Rolinger v Rolinger, 2021 ABQB 474

Court of Queen’s Bench of Alberta Citation: Rolinger v Rolinger, 2021 ABQB 474 Date: 20210617 Docket: 4803 184833 Registry: Edmonton Between: Blaine Ronald Rolinger Applicant/Defendant - and - Carrie Ann Rolinger Respondent/Plaintiff _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice M. J. Lema _______________________________________________________ A.

Introduction [ 1 ] What is reasonably expected of a Guideline-income report in an income-from-corporations case? [ 2 ] Separated spouses disagree about the husband’s Guideline income in a corporate-incomes scenario. The husband and his brother are equal owners of four business corporations (golf course, sod farm, storage operation, property ownership).

[ 3 ] The husband retained an accountant to prepare a Guideline-income report, which was produced. The wife retained her own expert, who has not yet produced a report. The wife argues that the husband has failed to provide sufficient disclosure to her and even his own expert. Per the wife, the husband’s expert’s report should be disregarded entirely. She then points to other markers of the husband’s income as the basis for a much-higher Guideline income for him. [ 4 ] The husband defends his expert’s report, seeing it as accurate and comprehensive.

He believes his Guideline income should be as gauged in that report. [ 5 ] I find that the husband’s Guideline income requires major adjustment on the management-fees front, that further information is required on the “corporate bank deposits versus reported revenues” and amortization fronts, that no further disclosure is required on other fronts, and that the combined spousal and child support amount payable by the father to the mother should be increased, pending trial, as detailed below, to meet the mother’s reasonable needs and in line with the father’s ability to pay to cover those needs. B.

Federal Child Support Guidelines (key segments) [ 6 ] Per ss 15(1) FCSG : … a spouse’s annual income is determined by the court in accordance with sections 16 to 20. [ 7 ] Per s 16: Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency .... [ 8 ] The key here is s 18 (“ Shareholder , director or officer”):

(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. [emphasis added] C.

Analysis of Guideline-income issues [ 9 ] Below I outline some of the key guidance on the duty to disclose financial information, particular disclosure issues in a corporate-income context, disclosure to Guideline-income experts, and the proper approach to interim orders (such as that sought here).

General duty to disclose [ 10 ] In Colucci v Colucci , 2021 SCC 24 , the Supreme Court of Canada called financial disclosure “the linchpin of a just and effective family law system” (para 4). [ 11 ] The Court elaborated: After applying the Guidelines and D.B.S. for many years, it has become clear just how much the child support system ... depends upon adequate, accurate and timely financial disclosure . ... Simply stated, disclosure is the linchpin on which fair child support depends and the relevant legal tests must encourage the timely provision of necessary information.

The pivotal role of disclosure comes as no surprise since the premise underlying the Guidelines “is that the support obligation itself should fluctuate with the payor parent’s income” ( D.B.S. , at para. 45). The structure of the Guidelines thus creates an informational asymmetry between the parties. In a system that ties support to payor income, it is the payor who knows and controls the information needed to calculate the appropriate amount of support. The recipient does not have access to this information, except to the extent that the payor chooses or is made to share it .

It would thus be illogical, unfair and contrary to the child’s best interests to make the recipient solely responsible for policing the payor’s ongoing compliance with their support obligation. This is why frank disclosure of income information by the payor lies at the foundation of the child support regime . In Roberts v. Roberts , 2015 ONCA 450 , 65 R.F.L. (7th) 6, the Court of Appeal described the duty to disclose financial information as “[t]he most basic obligation in family law” (para. 11).

A payor’s failure to make timely, proactive and full disclosure undermines the policies underlying the family law regime and “the processes that have been carefully designed to achieve those policy goals” ( Leitch v. Novac , 2020 ONCA 257 , 150 O.R. (3d) 587 , at para. 44 ). Without proper disclosure, the system simply cannot function and the objective of establishing a fair standard of support for children that ensures they benefit from the means of both parents will be out of

reach ( Michel , at para. 32, per Brown J.; Brear , at para. 19, per Pentelechuk J.A.). In line with these realities, courts have increasingly recognized that the payor’s duty to disclose income information is a corollary of the legal obligation to pay support commensurate with income ( Brear , at paras. 19 and 69, per Pentelechuk J.A.; Roseberry v. Roseberry , 2015 ABQB 75 , 13 Alta. L.R. (6th) 215 , at para. 63 ; Cunningham v. Seveny , 2017 ABCA 4 , 88 R.F.L. (7th) 1 , at paras. 21 and 26 ).

As explained by Brown J., speaking for the full Court in Michel , payor parents “are subject to a duty of full and honest disclosure — a duty comparable to that arising in matrimonial negotiations” (para. 33, referencing Rick v.

Brandsema , 2009 SCC 10 , [2009] 1 S.C.R. 295 , at paras. 47-49 ). ... [paras 48-50 and 52] [emphasis added] Disclosure in corporate-income context [ 12 ] Particular disclosure issues can arise where the support payor derives income from one or more owned-by-payor (in whole or in part) corporations. [ 13 ] In Goett v Goett , 2013 ABCA 216 , the Court of Appeal emphasized the need to identify the payor’s true ability to pay support: A body of jurisprudence has developed under s 18 in an effort to address the fundamental unfairness that arises if a parent can divert, manipulate or shelter income through the use of a corporate structure to avoid the payment of adequate child support.

At the same time, in an effort to balance legitimate business expenses and capital requirements, criteria have developed to inform the exercise of judicial discretion .

These criteria include the role the payor plays in the corporation, whether he or she is the sole shareholder , the degree of control the payor exercises , the evidence as to the availability of retained earnings to pay child support, and whether those earnings are required to manage the business and ensure its ongoing financial viability. [para 16] [emphasis added] [ 14 ] It elaborated in Cunningham v Seveny , 2017 ABCA 4 : Goett at paras 10-12 , stipulates that the Federal Child Support Guidelines, SOR/97-175 are to be interpreted purposively and are meant to establish a fair standard of support for children which ensures that they will continue to benefit from the financial means of both parents after separation and divorce . ... [The Guidelines] recognize that the taxable income declared in a tax return completed by a self-employed parent or a parent who is a shareholder, director or officer of a corporation whose income derives from a corporation or business undertaking, may not fairly reflect the amount of the parent’s annual income for child support purposes.

If a court is of the opinion that the amount of the parent’s annual income is not fairly reflected, it may consider some or all of the pre-tax income of the parent’s corporation or an amount commensurate with the services that parent provides to the corporation, as long as that amount does not exceed the pre-tax income of the corporation . It is manifest that a determination of the reasonableness of expenses claimed in reduction of annual income is a core, and critical, aspect of the court’s decision-making function. In our view, the respondent [support payor] did not fully comply with his disclosure obligations.

While his counsel has stated that he provided all financial statements required under section 21(1)(d)(

i) of the Guidelines , there was no indication that the respondent provided all of the information required under section 21(1)( d)(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 parent does not deal at arm’s length.” The latter provision must also be interpreted broadly for child support purposes where a parent’s corporation or business undertaking is the primary vehicle through which he or she earns income.

It includes not only a requirement to provide a statement of all payments or benefits, but also a sufficient explanation to facilitate the recipient’s assessment of the reasonableness of these payments or benefits in the context of determining income available for discharge of child support obligations. This separate and additional requirement to disclosing financial statements under section 21(1)(d)(

i) is reinforced by section 18(2) of the Guidelines , which provides that where a Court is of the opinion that a parent’s annual income does not fairly reflect the money available for child support , “all amounts paid by the corporation as . . . payments or benefits . . . must be added to the pre-tax income, unless the parent establishes that the payments were reasonable in the circumstances ” (emphasis added).

