Leet v. Beach, 2010 NSSC 433

IN THE SUPREME COURT OF NOVA SCOTIA (FAMILY DIVISION) Citation: Leet v. Beach, 2010 NSSC 433 Date: 20101122 Docket: 1201-058384 Registry: Halifax Between: Sean Michael Leet Applicant and Miriam Jayne Beach Respondent Judge: Justice Lawrence I. O’Neil Heard: October 6, 2010, in Halifax, Nova Scotia Counsel: M. Jean Beeler, Q.C., for the Applicant Jennifer L.

Schofield, for the Respondent By the Court: Overview, paragraph 1 Core Principles of Child Support, paragraph 7 Issues, paragraph 8 Retroactive Child Support, paragraph 9 Income › $150,000, paragraph 25 Income as defined by s.15-20 of the Child Support Guidelines , S.O.R./97-175 , paragraph 26 Father’s Income, paragraph 33 RRSP and Capital Gains Income generally, paragraph 39 - RRSP Income, paragraph 47 - Capital Gains Income, paragraph 53

- Imputed Income, paragraph 62 Conclusion, paragraph 70 Overview [1] The Applicant, hereinafter referred to as the father and the Respondent, hereinafter referred to as the mother, have three children,ages 12, 14 and 16. The parties married in 1995, separated in 2001 and divorced in 2005. [2] An order of this court dated April 2006 conferred primary care of the children upon the mother. Since January 2010,however, with the consent of both parents, the parties’ middle child, a son, has lived primarily with his father.

In September 2010, theeldest child began living on the campus of a private high school in this Province. She is a student at this school [3] The father seeks a variation of the parties’ consent variation order, dated October 19, 2006. He wants a revised order toreflect the fact that the middle child has been living with him since January 2010 and he seeks a recalculation of his child supportobligation for the two other children. The youngest child remains with her mother and as stated, the oldest is boarding at a private highschool in the Province. Whether Mr.

Leet had a child support obligation for the oldest child since September 2010 is an issue. [4] The father withdrew large sums from his RRSP account in recent years. He has also received other large sums of money inrecent years as a consequence of the settlement of a lawsuit surrounding ownership of a business in which he was a partner/owner. Thelater sums of money are referred to as capital gains by the parties. The parties disagree on whether these sums of money should beconsidered income for the purpose of determining the father’s child support obligation.

They also disagree on whether the father’s childsupport obligation should be retroactively adjusted. [5] Since 2005, he has been employed in the marine industry, managing a number of boats. He is a high income earner. He livesin Saint John, New Brunswick. [6] This decision follows the hearing of evidence on October 6, 2010. The parties testified as did the maternal grandmother. Thecourt also had the benefit of numerous affidavits and sworn financial filings.

Core Principles of Child Support [7] The principles discussed in the following must be applied within the broader context of the four core principles that are thebasis of child support jurisprudence. These were succinctly stated by Justice Jollimore in Stevenson v. Kuhn, 2010 NSSC 398 atparagraph 68.

They are (1) child support is the right of the child; (2) the child’s right to support survives the breakdown of therelationship between the child’s parents; (3) child support should, as much as possible, perpetuate the standard of living the childexperienced before the parents’ relationship broke down; and (4) the amount of child support varies, based upon the parent’s income. (See Willick, 2994 28 (S.C.C.) and Richardson, (S.C.C.)). [8] Issues: 1. Whether retroactive child support is payable? 2. What is each party’s income for child support purposes?

What impact, if any, does “RRSP income” and “Capital gains income”received by the father have on his child support obligation? Should income be imputed to the mother? 3. How should each party’s contribution to special expenses for the children be determined?

4. Is either party responsible for a retroactive contribution to child support? special expenses? Retroactive Child Support [ 9 ] I reviewed the law governing the award of retroactive child support in detail in Niles v. Munro , 2009 NSSC 318 . A subsequent decision involving these same parties required a consideration of s.4 of the Guidelines , i.e. the child support obligation of a payor parent when that spouse has an income over $150,000, (Niles v.

Munro , 2010 NSSC 221 ). [ 10 ] I will not repeat my entire discussion of the law as set out in these cases. [ 11 ] The variation application was filed February 10, 2010. However, correspondence between counsel was exchanged in January 2010 on the need for changes. In addition, in January 2010, one of the children began living in New Brunswick with his father. [ 12 ] Ms. Beach filed a response to the variation application on March 8, 2010. [ 13 ] Mr. Leet’s affidavit filed September 30, 2010 (Exhibit 3) contains at Exhibit “B”, copies of e-mails exchanged between the parties in 2008 and 2009.

These confirm that the parties did communicate in each of these years on the issue of child support and their respective contributions to the cost of extracurricular activities for the children. [ 14 ] In her e-mail dated July 23, 2008, Ms. Beach confirmed her knowledge that Mr. Leet was withdrawing funds from his RRSP account and she confirmed knowledge of his 2007 income. She acknowledged to Mr. Leet that, “you are under extreme financial and emotional stress due to your pending court case”. She then proposed that Mr. Leet pay $3,282.18 per month. In his response dated July 27, 2008, Mr.

