in her letter of November 11, 2019 “(his company) pays him a monthly salary, which is reflected in the company’s financial reports as a payroll expense. Yet his tax return shows no income from employment. Mr. Tymko’s understanding, his tax return, the company’s Financial Statements and the letter from his accountant do not jive. [ 31 ] I find that the letter from Mr. Tymko’s accountant is of no assistance to him in quantifying personal benefits he receives or is likely to receive from the company.

It might be helpful for accountants to read Roseberry , Sweezey and Cunningham before they make representations to the Court on the subject of personal benefits for shareholders, directors and key employees. [ 32 ] I am aware that a cottage industry has grown around the attribution of income to payors from their corporations or businesses. I have been critical of that practice, keeping in mind the principles of proportionality.

It makes little sense to spend a lot on an expert report to recover a small amount in additional child support. [ 33 ] In Zdyb v Zdyb , 2017 ABQB 44 , I reviewed the Financial Statements and attributed personal benefits where the personal benefit appeared obvious, using common sense and human experience. [ 34 ] I intend to do the same here. In doing so, I do not suggest that Mr. Tymko has done anything wrong by following his accountant’s advice.

There is a difference between income tax law and attributing income under the Child Support Guidelines . [ 35 ] I start with the $39,300 shown as wages in the company’s statement. Mr. Tymko acknowledges that as his income for 2018 and made that representation in court in December 2018. [ 36 ] I am suspicious that insurance of $4,247 includes Mr. Tymko’s personal vehicle and not just the work truck. However, he said at the hearing that the company did not pay his personal insurance, and his company may well have business liability insurance as well.

No invoices or policy details have been provided and an examination of them might lead to a different conclusion. I do not include this amount in Mr. Tymko’s guideline income. [ 37 ] It is inconceivable that a small construction company would need $1,639 for internet services, and attribute 50% of that amount to Mr. Tymko as a personal benefit ($820). [ 38 ] I make the same finding regarding telephone expenses of $1,611 ($805). Life insurance is clearly a personal benefit so $1,581 is to be included in Mr.

Tymko’s income for guideline purposes. [ 39 ] I have some difficulty with the travel and entertainment expenses of $9,608. Without the benefit of receipts, it is impossible to make any accurate estimates. I recognize that Mr. Tymko travels out of town for work and costs for accommodation should be

deductible, as would be any meal costs over and above what Mr. Tymko would spend when working from home. There is undoubtedly some personal benefit to Mr. Tymko with travel and entertainment expenses being written off through the company. Having regard to the likely inclusion of some out-of-town meals and accommodation, I will only include one third of the expensed amount, namely $3,202. [ 40 ] I recognize that self-employed people are able to claim the costs of a home office, and a company may pay rent to its shareholder for use of a home office.

In my view, absent convincing evidence to the contrary, home offices and utilities attributed to the home office for tax purposes should be added into the payor’s income for guideline purposes. While there may be a legitimate tax deduction, the amounts attributed to the home office are available to the payor. The home office deduction for 2018 of $1,763.26 and the utilities associated with it of $2,946 should be included in Mr. Tymko’s income for guideline purposes. [ 41 ] As with insurance, it is conceivable that the Vehicle and Expenses amount of $5,701 relate only to the work truck.

Absent receipts, I cannot make any estimate as to what portion, if any, may represent personal benefits. None of this deduction is thus added to Mr. Tymko’s income. [ 42 ] This is a somewhat rough-and-ready approach. Neither party can afford to spend money on lawyers or accountants to arrive at mathematical certainty, and determining personal benefits from corporate or business expenses should not become a “time- and expense- wasting exercise”, as feared by the Court of Appeal in Cunningham . Assessment by the trial judge or application judge would appear to be what is contemplated by Sweezey and Cunningham .

There are alternatives to doing this, such as requiring full production of all receipts and invoices, having the payor cross-examined on them, having a viva voce hearing, or involving an expert to assess the personal benefits. In cases where the difference is not going to be that great, an expedited process that provides a practical result in an inexpensive way seems appropriate. [ 43 ] With that in mind, I assess Mr.