A court cannot make an informed decision under the income sections of the Guidelines (sections 15- 20 ), unless and until full and complete disclosure is made under section 21(1) or (2) of the Guidelines. ... a parent challenging the reasonableness of the corporate or business expenses is not legally required to first establish a prima facie case that such expenses are unreasonable before disclosure becomes necessary .

Simply put, in matters concerning child support, the required disclosure arises at the outset and continues to be the obligation of the disclosing parent throughout the duration of all child support proceedings . The content of required disclosure must be sufficient to allow meaningful review by the recipient parent, and must be sufficiently complete and comprehensible that, if called upon, a court can readily discharge its duty to decide what amount of the disclosing parent’s annual income fairly reflects income for child support purposes .

The issue is whether full deduction of an expense results in a fair representation of the actual disposable income of the party, and the court must balance the business necessity of an expense against the alternative of using that money for child support : Julien D Payne, “Some Notable Family Law Decisions from 2014 to 2015” (2015) 44:3 The Advocates’ Quarterly 271 at 295.

So as to leave no doubt about the correct principle: the evidential and persuasive onus under sections 18-21 of either the federal or provincial Guidelines as to the reasonableness of expenses, rests with the self-employed or corporate parent throughout, and is the most effective means by which to serve the best interests of the child . “Because this information is required in order to properly assess the amount of child support that is payable, its disclosure is part of the obligation to pay support”: Roseberry at para 86 .

As provided by Yungwirth J in Roseberry , information regarding corporate expenses is within the knowledge, possession and

control of the shareholder, director or officer parent, not the challenging parent, and that information is relevant and necessary to determine income for child support guideline purposes . Moreover, the obligation to provide a reasonable explanation for expenses fits soundly within the initial onus on the claiming parent under

section 21 of the Guidelines to provide adequate disclosure of their corporate and personal income and expenses. ... Moreover, the respondent’s proposition that the expenses claimed have been approved for income tax purposes and should thereby be found to be reasonable is neither persuasive, nor is it the test for analyzing those expenses when calculating Guideline income for child support purposes . Expense deductions can legitimately be made under the Income Tax Act , RSC 1985, c 1 (5th Supp ) to decrease corporate or personal tax exposure. But, calculating Guideline income for child support purposes engages an entirely different legislated methodology, as the disclosure requirements of

section 21 make clear . Moreover, as provided in section 19(2) of the Guidelines , “the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act (Canada) .” Child support is the right of the child.

A parent’s legal obligation to pay child support that fairly reflects the parent’s income in accordance with child support guidelines is not to be constrained or limited by income tax statutes that may confer entitlements in relation to deductibility of business expenses . [paras 17, 18, 22, 23, 26, 28, and 31] [emphasis added]. [ 15 ] And in Ripulone v Smith , 2018 ABCA 167 : The Child Support Guidelines are to be interpreted purposively and are intended to establish a fair standard of support for children that ensures they will continue to benefit from the financial means of both parents after separation.

This Court has previously made clear that disclosure obligations are just that; legal obligations to the children and to the court, and must be treated accordingly. This Court has also made clear, and we reiterate, that the disclosure provisions are to be interpreted broadly and a court cannot make an informed decision unless and until full and complete disclosure is made under s 21(1) or (2) of the Guidelines. A parent challenging the reasonableness of corporate or business expenses is not required to first establish a prima facie case that such expenses are unreasonable.

Disclosure must be provided in a transparent and understandable format. It is not sufficient for a parent to provide disorganized bundles of receipts, papers, and bank statements, nor is it acceptable to tell the other parent to “talk to my accountant” . Rather, the required disclosure must be sufficient to allow meaningful review by the recipient parent and be sufficiently complete and comprehensible that, if called upon, a court can readily discharge its duty. The evidentiary and persuasive onus rests with the self-employed or corporate parent throughout.

In other words, the self-employed or corporate parent cannot avoid paying his or her fair share of child support by failing to fully and properly disclose in a timely matter : Cunningham v Seveny ; Goett v Goett . [para 9] [emphasis added] Duty to provide complete disclosure to Guideline-income experts [ 16 ] A corporate-income-earning support payor must provide comprehensive information to the expert(

s) gauging income, per Q v Q , 2012 ONSC 4250 (Czutrin J.): It is not appropriate to make the other spouse seek disclosure for their expert retained to do an income analysis that is then critiqued by the spouse whose responsibility it was all along to make the relevant and necessary disclosure . It puts the wrong person to the expense and allows for delay. Experts rely on documentary information and information received from individuals. They apply that information to make calculations based on their expertise.

It was the father’s responsibility to provide each of the experts the necessary documentation that an expert is of the opinion is required to support their conclusions . In the end, where there is a dispute over the facts, I, as a judge, need to draw conclusions on the facts in dispute in the experts’ reports. The control of the evidence as to the areas in dispute was with the father .

As I again repeat, he had the onus to satisfy the court on the facts and provide an expert report as to his income for guideline purposes. [paras 143, 158 and 159] [emphasis added] [ 17 ] A support payor’s duty to disclose financial information is not necessarily discharged by providing disclosure (to some degree) to the payor’s own expert and providing the expert’s report, per La Fontaine v Maxwell , 2018 ONSC 5123 (Audet J.): ... the arbitrator concluded that Mr. Maxwell [support payor] had not met his obligation to provide full, complete and accurate information .

While she recognized that the additional disclosure sought by Ms. La Fontaine [support recipient] was significant, she was of the view that Ms. La Fontaine was entitled not only to test Mr. Maxwell’s evidence relating to the determination of his income (he had produced his own expert report), but also to put forward her own case regarding the determination of his income . She found that more extensive financial disclosure was required of Mr.

Maxwell as a result of the complexity of his financial circumstances , which was demonstrated by the corporate and trust organizational chart that he provided in accordance with the 2012 Award, and which confirmed that he held a direct and/or indirect interest in at least five different corporations and two family trusts. She stated: Given the complexity of the structure of Mr.

Maxwell’s holdings and his financial circumstances generally, the fact that he has acknowledged that the income both he and his expert disclosed as his guideline income is inaccurate, and because the proceeding involves a claim for child support, the time and cost associated with making full and complete disclosure is secondary to the need for the parties, their counsel and the arbitrator to have available accurate evidence from which a proper and fair determination of issues raised in the proceeding may be made .[para 15] [emphasis added] [ 18 ] A support payor’s disclosure obligation may extend to providing source documents to an expert to back up claimed income and expenses.

For instance, see Atkin v Atkin , 2012 ONSC 4851 (Czutrin J.): The Respondent [support recipient] first sought financial and disclosure relief in December 2010 and the motions were adjourned to allow the Applicant to have his expert prepare an income report. A report was delivered at the end of July 2011.

The Applicant’s income is derived from buying older homes and renovating and selling them. As a self-employed person in this business, determining his income can be challenging. It was and remains his responsibility and obligation to satisfy the court as to his income for support purposes. To date he has not done so. His expert did not review source documents. To date, the only reliable information provided has been the purchase and sale documents of the above-mentioned renovated homes. The documentation submitted to prove the cost of renovations, however, has not satisfied even the Applicant’s own expert.

While the Applicant provided some computer statements suggesting the costs associated with renovations and carrying the properties pending sale, there has not been any review of invoices and source documents . Based on the limited information to date, the Applicant’s expert’s report suggested income of $71,000 in 2008, $89,000 in 2009, and $2,000 in 2010. There were no sales of homes in 2011. Goodman J. recognized the inadequacies in the Applicant’s expert’s report: In her report, Ms.

Alterman (Applicant’s expert) stated as follows in respect of the scope of her work: We have not had access to all of the information we would normally review in this matter including, but not limited to, financial statements of Next Phase for fiscal 2011 [which has a January 31 st year end], detailed accounting records (i.e., general ledgers) for LV International, LV Homes and LVH Holdings, complete detailed accounting records for Next Phase for fiscal 2011, lending agreements, etc.

