Russell v Ullett Russell, 2021 ABQB 769

Court of Queen’s Bench of Alberta Citation: Russell v Ullett Russell, 2021 ABQB 769 Date: 20210923 Docket: 4801167494 Registry: Calgary Between: Stefan Michael Russell Applicant - and - Jocelyn Mary Ullett Russell Respondent _______________________________________________________ Reasons for Decision of the Honourable Madam Justice J.R. Ashcroft _______________________________________________________ Table of Contents Background . 2 Is Mr. Russell required to establish a material change in circumstances before a variation of child support will be considered? . 3 Shared Parenting and High-income Earners . 4

Section 9(

a) Setting Guideline Incomes to Determine the Table Amount of Child Support 7 The Arbitration, the MNP and TREK analyses, and the Proposed GI Methodology . 7 Assessing Mr. Russell’s Guideline Income . 10 Assessing Ms. Ullett’s Guideline income . 13

Section 9(

b) Evidence of Additional Shared Parenting Expenses . 15

Section 9(

c) Condition, Means, Needs and Other Circumstances of the Parents and Child . 17 Conclusions as to Guideline Income, Child Support payable and Calculating Child Support in the Future 17

Section 7 expenses . 18 Costs . 19 Background [ 1 ] Mr. Russell and Ms. Ullett enjoy equal time with their 6-year old child in a shared parenting regime. Mr. Russell is a high- income earner and he currently pays $4,968 per month in Child Support plus a percentage of

section 7 expenses. The

section 7 expenses comprise fees and equipment for a variety of extracurricular activities, which the parties attempt to share proportionately, and approximately $10,000 per year in tuition fees for the child’s private school, which the parties share equally. [ 2 ] Mr. Russell is the sole shareholder of 1495257 Alberta Inc. (“149 Inc.”), which in turn holds a 100 percent interest in Great News Publishing Ltd. (now called Great News Media and referred to as “Great News” in these reasons). Great News publishes community newsletter magazines. Mr.

Russell’s income is derived primarily from management fees paid to him by 149 Inc. that are in turn derived from the revenue of Great News. [ 3 ] Mr. Russell’s line 150 income was $330,562 in 2018, $702,660 in 2019 and $704,830 in 2020. He applies to have the parties’ Guideline Incomes “capped” at $150,000 with presumptive Child Support amounts assessed pursuant to the Table at no higher than that income. [ 4 ] Ms.

Ullett, his former spouse, cross-applies to determine the parties’ Guideline Incomes and for retroactive Child Support since July 2020. [ 5 ] In 2018, the parties participated in a lengthy arbitration that settled a number of issues between them including parenting.

A Final Corollary Relief Order (the “Order”) incorporated the provisions of the Arbitration Award; however, the Award left open the assessment of Guideline Incomes into the future. [ 6 ] There is some disagreement as to whether the Order directed a methodology for assessing Guideline Incomes and whether any variation with respect to the methodology required a material change in circumstances. Mr. Russell submits he was free to take the issue of Guideline Incomes to court or to arbitration. Ms. Ullett takes the position that the Order requires Mr.

Russell to establish a material change in circumstances before he can apply to the Court to vary his Guideline Income or the formula for calculating his Guideline Income. [ 7 ] While the written materials indicated that Mr. Russell was claiming a retroactive adjustment, he clarified at the hearing that he was only claiming an adjustment from the date of the hearing going forward. Is Mr. Russell required to establish a material change in circumstances before a variation of child support will be considered? [ 8 ] The Arbitration Award was rendered February 21, 2018. The Arbitrator found Mr.

Russell’s income to be $584,504 and imputed an income to Ms. Ullett, by consent, in the amount of $90,000. [ 9 ] The Order incorporated the provisions of the Arbitration Award and included the following: [21] Based upon a Guideline Income of $584,500 for the Defendant in 2017, the Defendant’s child support for the period of March 1, 2017 to February 1, 2018 is set at $4968 per month. ... [23] Based upon the parenting

schedule directed herein and based upon the incomes set out above, commencing March 1, 2018 and continuing until the next adjustment the Defendant shall pay base child support to the Plaintiff in the amount of $4968 per month. [emphasis added] [24] When the ongoing parenting

schedule changes to provide for an equal parenting regime the parties shall apply a set off method to determine ongoing child support. .... Annual Exchange of Financial Disclosure and Adjustment of Child Support [27] The parties shall exchange financial disclosure pursuant to numbers #1 through #9 in a standard Notice to Disclose before June 1

annually commencing in June, 2019. In addition to providing their Income Tax Returns and Notices of Assessment, the Defendant will also provide to the Plaintiff corporate financial statements for his corporations, including consolidated statements and detailed general ledgers for each company. The parties may choose to retain their own financial expert, at their individual expense, to assess Guideline Incomes, using as a starting point the current MNP and TREK Reports and methodology.

If the parties are unable to agree to their respective Guideline Incomes or the amount of child support going forward the parties may refer the matter to either arbitration or the Court of Queen’s Bench for determination. [ emphasis added] [28] Once the parties’ Guideline Incomes are determined for the previous year, if there has been an under payment of child support in the previous year then the Defendant shall make the amount of the underpayment... [emphasis added] [29] Either party is at liberty to seek a variation of child support if there is a significant change in either party’s financial circumstances going forward or in the parenting arrangements for [the child]. [ 10 ] Reading the above provisions together, I find that there is an intention for the parties to review Guideline Incomes every year after disclosure and if there is a variation in Guideline Income, “an adjustment” should occur coupled with a payment to correct any underpayment or overpayment of child support in the previous year.

The Order allows the parties to use the MNP and TREK Reports’ methodologies, but there is no requirement to do so. Further, the parties are free to return to Court or Arbitration if they disagree on their respective Guideline Incomes. This

interpretation is also supported by the Arbitration Award, which specifically declines to direct the use of any particular formula going forward; the Arbitrator noted that the parties failed to agree on Guideline Incomes despite retaining two highly regarded experts to give evidence. [ 11 ]

Section 17 of the Divorce Act specifically directs that parties may return to Court if a variation of child support is required based on a material change in circumstances.