Tymko’s 2018 income for the purposes of the Child Support Guidelines to be $50,417.00. [ 44 ] That would result in monthly child support of $415.92. [ 45 ] I note that the December 2018 Order makes no reference to

Section 7 expenses, and there is no earlier order that deals with the matter. While Mr. Tymko references expenses he incurred while the child was with Ms. Gilbert that might qualify as

Section 7 expenses, there is no basis to require Ms. Gilbert to reimburse him for any portion of those in the absence of an application. Even if there had been an application to do so, Ms. Gilbert’s portion (based on her nominal income) would be minimal and likely more than offset by expenses she incurred for their daughter over that period. Retroactivity [ 46 ] Mr. Tymko claims retroactive support from Ms. Gilbert and that an income in the $40,000 per year range be attributed to her, based on her educational qualifications and statistical information. He says that he made demands to Ms.

Gilbert’s lawyer that she pay retroactive child support. Attached to his December 4, 2019, affidavit is an email exchange between him and Ms. Gilbert’s lawyer in August 2019. Mr. Tymko’s email asks about “the portion of support (Ms. Gilbert) should have contributed for (their daughter) while (their daughter) was in my care”. Mr. Ready responded on August 30, 2019, that his client “is a stay-at-home mother with income below the threshold outlined under the Child Support Guidelines.” [ 47 ] Both Ms. Gilbert’s claim and Mr. Tymko’s cross-claim require consideration of DBS v SRG , 2006 SCC 37 .

That case is the leading authority on assessment of retroactive support claims. It notes that each case must be dealt with on its own facts. It sets the “presumptive date” for a retroactive award as the date of “effective notice” of the recipient’s claim for child support. Earlier dates may be appropriate, based on blameworthy conduct on the part of the payor. A three-year limitation is generally imposed. [ 48 ] Here, I am not satisfied that Mr. Tymko made a claim for child support before August 2019. That is the date of effective notice. By that time, their daughter was no longer in his custody.

The information from Mr. Tymko does not satisfy me that Ms. Gilbert is guilty of any misconduct so as to make an award retroactive from the date of effective notice. I find no merit to his cross-application. [ 49 ] With respect to Ms. Gilbert’s claim, I take the same approach. The evidence of a request for child support following their daughter changing residences is the Notice to Disclose served on Mr. Tymko in July 2019. There is no evidence of any blameworthy conduct on Mr. Tymko’s part, other than him not volunteering to pay child support once their daughter left his residence.

He has explained his actions, although the explanations do not absolve him from a potential obligation to pay child support. I recognize I have a wide discretion to make a retroactive award, and in that regard, I consider the more than six years Mr. Tymko bore sole financial responsibility for their daughter with no contributions from Ms. Gilbert. [ 50 ] As a result, I find that Mr. Tymko should pay retroactive child support to Ms. Gilbert based on an income of $50,417.00 from July 1, 2019, to and including February 1, 2020. [ 51 ] Mr. Tymko again has the sole financial responsibility for their daughter.

Their daughter will not benefit from any retroactive award, and I accordingly direct that payment of the arrears calculated by this Order be stayed until their daughter ceases to be a child of the marriage and dependent on Mr. Tymko for her support. [ 52 ] I would ask Mr. Ready, counsel for Ms. Gilbert, to make the necessary calculations and prepare a form of order for review by Mr. Tymko. The arrears to be consolidated in the Order resulting from this application will be the amount as ordered by Justice Inglis in December 2018 to and including June 30, 2019, (less the amount of any payments made to MEP or to Ms.

Gilbert) together with $414.92 per month from July 1, 2019, to and including February 1, 2020. Mr. Tymko is not entitled to credit for any payments made for their daughter during those periods. No income is imputed to Ms. Gilbert on the evidence before me. [ 53 ] Ms. Gilbert is entitled to costs of the application on Column 1.

[ 54 ] Mr. Tymko should communicate with Mr. Ready as to the amount of any credits he feels he is entitled to. I will reserve jurisdiction to set the amount if there is disagreement. Otherwise, Rule 9.4(2(

c) is invoked. Heard on the 26 th day of November, 2020. Dated at the City of Edmonton, Alberta this 11 th day of December, 2020. Robert A. Graesser J.C.Q.B.A. Appearances: Curtis Ready for the Applicant Mr. Tymko, on his own behalf, SRL Jeffrey Keller, counsel for the child