Leet agreed to pay $3,282.18 per month and to set aside $2,520/child each year for the children’s extra curricular activities. The $2,520/child/year was to be set aside to reflect any “bonus” as the parties agreed. [ 15 ] Mr. Leet began paying $3,240 per month in August 2008. I am unclear as to why it is slightly less than the $3,282.18 apparently agreed to. [ 16 ] In an e-mail dated December 9, 2008, Mr. Leet seeks confirmation of the July 2008 agreement on the issue of child support and the cost sharing of extracurricular expenses. It appears the e-mail was not responded to directly.

The parties, however, continued to govern themselves by the terms of the agreement. Subsequent communication between them focussed on the scheduling of the children’s activities. [ 17 ] In his e-mail dated June 15, 2009, Mr. Leet references having forwarded his Notice of Assessment and a copy of his Tax Return - presumably for 2008. [ 18 ] In her e-mail dated July 10, 2009, Ms. Beach confirms her desire to continue the financial arrangements between the parties and concerning the children. [ 19 ] In Niles v.

Munro , 2009 NSSC 318 at paragraph 42 , I summarized the factors to be considered before making a retroactive award: 42. The various issues and factors to be considered prior to making a retroactive award may be outlined as follows: 1. Whether there is an existing court order or agreement

(

i) a parent paying in accordance with a court order is generally entitled to rely upon the certainty the order purports to confer; (ii) agreements are accorded some deference but their reasonableness may need to be assessed at the original signing date and application date; 2. Status of the child/children: whether still of the marriage , a jurisdictional issue 3. Delay by the recipient parent in seeking an award; 4. Blameworthy conduct by the payor parent; 5. Financial circumstances of the child(ren) and whether the award will benefit the children; 6.

Hardship imposed by a retroactive award; [ 20 ] I am satisfied that Mr. Leet was obliged to comply with the agreement on child support he and Ms. Beach reached. He was under extreme financial pressure but nevertheless, made significant monthly child support payments to Ms. Beach. The agreement the parties reached was reasonable and both parties governed themselves by its terms. [ 21 ] The following extract from Walsh v.

Phelps , 2010 NSSC 158 at paragraph 23 is on point: [23] 23 The court in D.B.S. at paragraphs 75, 76 and 78 emphasized the important policy basis for deferring to agreements reached between parties: 75 A similar, but not identical, situation arises where child support obligations have previously been set out in an agreement between the parents.

While many of the same considerations apply to this situation that applied to the situation of a previous court order -- e.g., the payor parent's expectation that his/her support obligations have been fully defined -- the difference between an agreement and a court order cannot be ignored. 76 In Miglin v. Miglin, [2003] 1 S.C.R. 303, 2003 SCC 24 , and Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550, 2004 SCC 22 , I (along with Arbour J. in the former case) discussed the importance of encouraging spouses to resolve their own affairs, as well as the complementary importance of having courts defer to that resolution.

These cases dealt with spousal support issues, but many of the same considerations apply in the child support context. Prolonged and adversarial litigation is just as troubling -- if not more so -- in the child support context as in the spousal support context. ... 78 In most circumstances, however, agreements reached by the parents should be given considerable weight. In so doing, courts should recognize that these agreements were likely considered holistically by the parents, such that a smaller amount of child support may be explained by a larger amount of spousal support for the custodial parent.

Therefore, it is often unwise for courts to disrupt the equilibrium achieved by parents. However, as is the case with court orders, where circumstances have changed (or were never as they first appeared) and the actual support obligations of the payor parent have not been met, courts may order a retroactive award so long as the applicable statutory regime permits it: compare C. (S.E.) v. G. (D.C.) (2003), 43 R.F.L. (5th) 41, 2003 BCSC 896 .

[ 22 ] I find that Mr. Leet made disclosure of his income to Ms. Beach. She clearly was aware of the litigation he was funding and his having been “forced” to sell his interest in a business he founded. She knew he was withdrawing RRSP funds to meet his obligations. She was also aware that he might receive “bonus” income and agreed upon a method for flowing through a benefit to the children, should the bonus be realized. It is not clear whether the reference to a “bonus” is a reference to damages or a settlement resulting from the litigation or a reference to a possible bonus from employment.

Perhaps it is a reference to both? [ 23 ] It is clear that these parties were in communication about their respective financial circumstances and the relevant contingencies. Mr. Leet was not deceptive. Ms. Beach was satisfied with the agreement they reached and Mr. Leet apparently honoured it. Ms. Beach did not seek a change. The matter is currently in court as a consequence of Mr. Leet’s variation application. It would be unfair to Mr. Leet to revisit the agreement he and Ms. Beach concluded in 2008. [ 24 ] The court must, however, consider the child support obligation of Mr. Leet after January 1, 2010.

It is clear that the 2008 agreement was no longer acceptable to both parties after that date. This examination requires the court to rule on: (1) whether the table amount of child support is applicable for his income above $150,000; (2) whether RRSP income is to be considered income for purposes of calculating Mr. Leet’s child support obligation; and (3) whether capital gains are to be considered income for purposes of calculating Mr. Leet’s child support obligation. Income › $150,000 [ 25 ] I am not persuaded that the child support obligation of Mr.