Section 14 of the Federal Child Support Guidelines provides that a change in income that would result in a different Table amount of Child Support constitutes a material change in circumstances for the purpose of

section 17 of the Divorce Act . Thus, a change in income constitutes a material change in circumstances and the specific inclusion of a provision in the Order allowing the parties to return to Court for other reasons, namely that they do not agree on their respective Guideline Incomes, is effectively a restatement of this principle. [ 12 ] I have also considered whether I am bound by the term of the Arbitration Award which indicates that once the parties are engaged in a shared parenting regime they shall apply the set off method. The wording of the Arbitration Award under

section 27 and the Order both indicate that “If the parties are unable to agree to their respective Guideline Incomes or the amount of child support going forward the parties may refer the matter to either arbitration or the Court of Queen’s Bench for determination” [emphasis added]. Given that there is a disagreement as to the amount of Child Support going forward, and there is a shared parenting regime, the proper analysis is under

section 9 of the Guidelines as interpreted by Contino v Leonelli-Contino , 2005 SCC 63 . Shared Parenting and High-income Earners [ 13 ] The parties focused much of their argument at the first Chambers Hearing on

section 4 of the Guidelines , which sets out the approach to be followed in setting child support for high income earners.

Section 4 provides: Where the income of the spouse against whom a child support order is sought is over $150,000, the amount of a child support order is (

a) the amount determined under

section 3 ; or (

b) if the court considers that amount to be inappropriate, (

i) in respect of the first $150,000 of the spouse’s income, the amount set out in the applicable table for the number of children under the age of majority to whom the order relates; (ii) in respect of the balance of the spouse’s income, the amount that the court considers appropriate, having regard to the condition, means, needs and other circumstances of the children who are entitled to support and the financial ability of each spouse to contribute to the support of the children; and (iii) the amount, if any, determined under

section 7. [ 14 ] Mr. Russell argues that the Court should apply the analysis under

section 4 to conclude that the Table amount of Child Support is inappropriate and instead “cap” the parties’ Guideline Incomes at a maximum of $150,000. He emphasized that this approach would reduce conflict and provide more than enough Child Support. In particular, he submits that any additional funds would amount to a wealth transfer. Ms. Ullett opposes Mr. Russell’s proposal and argues that under

section 4 the Table amounts are presumptive and Mr. Russell has not met his onus to show that the Child Support payable is “inappropriate”. [ 15 ]

Section 9 states: If each spouse exercises not less than 40% of parenting time with a child over the course of a year, the amount of the child support order must be determined by taking into account (

a) the amounts set out in the applicable tables for each of the spouses; (

b) the increased costs of shared parenting time arrangements; and (

c) the condition, means, needs and other circumstances of each spouse and of any child for whom support is sought. [ 16 ]

Section 9 emphasizes “fairness and flexibility and adopts a more holistic approach in assessing the economic circumstances of

each parent and their ability to meet the needs of the children”: MacDonald v Brodoff, 2020 ABCA 246 at para 12. Budgets and actualexpenses of both parents are essential, and a “critical inquiry” is whether the children experience a difference in the standard of living asthey move between the two households: MacDonald at para 12. [17] There are important differences between assessing child support under

section 4 and

section 9. Under

section 4, the Tableamount of child support is presumptive, whereas under

section 9 the Table amounts are only a starting point.

Section 4 requires the Courtto consider “the condition, means, needs and other circumstances of the children who are entitled to support and the financial ability ofeach spouse to contribute to the support of the children.” By contrast,

section 9 requires the Court to consider “the conditions, means,needs and other circumstances of each spouse [parent] and of any child for whom support is sought”: BPE v AE, 2016 BCCA 335 atparas 21-23. As described in BPE, the practical effect of this wording is that the “disproportionate effect of small variations in custodyarrangements that cause s. 9 to become applicable...may be dealt with by applying s. 9 in a fashion that carefully considers the means,needs and circumstances of each spouse and child...”. [18] I agree that implementing a set Table amount based on $150,000 Guideline Income would be the simplest approach; however,it is not consistent with the principles set out in

section 9 of the Guidelines and Contino. Specifically, such a “cap” does not take intoconsideration the importance of balancing any inequities the child may experience as she moves between homes, nor does it consider anyincreased costs due to the shared parenting arrangement or the parents’ and the child’s needs, means and circumstances: MacDonald. [19] While Contino makes it clear that

section 9 is a complete code for assessing child support in shared parenting regimes, theprinciples pertaining to higher income earners are also relevant: Archibald v Archibald, 2007 ABQB 486 at para 26; Prime v Prime,2021 SKQB 130; KMR v IWR, 2020 ABQB 77; Walker v Walker, 2016 ABQB 181; Sirdevan v Sirdevan, 2010 ONSC 2375; and, BPE,supra. [20] In Prime at para 248, Justice Wilkinson described

section 4 as providing “shading and texture” to the

section 9 analysis. InArchibald, Justice Rowbotham (as she then was) stated at para 26: As will be evident from the wording of s. 4(b)(ii) the court is required to consider the conditions, needs, means and other circumstancesof the children.

Although s. 9 contains the complete code for determining child support in shared parenting situations, s. 4 identifies anumber of issues and principles relevant to high income earners. [21] In BPE at para 69, the British Columbia Court of Appeal approved of the exercise of discretion to consider inordinately hightable amounts when assessing child support in the context of shared parenting regimes with high income earners: While it is not necessary under s. 9 to demonstrate unreasonableness to depart from the table set-off amounts, reference to the s. 4 caseswhere the table amount has been reduced because it results in inordinately high support payments may assist in guiding the exercise ofthe discretion under s. 9.

In that regard I agree with the views expressed by Butler J. in S.R.M. v. N.G.T.M., 2014 BCSC 442, andGriffin J. in R.A.C. v. V.L.C., 2009 BCSC 1417, to the effect that while the s. 9 analysis is distinct from an analysis under s. 4, theprinciples for consideration under s. 4 specifically relating to the treatment of high income earners can be helpful in a s. 9 analysis. [22] In Sirdevan, Justice Graham highlighted the similarity between the language of

section 9(

c) and

section 4(b)(ii) and suggestedthat high income cases may offer guidance to a court exercising discretion under

section 9(c). [23] In Walker at para 49, Justice McCarthy described the balance to be sought: The “so in excess” test has no place in

section 9, where the tables have no presumptive value and the courts have broad discretion insetting child support based on the parties’ actual circumstances. At the same time, however, the reasonableness of a parent’sdiscretionary expenses related to the child is paramount in high income cases: Archibald, supra at para 28.