We cannot comment on the impact, if any, that a review of such information may have on our findings . [para 21 of Goodman J.’s judgment; emphasis added by Goodman J.] The onus of establishing income is on the Applicant.

Any critique that may be obtained by the Respondent [support recipient], through an independent expert , is not meant to be an income report, but a critique of the adequacy of the information relied on by the expert forming the assumptions or the method applied to determine income for guideline purposes in the Applicant’s expert report and providing perhaps an alternative calculation of income. .... [paras 13-15, 17 and 18] [emphasis added (except underlining)] Approach to interim support orders [ 19 ] Another factor here is the interim nature of the order sought here.

The parties set child and spousal support via an interim without-prejudice order in 2018. The father now seeks to vary that order to set a new interim level of support pending trial . [ 20 ] Part of the application was spent discussing a litigation plan.

The net result was agreement on various steps to be completed before trial. [ 21 ] Inquiries with the Court’s administration (as of mid-May 2021) showed that the proposed five-day trial here could likely be heard as early as November of this year and almost certainly in early 2022. [ 22 ] In other words, this application is all about whether new interim arrangements should be made for the next handful of months. [ 23 ] In VLN v SRN , 2019 ABQB 849 , I gathered various cases describing the approach to varying interim support orders (paras 17-28) and concluded: The Alberta courts have explored the variation of interim orders.

The main lesson of that exploring seems to be that, as long as an interim order provides for an adequate level of support, parties should put their efforts into resolving matters on a final basis, whether by agreement or at trial i.e. rather than seeking to vary interim orders.

The lesson of those cases [reviewed in paras 17-28 of VLN ] seems to be that: • a material change of circumstances is a threshold condition for varying interim support; • outside of a trial or trial-like setting, conflicting evidence on an alleged material change may preclude gauging whether such a change has occurred; • same for incomplete evidence; • even with a material change of circumstances, an interim order allowing needs to be adequately met should usually not be varied. Any necessary adjustments can be made at trial or via agreement between the parties.

Resources are better devoted to that than a variation application ; • this is particularly so when the parties are en route to trial, and particularly where the anticipated trial is not too distant ; and • at trial, interim support can be adjusted (retroactive and ongoing) as necessary . [paras 17 and 29] [emphasis added] [ 24 ] The Saskatchewan Court of Appeal commented likewise very recently, in Merrifield v Merrifield , 2021 SKCA 85 : The following comments by Wilkinson J. in Potzus also stress the significance of the fact these are interim orders , particularly in cases involving high-income earners and families with high net worth: Where a trial is pending, it is not the function of a Chambers judge to make “bell-weather orders” predicting, to a nicety, the outcome at trial : see Dyck v Dyck , 2008 MBCA 135 at para 30 , 77 RFL (6th) 70 .

Nor is it a Chambers judge’s task to find the right number for the long term, especially where there are complex issues in relation to income attribution from corporate earnings

and the support obligations for high-income earners . An individual earning annual income in excess of $150,000 is more capable than most of tolerating margins of error in interim, stop-gap orders. Where the family property falls into the multi-million-dollar range, there is considerable malleability when it comes to making equitable adjustments in the final outcome. To front-end load every conceivable argument onto a Chambers judge in an interim support application pre-empts the investigation that is properly the function of the trial judge.

A trial is the natural forum for arguments of the kind that were advanced here. There, testimony can be scrupulously examined and issues explored with the benefit of a full and complete evidentiary foundation. Decisions as to interim support are always modifiable at trial, where they can be assessed based on the entirety of the evidence : Linn v Frank , 2014 SKCA 87 , [2014] 10 WWR 215 ; and Ford v Ford , 2015 SKCA 23 , 457 Sask R 19 . [par a 29 of Merrifield , quoting para 111 of Potzus ] [emphasis added] [ 25 ] Having outlined the legal backdrop, I next examine the disclosure issues raised by the mother.

Mother’s disclosure concerns [ 26 ] The mother raised these disclosure issues: 1. amounts paid to non-arm’s length (family) employees of one or more corporations; 2. reasonableness of claimed “parents’ home operating expenses”; 3. insufficient explanation for evaporation of sod-farm revenues; 4. no explanation for non-exploitation of one bare-land quarter; 5. no apparent investigation or audit of the corporations’ reported revenues (compared to corporate bank deposits); 6. insufficient adjustments for amortization; 7. insufficient explanation of non-allocation of certain globally-reported expense items (e.g. repairs, maintenance, etc.); 8. inter-corporate transfers in the form of management fees; 9. whether certain bank withdrawals and shareholder-loan drawdowns by father constitute income; 10. lack of information about father’s “winter income”; and 11. source of the one company’s “utility revenue.” [ 27 ] I explore these concerns, the father’s responses, and the sufficiency of disclosure on each front below. 1.

Amounts paid to family-member employees [ 28 ] The mother questioned the legitimacy of salaries or wages paid by one or more of the corporations here (each of which is owned 50:50 by the father and his brother). [ 29 ] I find that the father’s explanations are satisfactory here, both as to the worked performed by and wages paid to other siblings of the father and his co-owner brother and also by two of the father’s and mother’s children.

The reported salaries and wages appear entirely proportionate to the work performed, and the mother did not provide any evidence of salaries or wages being paid for work not provided. [ 30 ] The father’s explanations are also sufficient on the overall 50:50 division of corporate income with his brother, with the mother not undercutting the father’s position that he and his brother provide effectively equal contributions to the corporate group. 2.

Reasonableness of adjustments for parents’ home operating expenses [ 31 ] The parents of the father and his siblings live in a house on land owned by one of the corporations, per a life-estate agreement. Per the agreement, they are to cover the utilities, insurance, and property taxes.

However, those expense have actually been covered by one or more of the corporations here. [ 32 ] The father’s expert properly recognized that such payments (for the benefit of non-arm’s length parties and for no corporate purpose) have to be added back to the father’s income (or at least fifty per cent, given his half-stake in the corporations). [ 33 ] The parents live in the house during the six warmer months of the year and in the U.S. in the six colder months. [ 34 ] The debate here was over the amounts added back.

The mother regards some of the adjustments are exceedingly low e.g. an estimate of $60 for monthly gas bills, which her counsel characterized as “not enough to even cover the service charge” i.e. let alone gas consumption. [ 35 ] The father and his expert defended on the basis of the parents living away half the year and apparently “turning down the thermostat to the bare minimum” (my paraphrase). [ 36 ] As I understand it, part of the difficulty here is some of the charges (e.g. gas) are billed for the parcel in question as a whole, with no obvious “break-out” of the charges attributable to the parents’ home.

The same may go for property insurance as well.

[ 37 ] The mother did not provide any particular counter-evidence here (if any was available) or provide any particular basis for estimating what more appropriate charges would be. [ 38 ] I decline to direct any adjustments on this front, particularly in light of the interim nature of this application (where “forensic- level” inquiries are not possible or appropriate). 3.

Insufficient explanation of no current sod-farm revenues [ 39 ] One of the corporations historically had revenues of as much of approximately $230,000 (circa 2003) and still $50,000 (for 2019), but apparently no revenue in 2020. [ 40 ] The father told his expert that the sod farm has run into rough weather (my paraphrase) in 2020, citing the state of the local economy and increasing competition. [ 41 ] The mother sees these explanations as inadequate. [ 42 ] I note that, with the father’s brother having a half stake in that corporation (as with all of the corporations), and with apparently no similar pattern with any of the other corporations, it seems unlikely that the father and his brother have decided to submarine the sod business to prejudice the mother’s support claim. [ 43 ] In any case, I am not in a position on this application, with limited to no evidence, to gauge whether the father’s explanations are reasonable and with the mother not providing any particular evidence on the state of the economy generally or the local sod business particularly. [ 44 ] As well, I foresee that the “under-exploitation” issue here will be explored in the family-property sphere. (As I understand it, the father has obtained an appraisal of the various properties here, including the sod farm, and the mother is considering whether to obtain her own appraisal.) [ 45 ] Accordingly, I decline to make any adjustments on this front. 4.