Leet should not be determined under s.3 of the Guidelines , which prescribes that it be based on the child support table for New Brunswick. I do not consider it to be inappropriate to have his child support obligation based on the tables using his employment income. However, I will analyze how the child support obligation is impacted by RRSP and Capital Gains income separately. Ms. Beach is a very low income earner and the children require the table amount of support to maintain an acceptable standard of living, given the circumstances of the parties.

Consequently, I conclude that as a minimum, the table amount of child support is payable by Mr. Leet, based on his employment income. Income as defined by s.15-20 of the Child Support Guidelines, S.O.R./97-175 [ 26 ] Income for purposes of the Income Tax Act is not necessarily the same for purposes of the Federal Child Support Guidelines . S.O.R./97-175, hereinafter referred to as the Guidelines ( see Dillon v.

Dillon , 2005 NSCA 166 at paragraph 23 ). [ 27 ] The Guidelines describe how the annual income of the parties is to be determined; how that determination is impacted by inter alia fluctuations in income; one’s interest in a business; and whether income should be imputed. [ 28 ] For ease of reference, s.15 - 19 of the Guidelines are reproduced below: Determination of annual income 15.

(1) Subject to subsection (2), a spouse’s annual income is determined by the court in accordance with sections 16 to 20.

Agreement

(2) Where both spouses agree in writing on the annual income of a spouse, the court may consider that amount to be the spouse’s income for the purposes of these Guidelines if the court thinks that the amount is reasonable having regard to the income information provided under

section 21. Calculation of annual income 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 and is adjusted in accordance with

Schedule III. SOR/2000-337, s. 3; SOR/2007-59, s. 4. Pattern of income 17.

(1) If the court is of the opinion that the determination of a spouse’s annual income under

section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. Non-recurring losses

(2) Where a spouse has incurred a non-recurring capital or business investment loss, the court may, if it is of the opinion that the determination of the spouse’s annual income under

section 16 would not provide the fairest determination of the annual income, choose not to apply sections 6 and 7 of

Schedule III, and adjust the amount of the loss, including related expenses and carrying charges and interest expenses, to arrive at such amount as the court considers appropriate. SOR/2000-337, s. 4. 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. Adjustment to 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. Imputing income 19.

(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following: (

a) the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse; (

b) the spouse is exempt from paying federal or provincial income tax; (

c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada; (

d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines ; (

e) the spouse’s property is not reasonably utilized to generate income; (

f) the spouse has failed to provide income information when under a legal obligation to do so; (

g) the spouse unreasonably deducts expenses from income; (

h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and (

i) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust. Reasonableness of expenses

(2) For the purpose of paragraph (1)(g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act . SOR/2000-337, s. 5. [ 29 ] The father submits that his RRSP income and capital gains income should not be considered for the purpose of determining his child support obligation. He explains that he was forced to withdraw funds from his RRSP because of pressing financial pressure, brought on in large measure by his need to fund litigation over the ownership of a company he founded. The legal fees alone for that litigation were $220,000.

As a result of the settlement of that litigation he no longer has an interest in the company. He will have received $415,000 over the four years ending February 2012 as part of the settlement. [ 30 ] He remains a high income earner and submits that the RRSP income and capital gains income were/are non recurring and should not be added to his employment income for the purpose of determining his child support obligation. He argues that given the

context which gave rise to these payments, they should be excluded. In his mind, these funds are not income of the kind contemplated by s.16 of the Federal Child Support Guidelines . [ 31 ] The mother argues that the Canada Revenue Agency treats these amounts as income, that the payments were/are recurring and by virtue of the definition of income as defined by s.15 - 20 of the Guidelines , these amounts are ‘income’ for purposes of determining child support. [ 32 ] The father argues that the mother’s income earning capacity is far greater than $15,000; her declared income.

He argues that income of $75,000 should be attributed to her as permitted by s.19 of the Guidelines .

Father’s Income [ 33 ] The father’s employment, RRSP and capital gains income over the relevant period 2007 - 2010 is shown below: Year Line 150 Employment RRSP Capital Gains 2007 $239,747.00 $183,196.65 $69,306.00 2008 $202,809.00 $202,055.05 2009 $275,996.00 $232,034.12 $23,806.63 Rec’d. $70,000.00 (2009 Taxable Capital Gains $23,022.78) 2010 $192,000.00 $145,000.00* 2011 $145,000.00* 2012 $125,000.00* *projected installment payment resulting from the “sale” of his business - taxable capital gains to be calculated [ 34 ] Counsel for the mother claims $12,852.00 as retroactive child support less child support payable by the mother to the father for one child, commencing January 1, 2010; based on her income of $15,000.

Her counsel calculates the father’s income for child support purposes as follows: 2007 $239,746.00 to determine table amount for next year 2008 $202,809.00 to determine table amount for next year 2009 $299,017.00 to determine table amount for next year

[ 35 ] These amounts include RRSP and Capital Gains Income, but are not discounted for employment expenses. [ 36 ] In contrast, counsel for the father argues that the employment income shown for 2007, 2008 and 2009 should be reduced by employment expenses as follows: Revised Income 2007 $183,196.65 - $ 7,430.12 = $175,767.00 2008 $202,059.05 - $11,438.00 = $190,617.05 2009 $232,034.12 - $13,313.13 = $218,720.99 (See Exhibit 5 - Statement of Employment Expenses - 2009 Tax Return

Summary) Employment expenses may be deducted as authorized by s.1 of

Schedule III of the Guidelines , which

schedule is incorporated by reference into s.16 of the Guidelines . [ 37 ] Mr. Leet’s counsel submits that these revised incomes should be used to determine the father’s child support obligation for each year, commencing July 1, 2008. In her view, RRSP and capital gains income should not be considered. [ 38 ] In her view, the child support calculations should also reflect the fact that one child began living with his father in January 2010. To October 2010, counsel for Mr.

