C.F. , Petitioner (Responding Party), v. F.H., 2023 NBKB 133

2023 NBKB 133 COURT FILE NO: FDF-480-2010 IN THE COURT OF KING’S BENCH OF NEW BRUNSWICK FAMILY DIVISION JUDICIAL DISTRICT OF FREDERICTON BETWEEN: C.F. , Petitioner (Responding Party), -and- F.H. , Respondent (Moving Party). DECISION AND REASONS Corrected Decision: The text of this decision has been corrected according to the appended corrigendum (released September 7, 2023) Date of Hearing: January 16-17, 2023 Date of Decision: July 17, 2023 Before: Madam Justice Nathalie L. Godbout Representation of Parties at Hearing: Ferne Ashford, K.C. of Ashford Law and Dispute Resolution, Solicitors for Ms. F.

Allison Whitehead, K.C. of Whitehead, Miles & Allen, Solicitors for Mr. H. Godbout, J. I. OVERVIEW: [ 1 .] The parties were married in 2001 and a Petition for Divorce was filed on October 15, 2010. They have two children, now ages 18 and 15. The divorce is not yet finalized. [ 2 .] In 2019, Mr. H. was ordered by the court to pay child support of $8,555.00 per month based on imputed earnings of $723,735.00 per annum. At the time, he had not complied with his obligation to provide financial disclosure, and his income was imputed based on his 2016 income tax return. [ 3 .] In 2020, Mr.

H. filed a motion to vary the child support, arguing that the income imputed to him was incorrect and far above his actual earnings. Ms. F. argued that Mr. H. earned far more than was imputed to him. [ 4 .] The sole issue before the Court is a determination of Mr. H.’s income. He earns a disability pension and owns considerable corporate shares in publicly-traded cannabis companies acquired in 2017 that cannot currently be traded or sold, and that have dropped significantly in value. Ms. F. seeks to attach a value to all of Mr.

H.’s personal and corporate assets, including his shares, and assign a rate of return to his “net worth”. Mr. H. wants his corporate assets excluded from the calculation of his income for child support. [ 5 .] For the reasons that follow, I find that Mr. H.’s annual income for the years 2019 to 2021 inclusive is determined to have been $723,735.00 per annum. II. GENERAL FACTS, BACKGROUND AND PROCEDURAL HISTORY: [ 6 .] The parties were married on July 13, 2001. They have two children, M.O.H. born […], 2004 (age 18) and C.D.H. born […], 2008 (age 15). [ 7 .] The parties separated on May 26, 2010. Ms.

F. filed a Petition for Divorce on October 15, 2010 when the children were ages 6 and 2. The divorce has not been finalized. [ 8 .] Mr. H. is 44 years of age (born […], 1979) and Ms. F. is 43 years of age (born […], 1979).

[ 9 .] Mr. H. lives in Nova Scotia. He is medically discharged from the Canadian Armed Forces after numerous deployments. He is diagnosed with Post-Traumatic Stress Disorder (“PTSD”) and anxiety. According to his psychologist, Dr. Joan Wright, participating in legal proceedings is triggering to Mr. H. and aggravates his symptoms. Despite this, he attended the hearing of the within motion over a period of 2 days, something Dr. Wright had attested he would not be able to do (her affidavit sworn June 10, 2020). [ 10 .] Ms. F. lives in Gagetown, N.B. and is a schoolteacher.

She has had primary care of the children since the parties separated in 2010. [ 11 .] In November 2010, the Court ordered that Ms. F. have interim primary care of the children. Mr. H. was ordered to pay interim child support based on his (then) annual income of $69,744.00. At the time, Mr. H. was attending treatment for his PTSD, and the Interim Order mention that he would be “attending a treatment facility in Ontario”. [ 12 .] By consent, the parties varied the order for interim child support in 2011 to reflect the grossed-up value of Mr. H.’s “DVA pension” and his projected employment income. [ 13 .] Mr.

H. declared bankruptcy in 2012. According to Ms. F., he “left [her] to bear the burden of the entirety of the marital debt, including debt for vehicles he continued to drive”. [ 14 .] Examination for discovery took place over 3 days, ending on December 7, 2017. According to Ms. F., the discovery process left her “with more questions than answers surrounding Mr. H.’s income and net worth”. She described that Mr. H. was “evasive” and “difficult”. Mr. H. gave 25 undertakings which, according to Ms.