No explanation for non-exploitation of one bare-land quarter [ 46 ] The mother points to a quarter of bare land apparently yielding no income and alleges inadequate disclosure about why that is so. [ 47 ] I recognize that some cases attribute income on “under-exploited assets”, under para 19(1)(

e) of the Guidelines (“spouse’s property … not reasonably utilized to generate income”), but neither party pointed me to a case where such attribution looked through the corporate veil to examine whether a particular corporate asset is being exploited to the maximum, let alone non-financial assets (“Corporation X should be making more widgets with Machine #7”). [ 48 ] Where it is not obvious that a given (particularly non-financial) asset should be producing income at some level, versus simply being held for corporate use, or sale, down the road, an inquiry into that question is too remote and, in any case, beyond the scope of the interim-support application here. [ 49 ] In any case, the mother did not present any evidence of a history of income production from this quarter. (Neither did the father produce any historical-information evidence.) [ 50 ] As with the sod farm, I believe the “non-exploitation” issue (if one exists) is better explored on the property-valuation side. 5.

No audit by expert of any corporation’s revenues [ 51 ] The mother questions whether the corporations’ “per financial statements” revenues are comprehensive. [ 52 ] The father’s expert worked from information provided by the father, including the corporations’ financial statements and tax returns. [ 53 ] In questioning, the mother’s counsel probed that expert’s reliance on such materials and, generally, information provided by the father without particular source documents (such as general ledgers or other “internal accounting” information): Q: So basically, everything [in a segment of the expert’s report] is just from information you’ve been provided by [the father], no documentation to support any of that?

A: From the tax returns that were prepared by the accountant as well, yes. Q: Are you suggesting that the accountant did anything other than what was advised to him by [the father]? A: I can’t say for certain. You know, I have a certain level of expectation that the accountant will be preparing the information in accordance with tax law and on a reasonable basis .

Q: So, let me ask you this: when you prepare tax returns, because you’re an accountant, and somebody says, “Here’s my rental revenue and here’s my list of expenses”, do you dig beyond that further or do you just record that as their tax return assuming they’re telling the truth ? A: It depends on the situation. I have seen both. So, if there’s something that looks a little off from previous years or from what you

would expect, you would definitely ask for that information. In other cases, you would accept a spreadsheet from the client if they’vekind of itemized everything as opposed to looking at receipts and invoices. Q: I take it you did not make any inquiries of [the father’s] accountant who prepared his tax returns?

A: No. [from pp 9 and 10 of the questioning on April 14, 2021]. [54] While not part of the father’s initial disclosure, bank statements for recent years for each corporation were provided by him tothe mother. [55] Taking the core (golf course) corporation as an example (and she raised the same concerns about one or two of the othercorporations – see below), the mother tallied total bank deposits for a recent calendar year (approximately $900,000), contrasting them tothe entire corporate group’s recent per-financial statement income (approximately $650,000 to $725,000 collectively). [56] The mother asserts total deposits for Mr.

Sod Farm Ltd of approximately $993,000, contrasted to reported revenues rangingfrom $200,000 to $270,000, and total deposits for Meadowview Sod Farm Limited of approximately $366,000, contrasted to reportedrevenues between $182,000 and $197,000. [57] She argues that the corporations may not be reporting all revenues. [58] The mother questioned the expert about this: Q: I take it you didn’t review any of the – I didn’t see it in your scope of review, so I’m assuming you didn’t review any of the bankrecords in terms of funds coming in and out of any of the corporate accounts. A: No.

Q: And would it be fair to say that, in your review of the materials, the revenue recorded on the financial statements for all of thecompanies’ combined for the last three years ranges between about 650,000 and 725,000. A: Yes. Q: So, would it surprise you do see deposits into just the Fox Run Golf Course of over $900,000 in a one-year span of time? A: Deposits don’t constitute revenue. Q: I understand that, but wouldn’t that be – A: How they manage their intercompany transfers and things like that, I would have to look at what goes in, what goes out.

Q: Well, there would be no reason for [any of the] other companies to put money into Fox Run, because Fox Run is the one thatmakes the money, right? A: Yes. Q: Presumably, you would see money coming out of Fox Run, not coming in from other companies. That would make sense basedon everything you’ve said in your report, right? A: Perhaps. Q: I’m just asking if it would be unusual and it would be something that would raise a flag for you if you were to see those [kinds] ofdeposits in bank accounts?

A: I would have looked at it a little further, yes. [59] In Cunningham v Montgomery, (ONSC), Coats J. criticized an overly simplistic analysis (assuming alldeposits to the support payor’s bank account were income): It is well settled that “where an expert relies on the existence or non-existence of some fact which is basic to the question on whichhe or she is asked to express an opinion, that fact must be proved by admissible evidence”. (The Law of Evidence in Canada, 2nd edition; Sopinka, Letterman, Bryant: page 650). No evidence was adduced by Joan Montgomery either through Mr.

Roher’sanalysis or otherwise that identified the source of funds being deposited to Mr. Cunningham’s bank account. The Fuller Landauanalysis did not in fact even address the characterization of the deposits to the account but rather worked solely with moniesbeing withdrawn. [para 104 (first portion)] [emphasis added] [60] In the present case, as noted, the mother has retained an expert but she has not yet produced a report or a critique of thefather’s expert’s report.

Accordingly, we are not in a directly comparable (to Cunningham v Montgomery) setting. [61] However, the case is still instructive, from the support payor’s response to the suggestion of under-reported income i.e. effortsto reconcile bank deposits with reported revenues.

Coats J. carried on (rest of para 104): It was the [payor’s expert] Taylor Leibow analysis, (in response to the original Fuller Landau letter of July 23, 2007) that undertook adetailed examination of all deposits and a forensic tracing, (to the extent possible given the significant six-year period over whichthe analysis was taking place) of the source of the deposits going into this account. Fuller Landau then in their May 9, 2008 report forthe first time considered the source of the deposits. [emphasis added]

[ 62 ] On “unexplained bank deposits”, see also Fielding v Fielding , 2018 ONSC 5659 (Monahan J.), where the support recipient’s expert asserted massive unreported income, the support payor dug into reconciling bank deposits with revenues, and the “under-reporting cloud” was cast away: As discussed earlier, a major focus of Mozessohn’s [support recipient’s expert’s] analysis was on the “unexplained deposits” included within the 91-page spreadsheet summarizing the approximately 2,600 transactions involving Craig’s bank and investment accounts dating back to 2014.

The deposits were “unexplained” in the sense that Mozessohn had been unable to identify the source of the funds for the deposits in question, based on his analysis of funds flowing into and out of these various accounts. Mozessohn also found that the total deposits into Craig’s accounts exceeded the revenues from his professional practice. Mozessohn’s concern was that Craig was receiving substantial cash income not reported on his financial statements, but which was revealed through these unexplained deposits into his various accounts .

In his May 25, 2018 report, Mozessohn described these unexplained deposits as a “Scope Limitation” on his conclusions. That is, he did not at that time regard it as appropriate to impute income to Craig based merely on the fact that he had not been able to identify the source of funds for these various deposits. This was in my view fair and appropriate, since there might be an entirely straightforward explanation for these deposits. It should also be noted that Mozessohn had only requested an explanation for the unexplained deposits on May 20, 2018, just two weeks in advance of the opening of the trial .