Leet calculates that the father has over paid child support by $3,802 plus an amount payable to him by the mother because the middle child has been living with him. As stated, Mr. Leet argues this is not a case to include RRSP and Capital Gains revenue as income, for child support purposes. RRSP and Capital Gains Income - generally [ 39 ]

Section 16 of the Guidelines directs that a spouse’s income is determined by using the sources of income set out under the heading “Total Income” in the T1 General Form and as adjusted in accordance with

Schedule III. The T1 General Form identifies the sources which make up total income as: (

a) employment income; (

b) commissions; (

c) old age security pension; (

d) Canada or Quebec Pension Plan benefits;

(

e) disability benefits; (

f) other pensions or superannuation; (

g) unemployment insurance benefits; (

h) dividends; (

i) interest and other investment income; (

j) partnership income; (

k) rental income; (

l) capital gains (emphasis added); (

m) registered retirement savings plan income (emphasis added); (

n) other income; (

o) business income; (

p) professional income; (

q) commission income; (

r) farming income; (

s) fishing income; (

t) workers’ compensation payments; (

u) social assistance payments; and (

v) net federal supplements Source: Income Tax Act, R.S.C. 1985, c.1 (5 th Supp.) as amended:

Part 1-Income Tax: Division B - Computation of Income

[ 40 ] The calculation of a spouse’s annual income for purposes of the Guidelines is not determined solely by reference to the spouse’s T1 General Tax form. It is to be adjusted upwards or downwards in accordance with

Schedule III of the Guidelines . [ 41 ]

Schedule III at s.6 provides: Capital Gains and Capital Losses 6. Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse’s capital losses in that year. [ 42 ] Capital gains and registered retirement savings plan income are sources of income shown on the T1 General form issued by Revenue Canada. These sources of income, among others, are subject to adjustment as described in

Schedule III and these sources may in fact be excluded if their inclusion will not lead to a fair determination of the spouse’s income.

The basis for the exclusion of an income or part of an income are outlined in s.17 - 20 of the Guidelines . [ 43 ] Once a spouse’s annual income is determined under s.16 , it may be determined that the method: “would not be the fairest determination of that income and the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation of income or receipt of a non-recurring amount during those years”. ( s.17(1) of the Guidelines ) [ 44 ] This forces a consideration of whether, on these facts, the RRSP Income and Capital Gains Income of Mr.

Leet are income for child support purposes. [ 45 ] The Alberta Court of Appeal in Ewing v. Ewing , 2009 ABCA 227 provided a helpful discussion of issues arising when a court is called upon to decide this issue. The Court comments on important economic realities families and individuals face as they balance ongoing financial responsibilities and the pursuit of legitimate business and estate planning objectives. A calculation of income pursuant to s.16 must have as its overriding objective fairness.

The issue of fairness frequently arises when so called non-recurring gains are caught by a s.16 determination. [ 46 ] Madam Justice Conrad, on behalf of the Court, at paras. 31-34 outlined considerations for a Court called upon to make an assessment of whether a strict application of s.16 achieves a fair result. She wrote: 31 Thus, both Shields and Schick are useful in that they recognize the determination of income must be fair and based upon the facts of the particular case.

In addition, Schick suggests that the exercise of a court's discretion to arrive at a fair and reasonable figure will not be interfered with lightly. Neither of these cases, however, stands for the proposition that non-recurring gains must be excluded in determining the fairest means of income calculation. Nor did either of these cases deal with incomes of the magnitude involved here where the support payments were generous. 32 Determining whether a

section 16 calculation is fair frequently involves consideration of non-recurring gains. Courts should be alert to the nature of any non-recurring gain and whether it is derived from the sale of capital. That is particularly true when the sale involves capital which forms the basis of a payor's income, and whenever capital is sold the court should consider the effect of that sale on future income. In Kowalewich v.

Kowalewich, 2001 BCCA 450 , 155 B.C.A.C. 143, the British Columbia Court of Appeal noted that making money available for support purposes, when it may be needed to maintain a going concern, would be equivalent to killing the goose that laid the golden egg. Moreover, depending on a payor's age, a sale of assets may be the basis of a payor's retirement fund, which, in the usual case, is not used to increase a family's lifestyle but is invested to provide future income.

In that case, the investments of capital are available for future support. 33 Thus, the nature of the sale of a capital asset, or other extraordinary gain or fluctuation in income, should always be considered

when determining fair income. Frequently the fairest method of income may be to exclude the gain. On the other hand, where a non-recurring gain is in the nature of an employment bonus, in the sense that it is truly income for work done, its inclusion in

section 16 income may not make that method of calculation unfair. The sale of stock options as part of annual compensation may be such an example. 34 In addition to considering the nature of the non-recurring gain, or fluctuation of income, it is also important to consider the purpose of support orders when deciding whether a

section 16 calculation of income is fair. Support orders are directed at ensuring that, to the extent possible, that children enjoy the same standard of living they would have experienced if the marriage had not broken down. Thus, when determining a fair and reasonable income, the day-to-day standard of living the family would have enjoyed, had it remained intact, is relevant. A court might want to consider whether a specific non-recurring gain would have resulted in a change in lifestyle of a particular family, had it remained intact.