This modification to thesection 9 analysis recognizes that child support in high income cases may exceed the child’s basic needs to some extent and still bereasonable in light of the child’s reasonable expectation to a comparable standard of living in each home. [24] Justice McCarthy concluded that the ultimate amount awarded should satisfy the child’s actual needs and reasonablediscretionary expenses: Walker at para 53. [25] I conclude from a review of these authorities that while consideration of

section 9 factors is mandatory and must ground theanalysis, the Court may consider the

section 4(b)(ii) jurisprudence in exercising its discretion under

section 9 to establish an appropriateamount of child support in the high-income shared parenting context. The jurisprudence is clear that in high income cases the concept of“reasonableness” of discretionary expenses replaces the concept of “need”: Archibald at para 28. Further, because child support is theright of the child, children of higher income earners may benefit from their parent’s high income and a higher amount of discretionaryspending is to be expected: Sirdevan at para 39.

Even though there is often an indirect benefit to the recipient parent, the Court shouldnot be too quick to presume a wealth transfer: Francis v Baker, (SCC), [1999] 3 SCR 250 at para 41. [26] I directed the parties to Contino and other cases that address the proper assessment of support in shared parenting situationsand requested further submissions. The parties were also asked to provide updated financial information and budgets.

A secondChambers Hearing was convened to allow the parties an opportunity to speak to Contino and address any additional evidence arising outof my direction. [27] I turn now to an assessment of

section 9, informed by the

section 4 “shading and texture”.

Section 9(

a) Setting Guideline Incomes to Determine the TableAmount of Child Support

The Arbitration, the MNP and TREK analyses, and the Proposed GI Methodology [ 28 ] Mr. Russell’s 2017 Guideline Income was assessed by the Arbitrator to be $584,504. In arriving at this Guideline Income, the Arbitrator used the numbers adopted by Ms. Ullett’s expert (MNP), which were then adjusted by Mr. Russell’s expert (TREK). The Arbitrator imputed income to Ms. Ullett in the amount of $90,000 by consent. The Arbitrator then used the Table amounts for these Guideline Incomes and set off these amounts against each other, resulting in the net payment of $4,968 by Mr. Russell to Ms. Ullett. [ 29 ] Mr.

Russell submits that his business has been affected by COVID this year and his income significantly reduced, likely to an amount between $150,000 and $250,000 for 2021. He says that he has not drawn any income from his businesses so far this year. [ 30 ] Mr. Russell points to some of his financial information showing that his business revenues declined significantly, by $540,000 in the 2020 fiscal year and are currently down an additional $310,000 in the first five months of the 2021 fiscal year.

He also emphasized that the governmental wage support subsidy is scheduled to end in June 2021, which will further impact his business. [I note that this program was extended, but I have no evidence as to whether Mr. Russell’s business remained eligible to receive it.] He also states that his business requires a number of large printing presses, two of which need to be replaced and which can cost from $865,000 (used) up to $2.4 million (new). He submits that under the current Guideline Income formula, when he borrows money to replace business materials these funds are added to his Guideline Income.

As such, he believes the current Guideline Income methodology is flawed and affects decision making in his business. [ 31 ] Mr. Russell also resents having to provide detailed information regarding his business when, in contrast, he alleges Ms. Ullett has “hidden” income that she does not have to disclose. He points out that Ms. Ullett’s disclosed earnings are insufficient to meet the budget she has presented, even with child support. In answer to this, at the second hearing, Ms. Ullett responded that her family provides her with additional income to maintain her present lifestyle.

This statement was not in evidence and there were no particulars provided regarding the amount provided by her family. [ 32 ] Although invited to do so prior to the second follow up Hearing, Mr. Russell did not provide any detailed calculations regarding how his Guideline Income should be determined. He remained focused on his position that the parties’ incomes should be capped and was resentful about how much his former partner and the Court were delving into his business affairs.

As the hearing progressed, however, he seemed to propose an alternate position, namely that his line 150 income, as set out in his income tax return, should be used with no add-ons for any personal benefit from corporate expenses. He was also content to use line 150 from the previous taxation year to determine the following year’s child support amount. [ 33 ] Ms. Ullett argued that, given his self employment, Mr. Russell is able to manipulate his income using different accounting practices to make it look lower than it actually is.

She points to his statement that he has not paid himself any income this year even though his financial information shows management fees in the first three months of this year in the amount of $400,000 being placed into his numbered company, 149 Inc., but not paid out. She believes that once this litigation is complete, he will pay himself generous management fees. [ 34 ] Ms. Ullett suggests the parties use either the MNP formula or the TREK formula, at Mr. Russell’s choice, to determine his Guideline Income since July 1, 2020 and going forward. [ 35 ] The MNP analysis put forward by Ms.

Ullett’s expert at the Arbitration appears to have calculated Mr. Russell’s Guideline Income by using his line 150 income, plus pre-tax corporate income with some adjustments. In relation to Great News, these adjustments included adding back the non-cash amortization expense deducted by the company in each year and instead deducting an estimated capital reinvestment expense for equipment and other capital assets to sustain the company’s operations on a go forward basis. If there were losses to Great News, these losses were attributed to Mr.

Russell as the losses were in part due to management fees paid to 149 Inc. that exceeded available income. The MNP expert offset the adjusted pre-tax losses of Great News against the additional undistributed pre-tax income of 149 Inc. [ 36 ] With respect to 149 Inc., MNP deducted the non-cash increase in the cash surrender value of the company’s life insurance policy, as this did not represent a source of income available to Mr. Russell or the company. MNP added back the non-cash amortization expense related to the building (real property), consistent with

Section 11 of

Schedule III to the Guidelines , and the TREK expert did not dispute the inclusion. Lastly, the MNP analysis added back salary and wage expenses for Mr. Russell and Ms. Ullett, but then deducted the amount reported on their T1 personal income tax returns on a calendar year basis to match the expense in the company with Mr. Russell’s personal income inclusion. After making these adjustments, MNP included the full amount of 149 Inc.’s pre-tax earnings in Mr.