Mozessohn’s expert report was delivered late and raised numerous challenging and significant issues, in addition to that involving the “unexplained deposits”. It was simply not reasonable to expect Craig to provide a meaningful response on the issue of the unexplained deposits in the limited time available prior to trial. In the course of his initial cross-examination, counsel provided Mozessohn with an explanation for many of the unexplained deposits. In no case was the deposit a result of unreported cash income from Craig’s professional practice.

The funds came from a wide variety of sources, including: repayment of a loan that Craig had made earlier to his sister; funds contributed by Craig’s current wife toward the purchase of their cottage; Craig’s monthly salary drawn from the practice; withdrawals from his investment accounts; tax refunds from the CRA; funds received from his children’s educational savings plans; and repayment of funds loaned by Craig to pay estate taxes on Craig’s mother’s estate.

In each case, Mozessohn agreed that the funds did not represent income of the practice and that it would not be appropriate to impute income to Craig based on any of the various deposits discussed. What this exchange indicated was that there were in fact very straightforward explanations for a substantial number of the deposits which Mozessohn had not been able to explain. This confirmed that it would be appropriate to undertake further due diligence before deciding to impute income to Craig based on these unexplained deposits.

Instead, however, Mozessohn decided that he would impute income to Craig on any of the deposits that had not been discussed during his initial cross-examination. When questioned on his second cross-examination as to why he had changed his position, he indicated that, since he did not receive an explanation for these deposits during his initial cross-examination, he now simply assumed that they represented cash income to Craig’s professional practice. In my view, this assumption on Mozessohn’s part was entirely unreasonable. The purpose of cross-examination is not to provide disclosure.

There was no suggestion that Craig was not in a position to provide explanations as to the remaining deposits into his accounts. This reflected, once again, Mozessohn’s failure to approach his responsibilities to the Court in a neutral and objective manner. The unreasonableness of Mozessohn’s decision to impute income on these remaining unexplained deposits was made clear during his second cross-examination as part of Victoria’s Reply evidence.

In his analysis of the unexplained deposits, Mozessohn had not distinguished between deposits to Craig’s corporate accounts as distinct from those to his personal accounts. Craig’s counsel provided Mozessohn with an analysis which indicated that, taking into account certain transfers to the corporate accounts which could be identified and explained, the total deposits to the corporate accounts did not exceed the professional revenue to the practice. Mozessohn agreed with this analysis of the deposits into the corporate accounts. This left the issue of the unexplained deposits to Craig’s personal accounts.

Mozessohn had identified total deposits of approximately $700,000 into Craig’s personal accounts over the 2014 to 2017 period that could not be explained. Craig’s counsel proceeded to go through the deposits one by one and was able to provide Mozessohn with an explanation for approximately $620,000 of these deposits. This represented close to 90% of all of these deposits, and included every instance in which the amount being deposited exceeded $10,000. Mozessohn agreed with the explanation in virtually all cases.

Mozessohn spent a tremendous amount of time and money on the issue of these so-called “unexplained deposits”, and required Craig to do likewise. Through this effort , Craig was able to explain the vast majority of the funds deposited into his accounts. While there were a few deposits that remained unexplained as of the conclusion of the trial, there was no reason to believe that, with further due diligence, these remaining deposits could not also be explained. The larger point is simply that Mozessohn’s decision to impute income to Craig based on these unexplained deposits was manifestly unreasonable.

Had Craig been given a fair opportunity to respond, based on the evidence at trial I expect that he would have been able to provide a reasonable explanation for the vast majority of these deposits. [paras 85-92] [emphasis added] [footnotes omitted] [ 63 ] We are not addressing anything akin here (i.e. an expert report unreasonably assuming “unexplained” deposits as corporate revenue).

But, as with Cunningham v Montgomery , Fielding reflects (successful) efforts by the support payor to address and reconcile bank deposits and corporate revenue. [ 64 ] A similar revenue-concerns-raised-and-reconciliation-provided exercise is described in SWO v RCO , 2012 BCSC 1132 (Master Young): see paras 21-50. [ 65 ] In the present case, the father’s reaction is different: effectively, he says that he has made all required disclosure, that his expert’s report is accurate and comprehensive, and that (inferentially) nothing is to be gained by asking for a reconciliation (if one is possible) between, for instance, the golf-course corporation’s bank deposits and revenues.

[ 66 ] He sees the corporate financial statements as fundamentally reliable and his expert as having no obligation, as part of a Guideline-income review, to perform an audit of the corporations’ financial statements or any component of them. [ 67 ] I will assume that, for the purpose of this application, that the father is correct on the latter point: neither party pointed to any case law anchoring or even suggesting a baseline duty, for a Guideline-income expert, to effectively audit a corporation’s financial statements e.g. to determine whether they accurately capture revenues. [ 68 ] That assumption squares with one of the expert’s “Major assumptions”: 2.

The corporate financial statements referred to under “Scope of Review” [previous page of report] are complete in all material respects .

The financial statements contain all , and reflect only, those revenues and expenses of the subject corporations , unless otherwise noted. [ 69 ] However, as the expert acknowledged in questioning, that assumption may prove to be unwarranted, as may be the case here. [ 70 ] I recognize that “deposits are not [necessarily] revenues.” But given: • the scale of the difference between bank deposits and per-financial-statement revenues; • the father’s expert’s acknowledgement that, at first glance, Fox Run would ordinarily be a “distributor” (not a recipient) of monies to the other corporations i.e. the lack of an obvious intercorporate-transfer rationale for deposits arriving at Fox Run; • the absence of any real explanation from the father to date i.e. beyond his expert’s accepted-by-all statement that “deposits don’t [necessarily] constitute revenue”; • his expert’s acknowledgement that, had he known about the bank deposits in question, he “would have looked at [the revenue question] a little further”; and • the case law recognition of a support-payor duty, even if practical only, to attempt such a reconciliation, I find a material disclosure shortfall here i.e. with no reconciliation offered or attempted. [ 71 ] The question is what to do about it. [ 72 ] I do not know when the mother first advised the father of her bank-account-and-revenue concerns. (The father provided copies of the corporations’ bank account information for calendar 2019 in early October 2020.) [ 73 ] As noted, the mother’s counsel raised this subject with the father’s expert in questioning in mid-April 2021, about a month before the application. [ 74 ] The father did not ask for any extra time to prepare a reconciliation on this front. [ 75 ] I will return to this issue in my conclusion below. 6.

Insufficient consideration of amortization [ 76 ] The mother contends that necessary amortization adjustments to the father’s Guideline income were not made, not explained, and need to be made now. [ 77 ] The father’s expert made amortization-related adjustments to the father’s income derived from certain personally owned (or co-owned) rental properties (report,

Schedule 1, items 3 and 4). This complies with the “include CCA with respect to real property” direction, for calculating personal income, in s 16 of the Guidelines, which ties in

Schedule III (Adjustments to Income) and, in particular, s 11 (“[CCA] for [real] property”). [ 78 ] But he did not make any such adjustments on the corporate front. Questioning by the mother’s counsel confirmed this (pp 19-20). [ 79 ] Neither the father nor his expert offered any detailed explanation for not adjusting Guideline income to reflect the non-cash nature of the depreciation expense. [ 80 ] In his February 12, 2021 affidavit, the father deposed (in part): • The [corporate] amortization is done according to the CRA capital cost allowance

schedule (para 3(n)); and • [after outlining the 2019 amortization expenses for the four companies] Amortization in Fox Run relates primarily to maintenance/operating equipment. … in Meadowview … to buildings and operating equipment. … in Mister Sod Farm … to operating equipment and buildings. … in Mister Storage … to equipment. [ 81 ] But squaring with the Income Tax Act ’s requirements is not the test when x-raying for Guideline income, and advising what kind of equipment is involved CCA-wise for each company does not explain why no amortization adjustments were made on the corporate front. [ 82 ] Per Graesser J. in CGL v DKL , 2016 ABQB 71 , adding back depreciation or CCA expenses is not necessarily automatic (but

neither is not adding any back): DKL’s counsel has referenced the case law which has dealt with adding back capital cost allowance: Jaasma v Jaasma, 1999 ABQB764, and Beaudry v Beaudry, 2010 ABQB 119. In Jaasma, Lee J does an excellent review of case law from other jurisdictions. In particular, he cites the Manitoba Court ofAppeal decision in Cornelius v Andres, . There, the Court held at para 29: In

summary, if one can extrapolate a

summary, it would appear that the following are factors that have been considered in decidingwhether or not CCA deductions should be imputed back into income: 1. Was the CCA deduction an actual expense in the year? 2. Was the CCA deduction greater than or less than the cost of acquisitions during the same time period? 3. Was the CCA deduction greater than or less than the repayments of principal with respect to chattels in question? 4. Was the CCA deduction the maximum allowable CCA deduction? 5. Was it necessary to take the CCA deduction in that year? 6.