For instance, if the family's standard of living is high to begin with, the unusual gain may not affect the family's standard of living at all but may simply be seen as a means of providing security for future years. Thus, notwithstanding a large gain, a

section 16 calculation which includes the gain might not be the fairest method of calculation. Further observations of Madam Justice Conrad are particularly relevant to the facts before me: . . . . . 61 . . . . . However, not every increase in annual income translates into a change of a family's lifestyle, even when the family is intact and not embroiled in litigation. A family would often treat exceptional increases in income differently than increases that are routinely anticipated.

Furthermore, while some wealthy families live luxurious lifestyles, that is often because of extraordinary capital bases, rather than extra-ordinary increases in income alone. Moreover, not every wealthy family lives at the same standard as every other wealthy family. . . . . . 64. . . . . . Would a sale of their father's business necessarily involve an increase in the children's standard of living where they already had $13,776 per month available to them? The increase in the father's income for the years 2005 and 2006 was derived from the sale of the assets that were the source of past income.

One should not readily infer that a sale of the income earning asset would lead to an increase in consumption or the family's standard of living, had the family been living together. Indeed, the contrary inference is more compelling. . . . . . - RRSP “Income” [ 47 ] Mr. Leet received RRSP income in 2007 and 2009 in the amount of $69,306 and $23,807 respectively.

Section 16 of the Guidelines directs that a spouse’s annual income be determined as outlined in the T1 General Form issued by the Canada Revenue Agency, as adjusted by

Schedule III of the Guidelines .

Schedule III does not require any adjustments applicable to RRSP income. It is therefore presumptively included in the calculation of income as required by s.16 . [ 48 ]

Section 17 of the Guidelines permits the court to deviate from the direction contained in

section 16 for determining income if the method prescribed by s.16 is not the fairest method given “fluctuations” in income. [ 49 ] Justice Bateman, on behalf of our Court of Appeal in Dillon v. Dillon , 2005 NSCA 166 emphasized the significance of a pattern of withdrawing RRSP contributions. At paragraph 26-28 she stated: 26 In Stevens v. Boulerice, supra, the custodial mother sought a variation in child maintenance to bring the pre- Guidelines support to the level required by the Guidelines. Since the fixing of the original child support order the father had retired and the parties' RRSPs were divided.

The father withdrew regularly from his accumulated RRSPs to supplement his pension income. The judge rejected the father's submissions that these regular RRSP withdrawals should not be added to his pension income in assessing his ability to pay child

support. 27 In Francis, supra, the judge adopted the reasoning in Stevens and included RRSP withdrawals in income for the purposes of calculating child support. As in Stevens, there was a regular pattern of withdrawing from the accumulated RRSPs to supplement the father's income. 28 The propriety of including an RRSP withdrawal as income for child support calculation purposes is fact dependent (see, for example, Stevens v. Stevens, [1999] A.J. No. 1550 (Q.L.) (Alta. Q.B.) ). Here, unlike the case in Francis, supra, and Stevens v. Boulerice, supra, there was no accumulation of RRSP contributions.

The non-locked in RRSPs had been cashed or lost in bankruptcy. The withdrawal was clearly from current contributions. [ 50 ] Our Appeal Court’s decision in Dillon was considered in Mask v. Mask [2008] O.J. No. 423 . The Ontario Court upheld the motion judge who found part of the RRSP withdrawal was to be considered income for child support purposes. In that case, the mother’s 2006 RRSP redemption was found to create a fluctuation in income and receipt of a non-recurring amount and was therefore excluded in part. [ 51 ] At paragraph 41, Justice Power concluded: 41 . . . . .

She clearly did not withdraw $43,500 simply to raise her lifestyle. [ 52 ] Justice Dellapinna in Wood v. Gates , 2008 NSSC 358 included the mother’s RRSP income for the purpose of determining her child support obligation. He found that her RRSP income was recurring and that the income was relied upon as part of her household income. These findings precluded a finding that a determination of income pursuant to s.16 of the Guidelines for child support purposes, would not be the fairest determination. - Capital Gains “Income” [ 53 ] Once again, I observe that

section 17 of the Guidelines supra permits the court to not consider all of the s.16 income for child support purposes in limited circumstances. If considering all of the income would yield an unfair result because of fluctuations in income and receipt of a non-recurring amount, the court may decide upon an amount that is fair and reasonable. [ 54 ] There is precedent for finding the inclusion of capital gains as non-recurring and resulting in an unfair child support obligation. [ 55 ] The Alberta Court of Appeal in Ewing v.

Ewing , 2009 ABCA 227 , additional reasons at 2009 ABCA 423 ruled that high income attributable to the sale of a business should not be included in employment income because it was non recurring and the gains were not extra employment. In Schick v. Schick , 2008 ABCA 196 , capital gains on the sale of shares in a business were included in income. In Schick , the appellate court was influenced by the fact that the father might dispose of his remaining shares periodically, when opportune.