Russell’s estimated Guideline income on the grounds it is a holding company with no working capital requirements and is essentially a flow-through entity for management fees and rental income from Great News. It also added the full amount of adjusted pre-tax income from Great News to Mr. Russell’s Guideline Income. [ 37 ] Finally, relying upon

section 19 of the Guidelines , MNP’s expert added to Mr. Russell’s income amounts to reflect the personal benefit he received from expenses paid by his two companies, including 70% of meals expensed by Great News and 50% of golf green fees, cell phone costs, and life insurance premiums. These amounts were then grossed up to equate the value of these benefits to pre-tax dollars. [ 38 ] The TREK expert agreed with the MNP expert on most points, but added back less pre-tax corporate income than MNP on the basis that the companies needed more cash flow to service their financial obligations.

Also, the TREK expert accepted the amortization expense as declared, rather than adopting an estimated capital cost provision. Ultimately, it appears the arbitrator accepted the TREK analysis. [ 39 ] The TREK expert, with some reservations, also set out a “Proposed GI Methodology” to enable the parties to more easily calculate Mr. Russell’s Guideline Income in the future. Rather than starting with line 150 of Mr.

Russell’s income tax return, the proposed methodology starts with the consolidated pre-tax income of both businesses, since it is the combined operations of the two companies that drive the amount of earnings available to Mr. Russell. The amounts expensed as salaries/wages/management fees to Mr.

Russell are added back to the pre-tax corporate income, since the usual line 150 inclusion of these amounts is not the starting point for this formula. TREK noted the importance of excluding any dividends declared or paid to Mr. Russell, since these would come from amounts that had already been included in Mr. Russell’s Guideline Income in past years, the inclusion of which would result in a double counting of income to his detriment. The Proposed GI Methodology then adds back the amortization expense, paired with a $200,000 capital deduction provision. Personal benefits to Mr.

Russell derived from corporate payments, in an estimated amount of $35,000 per year, are then added. [ 40 ] I have described these analyses and Proposed GI Methodology based on the expert reports that were presented to the arbitrator and included in the parties’ materials for this application. Ms. Ullett urges me to simply direct that one of these formulas be used in the future, but I am not confident that I have sufficient information as to how they operate and their advantages and disadvantages to make that direction.

The parties may choose to use these formulas to calculate Guideline income going forward, but I decline to direct them to do so. [ 41 ] Ms. Ullett provided calculations according to the MNP analysis, but she cautioned that her calculations were not entirely accurate since she says Mr. Russell did not provide sufficient financial disclosure for her to input all the relevant numbers. I also noted a number of errors in Ms. Ullett’s calculations. Most importantly, she began her 2020 analysis with Mr. Russell’s line 150 income of $704,830, but she referred to it as his employment income. An examination of Mr.

Russell’s tax return reveals, however, that in 2020 his income consisted of $550,000 employment income (management fees), $135,240 dividend income, $15,590 net rental income and $4,000 other income, which appears to be CERB payments. As such, Ms. Ullett was incorrect in identifying the $704,830 figure as Mr. Russell’s employment income, particularly since $135,240 of this total comprised dividend income. [ 42 ] Furthermore, the $135,240 figure for dividend income is the taxable dividend amount.

Section 5 of

Schedule III to the Guidelines requires that this sum be replaced by the actual dividends received by the spouse, which was $98,000. I note, however, that as referenced in the TREK report when discussing the Proposed GI Methodology, these dividends should have been deducted entirely from Mr. Russell’s line 150 income to avoid double-counting. These dividend distributions reflect a pay-out of retained earnings, which comprise previously undistributed corporate profits or corporate “earnings before tax”. Given that the Guidelines analysis to-date has added the pre-tax corporate income from both companies to Mr.

Russell’s Guideline Income, the 2020 dividend income should be deducted from his line 150 income in its entirety: see James C MacDonald & Ann C Wilton, Child Support Guidelines: Law and Practice , 2 nd ed (Toronto: Thomson Reuters Canada, 1998) (loose-leaf updated 2021, release 2021-8), ch 18.2). Thus, the starting point for Ms. Ullett’s calculations should have been an income figure of $569,590, consisting of $550,000 employment income, $15,590 of net rental income, and $4,000 of other income. [ 43 ] Ms. Ullett submits in the alternative that the parties should calculate child support relying on Mr.

Russell’s line 150 income with appropriate attribution of pre-tax corporate income and expenses that have a personal benefit, which is essentially an application of sections 16 through 19 of the Guidelines . I note, however, that the same modification to Mr. Russell’s dividend income, discussed above, would be required. Assessing Mr. Russell’s Guideline Income [ 44 ] The Guidelines set out the process for determining Guideline Income, the starting point for which is the spouse’s annual income under the heading “total income” in the T1 General form issued by CRA: Guidelines ,

section 16. This figure is then adjusted if it does not fairly reflect all the money available for the payment of child support.

Section 18 provides specific direction for spouses who are shareholders, directors or officers of a corporation: Shareholder, director or officer 18(1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under

section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in

section 17 and determine the spouse’s annual income to include (

a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or (

b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income. ... [ 45 ] In accordance with

section 18 of the Guidelines , and in the absence of any direct expert evidence, I find that the most appropriate method to assess Mr. Russell’s income is by using his line 150 income as a starting point, first adjusted according to

Schedule III in the manner discussed above, to which will be added an allocation of pre-tax corporate income from both companies. Pre- tax corporate income represents the money available to the shareholder spouse had the pre-tax income been distributed and included in his income for support purposes; it is the sum equal to the taxable revenue generated by a corporation during the year, less the deductible expenses for that year, other than income taxes: Bear v Thompson , 2014 SKCA 111 at para 30 .

Depending on the nature of a business and its capital or debt obligations, it may not be appropriate to attribute the entire pre-tax corporate income to the payor spouse, since the funds may not in fact be available for child support purposes. [ 46 ] In 2020, Great News had pre-tax corporate income of $76,424 and 149 Inc. had pre-tax corporate income of $81,822. The combined pre-tax income of the two companies was $158,246. I decline to adjust the amortization expense for Great News given the conflicting approaches in the MNP and TREK analyses.

I will, however, adjust the amortization expense for 149 Inc., as did the MNP and TREK experts, since it relates to real property only.