How much of a loss in a business year resulted in that year? 7. Are the chattels for which the CCA was claimed truly needed for business purposes? 8. Do the chattels for which the CCA was claimed truly depreciate? 9. Is it foreseeable that future chattel purchases will not be required? 10. Is there a pattern of spending which establishes a greater real income than income tax returns indicate? 11. If the children were living with the spouse, would they benefit from the actual income earned by the spouse? 12. Is there a dire need for child support?

The Manitoba Court of Appeal cites with approval the Alberta Court of Appeal decision in Levesque v Levesque, . In Levesque, the Court of Appeal stated at para 13: The calculation of gross income does not, of course, work as simply for the self-employed as for those who are employed for wages.They have business expenses that must be put against gross income. For them, the judge must do a calculation of what, as near as can be,would be gross income were the party employed for wages.

While we cannot offer detailed assistance, we warn judges notnecessarily to use the tests employed by the Income Tax Act for the calculation of expenses. Some of these, as, for example,capital cost allowance, reflect tax policy not related to the issue before us. In Beaudry, Nielsen J references Levesque, Jaasma and Balaban v Balaban, 2001 ABQB 323. At paras 29 and 30 he states: The situation with respect to the Capital Cost Allowance deductions is somewhat different.

Our Courts have held in the past that it isappropriate to include the Capital Cost Allowance deduction in income for Guideline purposes if such deduction is an accountingentry only for the purposes of artificially reducing income: Balaban v Balaban, 2001 ABQB 323 , 287 A.R. 369, Jaasma vJaasma, 1999 ABQB 764 , 249 A.R. 357, Levesque v Levesque (supra). Based on the evidence before me, I am satisfied that the deductions for Capital Cost Allowances in both 2007 and 2008 by Mrs. Beaudrywere in fact accounting entries only taken to reduce her income.

While such deductions are completely proper pursuant to the IncomeTax Act, in the circumstances of this case, these amounts should be added to Mrs. Beaudry’s income for 2007 and 2008 to determine herincome for the purposes of the Guidelines. At the end of the legal analysis, the statement at para 30 of Cornelius v Andres is perhaps the most helpful: It does not appear as if a general rule can easily be established as to when CCA expenditures should be imputed back intoincome as each case must be decided on its own merits.

The business of the individual seeking to maintain the deduction must bescrutinized as well as the equipment on which the deduction is being claimed.

I also accept that when one looks at the business, itis part of the assessment to evaluate what CCA claims have been made in past years, as well as the justification advanced by theparty making the claim. [paras 33-36 and 41] [emphasis added] [83] With the cases calling for justification of a particular approach to CCAA-depreciation-amortization, with no reasonable (orany) explanation for no corporate-amortization adjustments to the father’s income, and with three of the corporations showing sizeable“Amortization” expenses for 2017-2019 (Fox Run – between approximately $37,000 and $43,000; Meadowview Sod ($17,500 to$25,000); and Mister Sod ($42,000 to $57,000)), we have another disclosure shortfall. [84] In MAK v TJK, 2020 ABCA 196, the Court of Appeal endorsed Bercov J.’s approach to amortization add-backs in the face of“internally inconsistent [amortization] documentation”: Amortization was an issue properly in dispute at the trial.

The respondent argued that 100% of amortization ought to be added back as

income available to the appellant. The appellant claimed all of the amortization was business related. The trial judge added back 25% of the amortization for the years 2014 to 2016 and 50% for the years 2017 and 2018. Her decision to do so related to the personal benefit to which the appellant testified relating to vehicles, quads and snowmobiles. We take no issue with the trial judge’s decision to add back 25% of the amortization cost to account for the internally inconsistent documentation she was left to review and the admitted personal use.

It is clear she was not satisfied with the explanation provided at trial and her decision to add back 25% for the years 2014 to 2016 is entitled to deference . ... [ 85 ] In the present case, as noted, the father effectively offered no explanation for his no-adjustment approach to amortization. [ 86 ] I will return to this issue in my conclusion. 7.

Insufficient explanation for non-allocation of certain species of expenses [ 87 ] The mother seeks a breakdown of various “for the corporate group” expenses (e.g. fuel, insurance, supplies), where a given corporation pays for and expenses a particular species of expense, even though the purchased goods or services are distributed across the corporate group. [ 88 ] The father acknowledges, and defends, this “global” treatment of the identified expenses. [ 89 ] The parties’ submissions on this point, and the evidence, was relatively sparse. [ 90 ] The mother did not articulate a particular “bottom-line” result or effect that would flow from per-corporation allocation of such expenses. [ 91 ] I conclude that I am not in a position on this application to make any particular findings about whether the allocation exercise proposed by the mother would, or could, lead to changes to the father’s Guideline income or, if they would or could, what allocation(

s) should be made here. [ 92 ] This is better left for trial (if the mother continues to believe it is a worthwhile point to explore). 8.

Management fees [ 93 ] This is a major issue here. [ 94 ] The corporations use management fees as an income-levelling technique, and the father’s expert accepted those fees as legitimate, making no adjustments to the father’s Guideline income for them. [ 95 ] This may be square under the Income Tax Act , but it might not be for Guideline-income-calculation purposes. [ 96 ] This is made explicit in the personal-income sphere, where the Guidelines (ss 19(2)) say: “For the purpose of paragraph (1)(g) [“the spouse unreasonably deducts expenses from income”], the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act ” . [ 97 ] How about in the “income from corporations” sphere? [ 98 ] The starting point is ss 18(2) (reproduced above and again here): In determining the pre-tax income of a corporation for the purposes of subsection (1) [i.e. gauging whether tax-reported income fairly reflects all money available for the payment of child support], 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 . [emphasis added] [ 99 ] Per s 2(2) of the Guidelines: Words and expression that are used in sections 15 to 21 and that are not defined in the

section have the meanings assigned to them under the Income Tax Act . [ 100 ] Sections 15 to 21 do not define the expression “does not deal at arm’s length.” [ 101 ] Accordingly, we turn to the Income Tax Act , where s. 251 states (in part): 251

(1) For the purposes of this Act, (

a) related persons shall be deemed not to deal with each other at arm’s length ; (

b) a taxpayer and a personal trust (other than a trust described in any of paragraphs (

a) to (e.1) of the definition trust in subsection 108(1)) are deemed not to deal with each other at arm’s length if the taxpayer, or any person not dealing at arm’s length with the taxpayer, would be beneficially interested in the trust if subsection 248(25) were read without reference to subclauses 248(25)(b)(iii)(A) (II) to (IV); and (

c) in any other case, it is a question of fact whether persons not related to each other are, at a particular time, dealing with each other at arm’s length.