The Schick decision turns on a classification of the income as akin to recurring and this distinguishes it from the circumstances in Ewing . [ 56 ] The Alberta Court of Appeal in Ewing v. Ewing , 2009 ABCA 227 was called upon to decide, whether the capital gains resulting from the sale of corporate shares resulted in income for purposes of calculating child support. Madam Justice Conrad delivered the decision on behalf of the Court. Her judgment is quoted extensively supra at paragraph 46. She provided a helpful list of considerations for a court when deciding whether the

section 16 calculation is ‘fair’ having regard to non-recurring gains and patterns of income: . . . . .

35 While the courts have the discretion to determine whether the

section 16 income calculation is fair, having regard to non-recurringgains and patterns of income, the following, although not an exhaustive list, outlines some of the matters a court might consider: Is the non-recurring gain or fluctuation actually in the nature of a bonus or other incentive payment akin to income for work done for thatyear? Is the non-recurring gain a sale of assets that formed the basis of the payor's income? Will the capital generated from a sale provide a source of income for the future?

Are the non-recurring gains received at an age when they constitute the payor's retirement fund, or partial retirement fund, such that itmay not be fair to consider the whole amount, or any of it, as income for child support purposes? Is the payor in the business of buying and selling capital assets year after year such that those amounts, while the sale of capital, are inactuality more in the nature of income? Is inclusion of the amount necessary to provide proper child support in all the circumstances?

Is the increase in income due to the sale of assets which have already been divided between the spouses, so that including them as incomemight be akin to redistributing what has already been shared? Did the non-recurring gain even generate cash, or was it merely the result of a restructuring of capital for tax or other legitimate businessreasons? Does the inclusion of the amount result in wealth distribution as opposed to proper support for the children? [57] The Ontario Court of Appeal addressed the characterization of stock option income for child support purposes in Arnold v.Washburn (ON CA), [2001] O.J.

No. 4996, leave to appeal to the S.C.C. not granted - [2002] S.C.C.A. No. 82. Carthy, J.A., on behalf of the Court upheld the lower court’s decision to not include the income. He summarized the court’s conclusionsat paragraph 7-9: 7 The trial judge's reasons for this exclusion were: [6] The appropriate calculation of the respondent's "annual income" for the purposes of the Support Guidelines begins with

section 16.Looking at the "total income"

section of the respondent's 1999 T1 return for income tax yields a very large figure because of theinclusion of the appropriate portion of the proceeds of his 1999 sale of shares. Without that latter element, his income is comprised of hissalary, a substantial bonus, and income from his investment portfolio. Because the amount of bonus varies and the investment yield willvary somewhat as well, I adopt $377,000 as an amount counsel for both parties were in essential agreement on as the respondent's"annual income" without direct inclusion of monies received from the sale of shares.

I say "direct" inclusion because those monies areinvolved indirectly in that they produce the investment income element of the annual income. [7] I do not think inclusion of part or all of proceeds of the sales of shares in 1993 or 1999 in the "annual income" would produce thefairest determination of the respondent's annual income from his employer, and I rely on my authority in paragraph 17(1)(

c) of theSupport Guidelines to exclude all of these amounts. They are large amounts, which do not form a pattern of "income" and otherwiseskew in a major way what pattern does emerge. Moreover, the wealth from those sales contributes to the respondent's annual income

through the yield from the investment portfolio. 8 The trial judge relied on s. 17(1)(

c) as it was in force at the time of his endorsement on September 14,

Section 17 of theGuidelines was replaced before the trial judge rendered judgment. The new s. 17(1) came into force on November 1, 2000. It provides: 17.

(1) If the court is of the opinion that the determination of a spouse's annual income under

section 16 would not be the fairestdetermination of that income, the court may have regard to the spouse's income over the last three years and determine an amount that isfair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. Both the old s. 17(1)(

c) upon which the trial judge relied and the new s. 17(1) give a trial judge discretion to include any part of anon-recurring amount in a spouse's annual income. With some reservation, I am prepared to assume that the stock option income wasproperly characterized as a non-recurring amount in the circumstances of this case. However, even if this characterization was incorrect,I note that the old s. 17(1)(

b) implicitly gave a trial judge discretion to take into account pattern of income and fluctuations in income indetermining the payer's annual income, and the new s. 17 makes this discretion explicit. 9 In the present case, the trial judge's decision to exclude the income from the sale of shares from his determination of the respondent'sannual income was an exercise of discretion that reveals no error in principle. He could have attributed the share income or some portionof it for Guideline purposes, but chose not to, observing that some of the investment income was derived from the proceeds of the sharesales.

I note that the investment income of the husband was between $3,000 and $5,000 in each of 1997 and 1998, supporting theconclusion that most of his $93,616 of investment income in 1999 was earned on investment of the $3 million. [58] More recently, the Ontario Court of Appeal in Marinangeli v. Marinangeli (ON CA), [2003] O.J. No. 2819upheld the trial judge’s ruling that the exercise of stock options created income for child support purposes.