Section 11 of

Schedule III of the Guidelines requires the inclusion of capital cost allowance for real property owned by the spouse, not necessarily by the spouse’s corporation. I find, however, that it is appropriate to

add back 149 Inc.’s amortization expense, which relates solely to real property, and to include it in Mr. Russell’s Guideline Income since Mr. Russell is the sole shareholder of 149 Inc.: see Wolfson v Wolfson , 2021 NSSC 260 for a thorough examination of the law on this issue. I will also follow MNP’s approach in deducting the increase in cash surrender value of the life insurance policy held by 149 Inc., since MNP found this does not represent a source of income to Mr. Russell or the company.

Thus, the pre-tax corporate income of 149 Inc. is increased by $30,866 to reflect the amortization expense, but reduced by $13,900 for the increase in cash surrender value of life insurance, leading to a pre-tax corporate income for Guidelines purposes of $98,788. Given that 149 Inc. is a holding company, I will attribute all of its pre-tax corporate income to Mr. Russell. [ 47 ] With respect to Great News, I accept the point in the TREK report that Great News’ long-term debt obligations need to be considered, so I will attribute 70% of Great News’ pre-tax corporate income to Mr.

Russell, rather than the full 100%, to acknowledge this obligation. Thus, the Great News pre-tax corporate income to be added to Mr. Russell’s Guideline Income is $53,497. [ 48 ] I also must determine whether I should impute income to Mr. Russell under section 19(1)(

g) of the Guidelines , which relates to unreasonable deduction of expenses from income. Section 19(2) provides that expense deductions that are reasonable under the Income Tax Act might not be reasonable for Guidelines purposes. Essentially, this analysis requires me to consider whether Mr. Russell has derived personal benefit from corporate-paid expenses that non-business owners would have had to pay for themselves with after-tax dollars. [ 49 ] Mr. Russell has the onus to provide specific evidence with respect to the financial information of his companies: Cunningham v Seveny , 2017 ABCA 4 .

Both parties filed updated disclosure statements prior to the application. Mr. Russell filed copies of the general ledgers for 2020, as well as consolidated financial statements for 2019 and 2020. The parties also provided their tax returns for 2018, 2019 and later, for 2020, although it does not appear that full schedules were provided for 2020. Additionally, Mr. Russell, at the request of the Court after the first chambers hearing in this matter, provided six months of bank and credit card statements. [ 50 ] For the most part, however, Mr.

Russell did not provide specific and detailed information regarding his corporate expenses from which he may derive personal benefits. I allowed Mr. Russell the opportunity to provide further evidence regarding these expenses, both prior to and after the second hearing. He referred me only to his previously filed Affidavit, which stated that he entertains clients with rounds of golf and meals and he buys gift cards for employees and clients, including catering meals at his office to celebrate birthdays, employee retirements and client meetings.

He also attested in his Affidavit to belonging to an “Entrepreneurs Organization” since 2015 and travelling to meetings in Alberta and other destinations. [ 51 ] Based on Mr. Russell’s evidence, as set out above and in the corporate financial statements and general ledgers, I do accept that he entertains clients. However, the pattern of many of his expensed meals are such that I do not accept that most of these meals are for business purposes or entertaining. For example, many of his meals, according to the general ledger, are at A & W, Booster Juice, Starbucks, Pita Grill, etc.

Accordingly, I am adding back 70 percent of the corporate meal expenses to Mr. Russell’s income to reflect this personal benefit. This aligns with the MNP analysis, accepted by TREK, in which Mr. Russell acknowledged that about 40% of the meal expenses were personal. The accounting experts then assumed a 50% personal benefit from the remaining 60% corporate meals. The total meal expenses in 2020 were $4,416.38 [1] , to which 70% will be added back to Mr. Russell’s income in the amount of $3,091. [ 52 ] Mr.

Russell also maintains several golf memberships and again, although I accept that he entertains clients through golf, I find, in the absence of more specific evidence provided by Mr. Russell, that he received a personal benefit amounting to 50 percent of the cost. Similarly, I am attributing back into his income 50 percent for his cell phone expenses, as it can be inferred that while he uses it for business, he also uses it for his personal requirements. His education costs include his membership in the Entrepreneurs Organization, which is more directly related to his business.

While I note that the expert report indicated that this organization involves socializing, I am not adding back any membership fee for this organization. It appears to be fully related to Mr. Russell’s business. [ 53 ] Finally, MNP added back 50% of the life insurance premiums as they found the policy was for twice the balance of the mortgage on the company’s building, thereby suggesting that the remaining premiums related to the part of the policy that would benefit Mr. Russell personally.

In the absence of any evidence to the contrary, I will do the same. [ 54 ] In sum, the following amounts should be added to Mr. Russell’s Guideline Income in 2020: Meals and expenses (70% of $4,416.38): $3,091 Golf Green fees (50% of $2,537.41): $1,269 Cell phone (50% of $417.14): $209 Life Insurance Premiums (50 % of $16,412): $8,206 Total: $12,775, grossed up by 40% to estimate the value in pre-tax dollars is $21,292 [ 55 ] Accordingly, I assess Mr.

Russell’s Guideline Income for the purposes of Child Support in 2020 to be the following: Adjusted line 150 income: $569,590 70% of pre-tax corporate income from Great News: $53,497 100% of pre-tax corporate income from 149 Inc.: $98,788 Personal benefit from company paid expenses, grossed up for tax: $21,292

Total Guideline Income $743,167 [56] I also must determine whether Mr. Russell should pay prospective Child Support throughout 2021 based on this calculated2020 Guideline Income, given his submission that his current income is significantly reduced. I accept that Mr. Russell’s main business,Great News, likely will have a lower gross income in 2021. It appears from the first few months of financial statements that revenues aredown approximately 30 percent. However, the company also appears to have significant retained earnings in the amount of $2,348,030and in the first three months of the fiscal year Mr.

Russell placed $350,000 in management fees from Great News into his numberedcompany. Mr. Russell has attested in his Affidavit that 149 Inc. has no other sources of revenue besides management fees from GreatNews and that he makes 100 percent of his living from the management fees. [57] Retained earnings are the accumulated profits of the corporation after tax and constitute the equity in a corporation: Potzus vPotzus, 2017 SKCA 15 at para 92.

As entered on financial statements, however, retained earnings do not necessarily consist of cash orany particular assets owned by the corporation; they are not an asset that can be attributed to the controlling shareholder, but may be asignificant factor in determining the financial viability of a corporation: Bear at para 30. While retained earnings are a barometer of thecorporate health and economic resilience of a corporation, they are not directly factored into the

section 18 income attribution analysis orconsidered as an income source for child support purposes: Potzus at para 94. [58] While I acknowledge the significant retained earnings in the business, Mr. Russell did attest to requiring new printingequipment for his business in the future. Even though Ms.