(2) For the purpose of this Act, related persons , or persons related to each other, are (

a) individuals connected by blood relationship, marriage or common-law partnership or adoption; (

b) a corporation and (

i) a person who controls the corporation, if it is controlled by one person, (ii) a person who is a member of a related group that controls the corporation, or (iii) any person related to a person described in subparagraph 251(2)(b)(

i) or 251(2)( b)(ii); and (

c) any two corporations (

i) if they are controlled by the same person or group of persons , (ii) if each of the corporations is controlled by one person and the person who controls one of the corporations is related to the person who controls the other corporation, (iii) if one of the corporations is controlled by one person and that person is related to any member of a related group that controls the other corporation, (iv) if one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation, (

v) if any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation, or (vi) if each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation.

(4) In this Act, related group means a group of persons each member of which is related to every other member of the group; ( groupe lié ) unrelated group means a group of persons that is not a related group. ( groupe non lié )

(5) For the purposes of subsection 251(2) ... (

a) where a related group is in a position to control a corporation, it shall be deemed to be a related group that controls the corporation whether or not it is part of a larger group by which the corporation is in fact controlled; ...

(6) For the purposes of this Act, persons are connected by (

a) blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other ; (

b) marriage if one is married to the other or to a person who is so connected by blood relationship to the other; (b.1) common-law partnership if one is in a common-law partnership with the other or with a person who is connected by blood relationship to the other; and (

c) adoption if one has been adopted, either legally or in fact, as the child of the other or as the child of a person who is so connected by blood relationship (otherwise than as a brother or sister) to the other. [emphasis added] [ 102 ] Putting the bolded segments together, the father and his brother are “connected by a blood relationship” and thus “ related” and, by extension, members of a “related group.” As such, they are deemed to be a related group that controls each of the four corporations here , making each of the corporations at non-arm’s length from each other , by virtue of the brothers’ control position in each corporation. [ 103 ] Applying ss. 18(2) of the Guidelines, “ all amounts paid by [Fox Run] as … management fees … to … persons with whom [it] does not deal at arm’s length [including Meadowview and Mr.

Sod Farm] must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances .” “Reasonable in the circumstances” [ 104 ] A number of cases have explored the

interpretation of this criterion. [ 105 ] In Lavoie v Wills , 2000 ABQB 1014 , Rooke J. (as he then was) exposed the loss-allocation distortion of the shareholder’s ability to pay family support: As Counsel for Ms. put it (in part) in oral argument “Mr.’s conduct does appear to be [a] two-prong focus: minimize income , maximize time, to ensure that the financial obligation to Ms. Lavoie is avoided”. I agree that this is accurate, but it is even worse than that .

He has: attempted to minimize income by hiding it as expenses in a limited company; reported for income tax purposes only the net amount of those expenses (without gross-up); for income tax purposes continues to write off losses in Western Canada Bison Ranch

(“WCBR” - on which more later) to lower his other income; and, even to the extent legitimate for income tax purposes, then triesto apply these same considerations to the determination of a lower or non-existent Guideline income.

Not only is he trying toconvince the Court to minimize his child support payments in this way, but, even worse, he is seeking cross-compensation from herbecause he claims to have care of the children 40% of the time, and an alleged lower income than her, and therefore has the audacity toclaim that, with a set-off of the chart amounts under s. 9, he (not she), is entitled to monthly maintenance - see Exhibit “B”.

There is no problem in one planning one’s taxes and taking advantage of the rules, but that may not provide the resultsappropriate for Guidelines purposes: see Hauger at paras. 29, and 31 to 33, relying on Wilson v. Wilson (1998), (SK QB), 165 Sask. R. 241 (Q.B.), at paras. 34 - 38, and Levesque v. Levesque, (AB CA), [1994] 4 R.F.L. (4th) 375(Alta. C.A.). However, in addition, it appears to this Court that he has not only failed to file his tax returns for 1999 but that he has beendishonest in his filings in other years.

To this point, I have just considered Speciality [one of the support payor’s two corporations]. However, there must also be aconsideration of the personal benefits derived from WCBR [his other corporation]. It produced no direct income to him in theperiod in question, as far as I have been able to determine from his records (insofar as they are accurate, on which I have much doubt).Indeed, for income tax purposes, he continued to show a loss in WCBR to reduce his other personal taxable income.

However, Ifind his continuing to operate the WCBR at a loss and reduce his income is not something that should be taken into account fordetermining Guideline income. This is because there was no need to continue it for income generating purposes. His responsethat, while he is “winding it down”, he continued it because he still had debt to pay and that the income it earns services the debt,while perhaps relevant for income tax purposes, is not relevant, in my view, for Guideline purposes.

Even if its purpose in pastyears had been to earn income, that was no longer the case in 1997 and thereafter, and the operations should have been discontinued inthe context of Guideline income - although we saw above in looking at his budget he will need personal after tax income to repay hisWCBR debts. Even if that left a debt to be serviced, liquidation of it would have rendered a net equity of $32,000 according to thefinancial statements at the end of 1997 (Exhibit 25).

Put another way, whatever benefits this continued operation gives him forincome tax purposes should have, on the evidence before me, little real relevance to his gross income for Guideline purposes,especially in that it appears that WCBR has made no net income in the relevant period. To be more specific as to the result, whilethere is no Guideline income from WCBR because the expenses of that operation exceed the revenues, I find that Mr. cannotreduce his Guideline income by subtracting losses from other income he has, even though he may be able to do so for income taxpurposes (see Exhibits 10 and 11).

While he may still have debts to pay, vis-a-vis his responsibility to his children, he should shut theWCBR operation down if it cannot earn sufficient to pay it business related expenses.

He even conceded exclusion of the WCBRoperation for Guideline purposes for 1997 and 1998 when his other income was lower, but sought to include it again in 199 and 2000when his income was higher. [paras 22, 29, and 83] [emphasis added] [106] In a similar vein, see also the recent decision of the Saskatchewan Court of Appeal on intercorporate charges in Merrifield vMerrifield (cited earlier): ... the case law as a whole, and the decisions cited by Mr. Merrifield, in particular, demonstrate the point that is finally made: that eachcase must be decided on its own facts.

Where there are, as in this case, multiple corporations linked by factors such as commonownership, whether directly or indirectly; common direction or control, whether de facto or de jure; and the flow of paymentsbetween companies for management fees, rent, or other costs, the Chambers judge must consider those and all other relevantcircumstances. ... Further, it will often be the case that the pre-tax income or loss in related companies does not, in and of itself, reveal a great deal.Adjustments may be appropriate, for example, to take account of capital cost allowances or non-recurring gains or losses.

Thecorporate structure of the Merrifield companies and the manner in which it is used to the tax and business advantage ofshareholders is complex and, to the outside observer, opaque. An arithmetic approach does not account for these realities. This does not mean the losses in other Merrifield companies are irrelevant. However, what can be made of those losses, absent theevidence that could only have been provided by Mr. Merrifield? As I have emphasized, there are limits to what a court canreasonably expect from a respondent. The applicant must prove their claim.

However, the evidence in this case could have beensubstantially better – as, for example, in better explaining the capital dividends, the tough times, and the situation relating tocapital requirements – without imposing unrealistic expectations or demanding the kind of evidence that would normally beexpected only at trial. ... Taking all of this into account in light of the standard of review, I find no error in the decision by the Chambers judge to attribute 65% ofHoldco’s pre-tax 2018 net income to Mr. Merrifield. Ms.

Merrifield led evidence that was sufficient to justify the attribution of asubstantial amount of the pre-tax net income earned by Holdco. Faced with that evidence, Mr. Merrifield was obliged to justifyhis claim that no income was available from the Merrifield companies by leading better evidence to explain his finances. Hefailed to do so. [paras 48-50 and 54] [emphasis added] [107] And Potzus v Potzus, 2017 SKCA 15, where the same Court of Appeal illuminated the ss 18(2) Guideline exercise: The Chambers judge made the following comments in relation to the loan: … While Mr.