At paragraph 27, 28 and 30,Weiler, J.A. wrote: 27 The appellant testified that his options were an accepted means of compensation intended to keep the bank competitive in retainingits senior executives. The trial judge accepted this evidence and held that as these options were acquired as part of the appellant'sremuneration from employment they should be treated as income for the purpose of assessing both spousal and child support. 28 As I have indicated, the Guidelines came into force in May 1997.

The treatment of option income for the purpose of assessing childsupport under the Guidelines after that date is clear. Options granted as an employee benefit are to be valued and added to a spouse'sincome for the year in which the options are exercised under

Schedule III and section 13(1) of the Guidelines. Once the value of theoption has been determined the Court has a discretion to exercise under s. 17.

If, as a result of the exercise of the options, the court is ofthe opinion that the spouse's income results in an amount that is not fair to the paying spouse, for example because this is a one timepayment, the court can look at the spouse's income over the last three years and determine an amount that is fair and reasonable in lightof the receipt of a non-recurring amount during those years. . . . . . . 30 While the courts have differed in their approach when dealing with non-recurring income the recurring theme is that the child ofthe marriage should benefit from a sudden increase in lifestyle and money available to the family. [59] Herein, the father started Marener Industries, a fabrication business initially associated with the offshore industry.

To raisecapital he sold part of his interest in this business and entered a partnership. He also held an equity interest in a second company, Pol-E-Mar Inc. The equity interests evolved. At the time of his departure from these companies, his equity interest in Marener was held byK.I.R. Holdings. His equity interest in Pol-E-Mar Inc. was held by Atlantic Resources of which he owned 40 % through F.Y.R.Holdings. [60] In 2008 or 2009 conflict within the ownership circles of both of these companies resulted in his leaving the companies. He

initiated a lawsuit, the focus of which was the valuation of his shares in these companies. [61] As stated earlier, his legal fees amounted to in excess of $220,000. His settlement is valued at $485,000. He is being paid hissettlement in instalments. I was told the Canada Revenue Agency is classifying the payments to him as capital gains. - Imputed “Income” [62] As observed supra at paragraph 15, the Guidelines provide the court with authority to impute income in a range ofcircumstances. Section 19(1)(

h) of the Guidelines permits the court to impute income in, “such amount . . . as it considers appropriate inall the circumstances, which circumstances include the following: (

h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower ratethan employment or business income . . . [63] Justice Forgeron in Marshall v. Marshall, 2008 NSSC 11 provides a helpful

summary of the state of the law on this issue. Atparagraph 17-18, she wrote: 17 The discretionary authority found in

section 19 of the Guidelines must be exercised judicially in accordance with the rules of reasonand justice - not arbitrarily. There must be a rational and solid evidentiary foundation in order to impute income in keeping with the caselaw which has developed. The burden of proof is upon Ms. Marshall and it is proof on the balance of probabilities: Coadic v.

Coadic(2005), 2005 NSSC 291 , 237 N.S.R. (2d) 362 (SC). 18 In reviewing the factors to be considered when a party has requested imputation, the court stated at paras. 14 to 16 of Coadic: [14] In making my determination as to the amount of income to be attributed to Mr. Coadic, I am not restricted to the actual incomewhich he earned or earns, rather I am permitted to review Mr. Coadic's income earning capacity having regard to his age, health,education, skills and employment history. [15] In Saunders-Robert v. Robert, [2002] N.W.T.J.

No. 9, 2002 CarswellNWT 10 (S.C.), Richard, J., stated at para. 25: "[25] When imputing income, it is an individual's earning capacity which must be considered, taking into account the individual's age,state of health, education, skills and employment history. In the circumstances of the respondent, in my view it would not beunreasonable to impute, at a minimum, one-half of the income that the respondent earned in 1995 and 1996, say $50,000. I note that therespondent's present income, according to his own evidence, is approximately $42,500.00." [16] In R.C. v. A.I., [2001] O.J.

No. 1053, 2001 CarswellOnt 1143 (Sup. Ct.), Blishen, J., reviewed the principle that income is basedupon the amount of income which a parent could earn if working to his/her capacity and further adopted the factors to be applied whenimputing income as proposed by Martinson, J., in Hanson v. Hanson, (BC SC), [1999] B.C.J. No. 2532 (S.C.).Blishen, J., stated at paras. 79 to 80: "[79] By imputing income, the court is able to give effect to the legal obligation on all parents to earn what they have the capacity toearn in order to meet their ongoing legal obligation to support their children.

Therefore, it is important to consider not only the actualamount of income earned by a parent, but the amount of income they could earn if working to capacity (Van Gool v. Van Gool (1998), (BC CA), 166 D.L.R. (4th) 528). "[80] In Hanson v. Hanson, (BC SC), [1999] B.C.J. No. 2532, Madam Justice Martinson of the British ColumbiaSupreme Court, outlined the principles which should be considered when determining capacity to earn an income as follows:

'1. There is a duty to seek employment in a case where a parent is healthy and there is no reason why the parent cannot work. It is "no answer for a person liable to support a child to say he is unemployed and does not intend to seek work or that his potential to earn income is an irrelevant factor." (Van Gool at para. 30 ). '2. When imputing income on the basis of intentional under-employment, a court must consider what is reasonable under the circumstances.