Ullett points out that he made this same claim about needing to purchaseprinting equipment in 2016 and she argues that he has never purchased new printing equipment in the 11.5 years he has owned thebusiness, preferring to buy less costly used equipment, it is still reasonable for small businesses to have funds in reserve for these typesof business decisions. Mr.

Russell did not point me to any other evidence regarding specific ongoing debt servicing obligations that werementioned in the arbitration award, although I note significant interest expenses that presumably relate to this debt obligation, as well asa line item reflecting the “current portion of long-term debt”. [59] Notwithstanding the companies’ decreased revenue and that new expenditures may be needed in the near future, I concludethat Mr. Russell has sufficient income to meet his 2021 Child Support obligations based on his 2020 income. This said, I decline toaccept Ms. Ullett’s suggestion that I assess Mr.

Russell’s 2020 Child Support obligations on his 2019 Guideline Income. Not only did theparties agree to retroactively adjust child support each year once their Guideline Incomes were known, but section 2(3) of the Guidelinesdirects that the most current information must be used when determining an amount of child support. For these reasons, I will use theparties’ 2020 incomes to determine the child support owing for 2020 and 2021.

When the parties’ 2021 incomes are known, they canretroactively adjust the amount paid in 2021 to accord with their actual Guideline incomes, as well as adjust the amount going forwardfor 2022. Assessing Ms. Ullett’s Guideline income [60] Ms. Ullett’s line 150 income in 2018, 2019 and 2020 was $692, $756, and $27,745, respectively. Ms. Ullett is currentlyemployed at CST Consultants Inc. as a sales representative where she is paid solely on a commission basis. She expects to earn around$71,269 in 2021, extrapolated from her earnings to date. [61] Mr. Russell submits that Ms.

Ullett should have income imputed to her since she has chosen to stay at home with the child andnot pursue her previous high-income career as an investment banker with RBC Capital Markets. Ms. Ullett argues in response that shestopped working as an investment banker many years ago and that more recently, before the birth of their child, she was employed in asimilar sales position as her current job.

While there has been recent commentary that the Alberta Court of Appeal may be open torevisiting this issue, at the present time I am bound by Hunt v Smolis-Hunt, 2001 ABCA 229 at para 70: We agree with the conclusions of Vertes, J. in Williams v. Williams (1997), (NWT SC), 32 R.F.L. (4th) 23(N.W.T.S.C.), and Aston J. in Hall v. Hall (1999), 91 O.T.C. 230 (Ont. Gen. Div.), that s. 19(1)(

a) implies that before a court will imputeincome, there must be a deliberate course of conduct related to the purpose of the Guidelines. A court should only impute income unders. 19(1)(

a) of the Guidelines when it has evidence of the obligor’s intention to avoid or undermine child support obligations. [62] There is no evidence that Ms. Ullett is staying out of the work force or reducing her work hours with the intention of avoidingher child support obligations. In fact, the evidence is to the contrary. She says that she always intended to stay home until the childentered full-time school and now that she has done so, Ms. Ullett has returned to the work force. Accordingly, I decline to impute incometo her on this basis. [63] Mr. Russell has alleged that Ms.

Ullett has hidden income that she is not disclosing. There is no evidence of any additionalemployment income; however, Ms. Ullett did indicate she receives monies from her family to support her current lifestyle. She did notprovide any evidence regarding how much she receives from her family and whether it is a discretionary gift or a regular stipend. Therewas also no evidence as to whether she was using property or capital to fund her expenses. As pointed out by Mr. Russell, there is asignificant difference between Ms. Ullett’s budgeted expenses and her income, including child support. [64] Ms.

Ullett’s annual budget totals approximately $180,000, $40,000 of which she attributes solely to the child’s expenses. Ms.Ullett earns about $71,000 pre-tax from her current employment. Even considering Mr. Russell’s child support contribution of about$60,000 per year, Ms. Ullett must be receiving significant funds from her family to continue spending at this level. [65] Financial gifts from family members are not presumptive income for child support purposes, since they are not taxable, butthe Court retains a residual discretion to include gifts in a party’s income: NR v SR, 2019 ABQB 776 at para 20.

In KLH v SH, 2018ABQB 41 at paras 39-67, Justice Nixon summarized the law regarding when funds from family members should be included inGuideline income. Relying on Bak v Dobell, 2007 ONCA 304 at para 75, Nixon J stated that the factors to consider to determine whether

gifts should be included in a party’s income are the regularity of the gifts; the duration of their receipt; whether the gifts were part of the family’s income during the relationship that entrenched a particular lifestyle; any circumstances that might earmark the gifts as exceptional; whether the gifts do more than provide a basic standard of living; the proportion of income generated by the gifts in comparison to the party’s earned income; whether the gifts were intended to support an adult child through a period of crisis; whether the gifts are likely to continue; and the true purpose and nature of the gifts. [ 66 ] There is insufficient evidence before me to assess any of these factors, yet Ms.

Ullett’s budget suggests she must be receiving regular income from her family. I also note that this is not a case where Mr. Russell has shirked his Child Support obligations and Ms. Ullett’s family has stepped in to fill the void. [ 67 ] The Arbitrator imputed $90,000 to Ms. Ullett, by consent, to reflect the income she likely could earn. Given the above budget figures, I find that this number also reflects the approximate amount her family must be providing to fund her fairly affluent lifestyle. Although Ms.

Ullett provided no direct evidence of their contributions, the significant and unexplained gap between her income and budgeted expenses leads to this inference. While there is no guarantee that Ms. Ullett’s family will continue these payments, I find that it is appropriate on the evidence before me to impute this income for the 2020 calendar year. It may not be appropriate to do so in the future when her own earnings fill the gap or when her budget aligns more closely with her income. I conclude that Ms.

Ullett’s Guideline Income was $117,745 in 2020, comprised of her employment income of $27,745 and $90,000 imputed income. [ 68 ] Using these Guideline Income figures, Mr. Russell’s Child Support obligation is $6,301 and Ms. Ullett’s is $1,041, so the set off amount of child support is $5,260.