Potzus submitted significant funds are needed by the Corporation over the non-busy winter season, the court notes than anadditional amount of $6,433,692 was advanced to Truck Saver Service (Yorkton) Ltd [Truck Saver] in the year endingFebruary 28, 2015. This loan is repayable to the Corporation on demand. Truck Saver is a corporation owned by Gladys Potzuswhich had only been advanced $134,536 as of February 28, 2014. The Corporation was able to provide over $6.4 million to this relatedcorporation in the most recent fiscal year despite its capital and operating requirements.

There was no explanation for this advance offunds from the Corporation or any indication the funds could not be repaid if the Corporation needed additional funds. … [Appeal Book at 1875a]

The loan is variously referred to as being in the amount of $6.4 million or $6.5 million. It was clearly extracted from PPRM in Fiscal 2015 for the purpose of making a non-interest-bearing demand loan to a related corporation, Truck Saver. The Wightman critique, under the heading “Comments on Extraction of Funds,” does not deny the fact and simply makes this bald statement: “We understand $6.5 million was transferred to a related Company owned by Ms. Galdys [ sic ] Potzus at her direction ” [Appeal Book at 1690a].

The Chambers judge observed that there was no ready explanation for this advance of funds from PPRM to a related corporation and no indication the funds could not be repaid should PPRM be in need of additional liquidity . The husband argues that because there was no evidence whether these funds were or were not available to PPRM it was not open to the Chambers judge to speculate and draw adverse inferences. The husband’s argument misapprehends the onus of proof and suggests that it lies elsewhere other than upon him.

Generally speaking, the onus rests on the parent who is the shareholder, director or officer of the corporation to establish that pre- tax income of the corporation is not available for support purposes: R.E.G . at para 184. The justification is that the shareowner/director/officer will have a deeper understanding of the operational requirements and practices of the company . [synopsis of ss 18(2) and review of the ITA provisions on non-arm’s length parties] In relation to PPRM, Truck Saver is a “person[s] with whom the corporation does not deal at arm’s length” for purposes of s. 18(2) of the Guidelines .

The inter-corporate loan received by Truck Saver, a related corporation, is prima facie a non-arm’s length payment or benefit caught by the provisions of s. 18(2). Thus, it was incumbent on the husband to provide proof that the $6.5 million loan was reasonable in the circumstances. The husband bore the burden of establishing reasonableness by clear and cogent evidence. He could have provided evidence that there was commercial value to PPRM in making the loan or demonstrated that the transaction did not constitute a “benefit” to Truck Saver in any sense of the word. The circumstances, however, went unexplained.

A transaction of this magnitude merited more than one line in the Wightman critique. Advances to related corporations can in some instances be simply a matter of business convenience, a discretionary parking of surplus funds. Prior to year-end, a corporation can address excess income in a variety of ways – by declaring dividends, by “bonusing down” the company’s income for tax purposes (with the recipient shareholder typically lending the after-tax funds back to the company), or by simply retaining earnings for future growth opportunities or other worthwhile business objectives.

Where a sizeable loan or advance has been made to a related corporation on favorable terms, s. 18(2) of the Guidelines requires satisfactory proof either that the transaction does not constitute a payment or benefit within the meaning of the

section or that the payment or benefit was a reasonable one in the circumstances. Section 18(2) not only permits but requires the inclusion of non-arm’s-length payments made without value for the company : Kowalewich v Kowalewich , 2001 BCCA 450 at para 48 , 19 RFL (5th) 330 [ Kowalewich ] . Non-arm’s-length transactions without corresponding value to the company, and any other unjustified diversions of corporate income, can have potentially serious implications for support claimants, given the relatively fluid ease with which monies can be shuffled between related entities.

In the seven years prior to Fiscal 2015, PPRM made only modest advances to related parties: see Cash Flow Statements, line item “Due from Related Parties” [Appeal Book at 1675a]. For example, in Fiscal 2013, this particular line item stood at $747. In Fiscal 2014, it stood at $116,859. In Fiscal 2015, it ballooned to $6,434,367 as a result of the loan to Truck Saver. If the loans or advances in Fiscal 2015 had been similar to the amounts in the prior seven years, the transaction would have attracted little attention.

However, the amount appeared on the face of things to be an aberration in terms of past corporate practices . The husband failed to meet the evidentiary onus upon him to establish the reasonableness of the loan to Truck Saver . The Chambers judge noted that Truck Saver was the source of the loan to the husband in the amount of $600,000, which he used to acquire a new home just shortly before the application was heard. The husband complains that the trial judge looked at the $6.5 million payment askance, ascribed improper motives to it, and was negatively influenced as a result.

The husband says this was not a situation where, in the few days after separation, money was fraudulently spirited away to defeat the wife’s claim, yet that was how the Chambers judge seemed to approach the matter. This argument begs the question. The root concern was whether there was a legitimate business purpose for the $6.5 million loan to a closely-related corporation. The onus lay on the husband to provide a reasonable explanation for the transaction and none was forthcoming .

As noted in Goett , while active misconduct obviously remains a relevant factor, the “less stringent analysis” applied in the family law context is such that a court need not make a finding of bad faith or fraud when applying s. 18 of the Guidelines . See also: Kowalewich at para 40 . The focal concern is, and remains alw ays, the reasonableness of the transaction in the commercial sense. There was no finding of financial misconduct made by the Chambers judge and no need for such a finding. What he needed was a sufficient explanation of the related company transaction, and that explanation was not offered.

Accordingly, the Chambers judge made no error in drawing the inference that the $6.5 million loan was evidence of PPRM’s ongoing financial viability and that repayment of the loan could be facilitated should PPRM find itself in need of funds. By its terms, the loan was repayable on demand.

While the Chambers judge approached the matter from the perspective that PPRM had the ability to meet all the legitimate calls on its income, he might equally have said that s. 18(2) threw an additional burden of proof on the husband to establish that the transaction was reasonable and that the burden had not been met in the circumstances. From either perspective, the unexplained $6.5 million transaction presented a significant obstacle.

It merits emphasis that the Chambers judge’s overall determination on income attribution was largely concerned with deficiencies in proof on the husband’s part and undischarged burdens of persuasion. These issues remain open to scrutiny at trial. I find no error in the Chambers judge’s reasoning on the subject of the loan to Truck Saver. [paras 61-75] [emphasis added] [ 108 ] Same in SMK v STK , 2019 BCPC 4 , where PCJ MacCarthy found that the support payor had not adequately explained the

business (versus tax) rationale for intercorporate management fees: The Father was not asked in depth questions about any of these financial statements [relating to his two corporations] either inexamination-in-chief or in cross-examination, nor did he provide much in the way of background or details about the financialstatements for either of the two companies. There was little offered about the expenses for either company. There was nothingto specifically indicate the background of and the business rationale whereby revenue generated by TDC was by way of amanagement fee charged to and paid by TIL.

Based upon the court’s review of the corporate financial statements, it is noteworthy that retained earnings figure for TIL have generallyincreased steadily since 2013, even when taking into account the dividends paid to the Father. TIL has been able to loan money toTDC and to pay TDC a sizeable management fee, to date on one occasion only, during the first year of operations of TDC in yearending January 31, 2016. Yet the Father’s management salary has declined.

No evidence was provided by the Father about thecorporate necessity or the business rationale for these decisions and especially having regard to the overall improving financial statusand performance of TIL and TDC. The answer to many of these questions might be that these decisions have been made upon the advice of TIL’s professionalaccountants.

However, I am of the view that when child support is at issue, there is a high onus on a payor party to both informhim or herself about their corporation’s financial operations, their own financial circumstances as it relates to their corporationand to ensure that they have an adequate understanding about their available income to pay child support. In suchcircumstances, as they inform themselves they also have a commensurate obligation to make full and transparent disclosure on acontinuous, on-going basis to the payee party about the payor’s financial circu

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