The age, education, experience, skills and health of the parent are factors to be considered in addition to such matters as availability to work, freedom to relocate and other obligations. '3. A parent's limited work experience and job skills do not justify a failure to pursue employment that does not require significant skills, or employment in which the necessary skills can be learned on the job.

While this may mean that job availability will be at a lower end of the wage scale, courts have never sanctioned the refusal of a parent to take reasonable steps to support his or her children simply because the parent cannot obtain interesting or highly paid employment. '4. Persistence in unremunerative employment may entitle the court to impute income. '5. A parent cannot be excused from his or her child support obligations in furtherance of unrealistic or unproductive career aspirations. '6.

As a general rule, a parent cannot avoid child support obligations by a self- induced reduction of income.'" [ 64 ] The mother submits that her income is $15,000. This is the amount she is paid by a photo business owned by her mother, a medical doctor. I am satisfied that she does not have other sources of income at this time. [ 65 ] The mother does not have other skills, training or education that will position her for a career. She must get retrained/trained or increase the profitability of her work as a photographer. [ 66 ] She lives on a property owned by her mother and has a rent to own arrangement with her.

It is clear that her mother has been prepared to subsidize her. Her mother testified that she has plans to pursue photography in her retirement. That enterprise has proven to be less profitable than hoped. I am satisfied that the diversion of income to the daughter has served to delay her retirement from medicine. [ 67 ] I am also satisfied that the Respondent mother is motivated to become more productive. She impressed the court as intelligent, well motivated and a capable marketing representative and I am satisfied she is a conscientious photographer. [ 68 ] Nevertheless, she is not currently fully employed.

Given her financial responsibilities as a parent, it is reasonable and fair to expect her to devote more time and energy to generating business revenue. I am confident that the income increase will come. I set her income at $22,500, which requires me to impute an additional $7,500 in income to her for the year ending June 30, 2011. Her ongoing child support obligation will reflect this change. [ 69 ] The father had asked the court to impute an income of $75,000 . There is no basis for me to do so. Conclusions [ 70 ] For the year ending June 30, 2011 Ms. Beach’s income is imputed to be $22,500.

This figure will also be the basis for determining the current child support set off.

[ 71 ] I am satisfied that the RRSP income received by Mr. Leet in 2007 and 2009 is non recurring income. It was not used to fund household expenses or a life style for Mr. leet. The funds were required to fund litigation and related expenses. It is also worth noting that Mr. Leet both withdrew and deposited funds to his RRSP in 2009. [ 72 ] In addition to these considerations, I exclude these funds because the parties had reached a reasonable agreement on what Mr.

Leet’s child support payment and contribution to special expenses was to be for the period ending December 31, 2009. [ 73 ] For the same reasons, I am satisfied that Mr. Leet’s capital gains income in 2009 should not be included as income for child support purposes. [ 74 ] Mr. Leet’s obligation for the period ending December 31, 2009 is as the parties agreed to. Unless he failed to meet the terms of the parties’ agreement, no arrears of child support are payable for the period ending December 31, 2009. [ 75 ] The court is required to determine the impact of the Capital Gains income received by Mr.

Leet or to be received by him in 2010, 2011 and 2012. [ 76 ] On a go forward basis, that is for the period after January 1, 2010 I propose to first assess Mr. Leet’s child support obligation on the basis of his current income. His 2010 “income” will be used to determine his 2010 child support obligation. Section 2(3) of the Guidelines directs that the most current information be used for determining income. Given the recent uncertainty of Mr.

Leet’s income because of the RRSP and Capital Gains income, I find this method of determining income the fairest. [ 77 ] The remaining questions to be answered are: (1) does the application of s.17 of the Guidelines dealing with patterns of income result in all, part of or none of the Capital Gains income received in 2010 being considered for purposes of calculating child support? (2) even if Capital Gains income is to be considered income for child support purposes, does the court consider the table amount to be inappropriate (s.4 of the Guidelines )? [ 78 ] Additional information is required by the court to answer these questions.

I propose to adjourn a determination of these issues until a date after March 1, 2011, to permit the parties to provide the court with final income information for 2010. After reviewing this information; considering additional evidence the parties wish to offer and after hearing from the parties, a calculation of the total 2010 child support obligation, including s.7 expenses, will be made. [ 79 ] The principles discussed will determine the ultimate ruling on the remaining issues. The parties are encouraged to discuss a resolution.

As I have stated, it is not clear that all or any of the Capital Gains income should be income for child support purposes. It is also an open question whether the child support tables should apply to any Capital Gains. The court has discretion to exclude Capital Gains income on the basis of it being non recurring or to exclude it from the child support calculation in whole; in part or to include it all, given that it will potentially be incremental income, resulting in an over all income greater than $150,000.

Although I have ruled that the child support tables will apply to all employment income, I have not yet decided whether the tables should apply to any Capital Gains income found to be income for child support purposes and which forms part of Mr. Leet’s income greater than $150,000. [ 80 ] It is for counsel to assess how the legal principles outlined above impact on the respective position of their clients. My conclusion will turn on the application of s.4 and s.17 of the Guidelines to Mr. Leet’s 2010, 2011 and 2012 Capital Gains income. [ 81 ] The Scheduling Office will contact counsel to

schedule a Pre-Trial Conference and one day for hearing further evidence and submissions or alternatively, for scheduling a Settlement Conference.

J.