Section 9(

b) Evidence of Additional Shared Parenting Expenses [ 69 ] Shared parenting often increases the cost of raising a child, since some expenses are duplicated when the child moves back and forth between two households. The Court, when assessing increased costs, should pay attention to the actual spending patterns of the parents: Gordon v Nielson , 2018 SKQB 207 at para 228 . [ 70 ] Both parties live in very nice accommodation and have vehicles in which to drive the child around.

I find that both parties would likely live in this type of accommodation and have these vehicles whether they had the child for more or less time. [ 71 ] Ms. Ullett’s budget attributes half of the mortgage, property taxes and other household expenses to the child. She also attributes 65 percent of the vehicle costs to the child, including a significant sum for vehicle depreciation. She argues the vehicle is mostly used for trips to the child’s school and extra curricular activities. [ 72 ] Ms.

Ullett’s total annual budget is approximately $180,000 and includes: • $55,117 in mortgage payments; • $13,548 in property taxes; • $4,976 in house insurance; • $10,470 in heat, utilities, cable, home security, and community dues; • $18,000 in house maintenance; • $5,569 in landscaping; • $6,720 in house cleaning; • $25,277 in vehicle expenses, including $9,677 in vehicle insurance, maintenance, and fuel and a further $15,600 in car depreciation; and, • $40,467 for the child’s sole expenses, including $11,400 per year for the child’s travel, plus direct expenses of food, RESP contributions, clothing, ski pass, tennis equipment, Glencoe club membership, etc. [ 73 ] Ms.

Ullett’s budget totals approximately $11,600 per month for household and vehicle expenses, plus an additional $3,372 per month for expenses directly attributable to the child. After hiving off her own share of the monthly expenses, Ms. Ullett attributes the child’s share of the monthly total to be approximately $6,100, plus the $3,372 child-specific amount. In short, Ms. Ullett’s budget indicates approximately $9,500 per month for the child’s expenses in this shared parenting arrangement. There is a different budget for

section 7 expenses. [ 74 ] By contrast, Mr. Russell’s monthly budget for the child totals $1,154. It is quite utilitarian given his income and is framed from the perspective of child costs only. It attributes only 25% of total monthly heat, electricity, property taxes, insurance, internet, etc. of $1,602 to the child, in the amount of $401; mortgage expenses are not included. Mr. Russell’s vehicle budget includes total monthly expenses of only $414, consisting of insurance, repair and fuel expenses, with no amortization. Mr. Russell’s budget for the child alone is $650 per month.

I find that it does not include realistic travel expenses, given Ms. Ullett’s outline of Mr. Russell’s trips in her affidavit, and his response as to his travel at the hearing. [ 75 ] While I find Mr. Russell’s budget is minimal and does not accurately reflect his expenses when the child is with him, I also find Ms. Ullett’s budget is excessive. [ 76 ] I do not accept Ms. Ullett’s allocation of 50% of housing costs and 65% of vehicle costs to the child, particularly since I find

she would likely live in similar circumstances with or without the child. Also, as Mr. Russell noted, the child is with Ms. Ullett only 50% of the time. While many expenses are unaffected by the child’s presence or absence, I find it would be more realistic to attribute 30% of household and vehicle expenses in Ms. Ullett’s budget to the child, rather than 50% and 65% respectively. As such, I find Ms.

Ullett’s monthly expenses for the child are $3,372, as claimed, for direct child-related expenses and $3,480 for the child’s share of household and vehicle expenses, for a monthly total of $6,852. [ 77 ] As noted above, Mr. Russell’s budget does not include mortgage payments, despite evidence of a sizeable mortgage, and his home repair budget seems extremely low at only $100 per month. Ms. Ullett submits I should examine a much larger budget Mr. Russell provided to the court in 2016, but I note he has changed homes since that time and there is no reason to assume his expenses are the same. For the sake of the

section 9(

b) analysis, I will accept Mr. Russell’s expenses as stated, but add monthly sums for mortgage and vehicle amortization comparable to Ms. Ullett’s expenses in the monthly amounts of $4,593 and $1,300, resulting in a total monthly budget of $7,909, to which I will attribute the same 30% portion to the child, for a sum of $2,373. When the costs Mr. Russell reports as directly attributable to the child in the amount of $650 are added in, with an additional $500 per month for the child’s travel to reflect Ms. Ullett’s point that he spends more on her travel than claimed, it appears Mr.

Russell’s monthly child related expenses are $3,523. [ 78 ] Using these figures, the parties’ total monthly expenses for the child are $10,375. If these expenses were shared in proportion to their incomes, Mr. Russell should be responsible for $8,922 of this total each month, since he earns 86% of the parties’ combined monthly income, while Ms. Ullett should be responsible for $1,453 each month, since she earns 14% of the parties’ combined monthly income. Given that Mr. Russell’s child-related expenses amount to $3,523, he would owe Ms.

Ullett $5,399 to apportion the child’s total monthly shared parenting expenses according to the parties’ incomes.

Section 9(

c) Condition, Means, Needs and Other Circumstances of the Parents and Child [ 79 ] Mr. Russell argues that he has a lower standard of living than Ms. Ullett; he lives in a $1.2 million home with a $885,000 mortgage, whereas Ms. Ullett lives in a $2.4 million home with an approximately $737,000 mortgage. Mr. Russell also maintains that Ms.

Ullett has access to millions of dollars of “family” money and has regular access to several family owned properties, including condos in the Mayan Riviera and Fernie Mountain ski resort. [ 80 ] What Contino quite properly attempts to remedy is subjecting children to different standards of living when transitioning between houses. While Mr. Russell emphasizes that the child experiences a much higher standard of living in Ms. Ullett’s household, he also lives in affluent accommodation.

The evidence indicates that the child is afforded quite a luxurious lifestyle in both households through travel, access to extracurricular activities and club memberships. While Ms. Ullett does have high mortgage and property maintenance costs, she did not move into this house; rather, the house was the family home prior to separation. The child is currently enjoying the standard of living she had prior to the parties’ separation.

In short, this is not a situation where there is a markedly different standard of living in one household or the other. [ 81 ] The purpose of child support is not merely to pay the living expenses of the child, it is to provide reasonable financial support for the child based on each party’s income. It is often the case that the higher the income, the higher the discretionary spending: Prime . [ 82 ] I find that Ms. Ullett’s budget for the child includes a significant amount of discretionary expenses and that the parties’ total combined monthly spending on the child is very generous.

It goes well beyond her basic needs and leaves significant sums for discretionary expenses, as befits the parties’ combined household incomes. I understand that Mr. Russell views his high levels of child support as a wealth transfer, but I am guided by Francis in concluding that I should not be too quick to presume such a transfer. Mr. Russell earns a significant income from which his child is entitled to benefit. Conclusions as to Guideline Income, Child Support payable and Calculating Child Support in the Future [ 83 ] Under

section 9(a), a straight set off of the Table amounts for each party’s Guideline Income for 2020 would result in a net monthly payment from Mr. Russell to Ms. Ullett of $5,260. Under

section 9(b), the analysis of the parties’ child-related spending suggests that a monthly payment of $5,399 from Mr. Russell to Ms. Ullett would proportionately share their shared parenting costs and meet the child’s needs, including significant discretionary expenses. [ 84 ] As noted above, I am reluctant to place too much weight on the parties’ budgets, given that Mr. Russell’s was quite utilitarian and Ms. Ullett’s somewhat excessive, but I find it supports the conclusion that the

section 9(

a) set off results in an appropriate amount of child support at Mr. Russell’s high-income level that allows for significant discretionary expenses. [ 85 ] Furthermore, using the TREK Proposed GI Methodology, Mr. Russell’s Guideline Income would have been calculated as $750,817, which is $7,680 more than my determination. I calculated this figure starting with the consolidated income before taxes of the two companies ($158,246), to which I added the management fees assigned to Mr.

Russell ($607,000), the entire amortization expense ($130,981) and the approximated personal benefits ($35,000), after which I subtracted the proposed capital provision of $200,000. These calculations lead to the sum of $731,227, to which must be added Mr. Russell’s other sources of income in 2020 (other than dividend income), namely $15,590 in rental income and $4,000 in other income, for a total Guideline Income of $750,817. The resulting income leads to a Child Support Table amount of $6,365 per month, which then would be set off against Ms.

Ullett’s Table amount of $1,041, leading to a starting point of $5,324 for the

section 9 analysis. [ 86 ] Similarly, a straightforward use of the parties’ line 150 incomes of $704,830 and $27,745 as their Guideline Income, without

any adjustments for dividend income or other considerations, would result in the following Child Support amounts and set off: $5,979 payable by Mr. Russell and $241 payable by Ms. Ullett, for a set off of $5,738. Given the parties earlier agreement regarding Ms. Ullett’s income earning capacity, however, it would be more realistic to consider her Child Support obligations based on an imputed income of $90,000, which would result in a Table amount of $795 and a set off amount of $5,184. Using Ms.

Ullett’s projected line 150 income for 2021 of $71,269, the Table amount would be $615 and the set off amount would be $5,364. [ 87 ] I draw these numbers to the parties’ attention to show that regardless of the formula applied to calculate Mr. Russell’s income, be it by way of a 9(

a) set off, the TREK Proposed GI Methodology, or a straight application of line 150 income, the end result is a similar set off amount of Child Support: $5,260, $5,324, and $5,364 respectively. As indicated above, the set off is only the starting point for the

section 9 analysis, but given the similarity in the results from these three calculation methods, I would strongly encourage the parties to resolve their differences in the future without court involvement, by applying the TREK Proposed GI Methodology or a straight line 150 assessment, or a combination of the two to see how they compare. [ 88 ] For all of the above reasons, I order Mr. Russell to pay Ms.

Ullett the set off sum of $5,260 in monthly Child Support commencing July 1, 2020 and going forward until the parties’ 2021 income information is known. [ 89 ] Both parties must provide Notice to Disclose Items 1-9 annually; child support will be subject to variation should their incomes increase or decrease.

Section 7 expenses [ 90 ] Ms. Ullett also seeks a variation to the manner in which the parties are contributing to

section 7 expenses. The parties agreed that they will each pay 50% of the private school expenses, with Mr. Russell paying his share directly to the school. The parties further agreed that any

section 7 expenses for which reimbursement is sought must be consented to by the other parent. [ 91 ] I question whether there should be any sharing of

section 7 expenses for extracurricular activities, given the high level of

section 3 support. In addressing incomes over $150,000,

section 4(b)(iii) of the Guidelines directs the Court to consider the amount, if any , determined under

section

Section 7 is highly discretionary. The Court may provide an amount to cover all or any portion of a closed list of expenses, taking into account the necessity of the expense in relation to the child’s best interests and the reasonableness of the expense in relation to the means of the spouses. Expenses for extracurricular activities must be extraordinary, which are defined as expenses that exceed those that the spouse requesting the amount can reasonably cover, considering that spouse’s income and the amount of

section 3 child support that spouse receives. [ 92 ] The evidence indicates that in 2019 Ms. Ullett spent approximately $2,500 on the child’s extracurricular activities, while Mr. Russell spent approximately $2,000. I find that in the context of Ms. Ullett’s income and the receipt of approximately $60,000 per year in

section 3 child support, these extracurricular expenses are not extraordinary. I exercise my discretion to decline to award an amount for these

section 7 expenses, retroactively or going forward. The parties may continue to select up to four activities for the child, one physical and one non-physical activity each, as set out in Justice Kenny’s Order, but they each shall bear the cost of the activities they select without proportional reimbursement from the other parent. [ 93 ] As for health-related expenses, the evidence indicates they are minor and do not exceed the $100 annual threshold in section 7(1)(c).

Should future health-related expenses exceed the $100 threshold, I direct that the parties share them equally, like the private school expenses, after applying the benefits received from any health insurance plan. Costs [ 94 ] If necessary, the parties may contact me, through my assistant, regarding costs. Heard on April 21, 2021 and June 8, 2021 Dated at the City of Calgary, Alberta this 23 rd day of September, 2021. J.R. Ashcroft J.C.Q.B.A. Appearances: Stefan Russell, Self Represented

Darren Freeston for the Respondent, Jocelyn Ullett [1] I note at this stage the second error in Ms. Ullett’s calculations. In assessing the value of the personal benefits Mr. Russell received from his companies, Ms. Ullett used the amount listed in the balance of the general ledger, rather than the amount of the expense itself. For example, Ms. Ullett included 50% percent of the general ledger figure of $3331.15 for the golf green fees, instead of 50% of the itemized golf expenses of $2,537.41.