F., remain largely unanswered 5 years later [her Affidavit sworn December 23, 2022]. [ 15 .] On December 8, 2017, the day immediately following the last day of discovery, Mr. H. filed a motion to vary the parenting

schedule and lower his child support obligation. Ms. F. responded with her own motion seeking to vary the child support ordered in the 2011 Interim Order. After multiple court appearances in 2018, the hearing of both motions was held on April 24, 2019. By then, Mr. H.’s (then) solicitors had been granted leave to withdraw as solicitors of record effective January 23, 2018 and Mr. H. was representing himself. He did not appear at the hearing of the motions. The Court dismissed Mr. H.’s motion, gave “sole custody” of the children to Ms. F., granted Mr. H. a

schedule of parenting time, and ordered the following concerning child support [the “2019 Order”]: “6. As a result of the lack of financial disclosure provided by F.H., and pursuant to

section 33.12 of the New Brunswick Rules of Court and

section 23 of the Federal Child Support Guidelines , income shall be imputed to the Respondent, F.H., based upon his 2016 income tax return and the Child Support Guidelines (including

Schedule III,

section 6). Specifically, and for the purposes of the Federal Child Support Guidelines , F.H.’s income is imputed to be $ 723,735.00 per annum. As such, F.H. shall pay child support to C.F., for the support of the two children of the marriage, namely…, in the amount of $8,555.00 per month payable on the 1 st day of each month commencing on May 1, 2019, until further Order of the Court. (…) 9. The arrears owing to C.F. are set at $294,930.00 up to and including April 30 th , 2019.

Should the Respondent, F.H., provide current financial information for the purpose of a variation of prospective child support, he shall be able to do so for ongoing support commencing on May 1, 2019 forward. 9. (sic) F.H. shall pay costs to C.F. in the amount of $2,500.00, payable within 30 days of the execution of the within order.” [ 16 .] The 2019 Order was signed and filed on April 29, 2019. Mr. H. did not appeal. [ 17 .] Mr. H. retained new counsel and filed a motion on October 17, 2019 seeking to vary his child support obligation and obtain a determination of his actual income.

The Court ordered that the motion (disposed of with this decision) be stayed “until such time as the costs from the [2019 Order] are paid in full” and also “until such time as it is determined if Mr. H. is a ‘person under disability’ and requires a litigation guardian pursuant to Rule 7 or the New Brunswick Rules of Court ”. [ 18 .] It was at this point that Ms. F. retained the services of a chartered accountant, Matthew Mahoney of Connors Stilwell, to “attempt to figure out the ‘complex web’ of Mr. H.’s corporate holdings” and determine what “reasonable amount of income would be available” for child support. Mr.

Mahoney drafted an initial affidavit setting out his understanding of Mr. H.’s corporate and personal net worth, and corresponded regularly with Mr. H.’s various lawyers seeking disclosure relative to his financial holdings. [ 19 .] Mr. H. was appointed a Litigation Guardian on June 18, 2020. The following month, he filed a motion seeking to stay the collection of child support and enforcement of arrears pending the hearing of his motion to vary. [ 20 .] The motion seeking to suspend enforcement was before me on July 16 2020, at which time the parties agreed to adjourn the hearing to allow counsel for Ms.

F. and her accounting expert to review new disclosure that had been provided by Mr. H. and his new legal counsel, (the now late) Allison Whitehead, K.C.. A date was to be set for the hearing of the motion to vary to allow for viva voce expert evidence from accountants over 2 days. [ 21 .] On December 7, 2020 counsel for Ms. F. wrote to counsel for Mr. H. summarizing the advice she received from her expert accountant, Mr. Mahoney, expressing “shock” at the content of the disclosure received, and suggesting that “Mr.

H. has the potential for an imputed income of over five million dollars per annum (and, apparently has had this potential for the last three years)” [Amended Record on Motion, page 78]. [ 22 .] On November 16, 2021 the requirement for Mr. H. to have a litigation guardian was removed with the consent of both parties.

[ 23 .] On November 22, 2021 Mr. H. filed an Amended Notice of Motion to vary the 2019 Order (the within motion). It was scheduled to be heard over two days in October 2022. [ 24 .] Mr. H. filed a motion on March 2, 2022, once again seeking temporary relief from collection efforts against him for his arrears until the within motion to vary was heard. His motion was dismissed with costs ordered in favour of Ms. F. of $1,000.00 to be paid within 30 days. Ms. F. responded to the motion by seeking suit money, which she was granted on June 7, 2022 in the amount of $60,000.00 to be paid by Mr.

H. within a month. [ 25 .] By August 8, 2022 Mr. H. had not yet paid the suit money. The parties adjourned the within hearing by consent and the suit money was paid on October 4, 2022. [ 26 .] Mr. H. is now in a relationship with J.N.. Her identity is relevant only because Mr. H. sold property in 2021 and directed that the proceeds from the sales be paid to Ms. N.. Ms. N. is listed as the sole owner of the home she and Mr. H. live in, as well as the surrounding parcels of land. The suggestion is that Mr.

H. is diverting his assets to his common law spouse to avoid paying additional child support. [ 27 .] Given that this motion to vary was rescheduled several times, I wish to confirm that I have reviewed the following: a. Record on Motion filed July 14, 2020; b. Affidavit of Nick Norrad sworn July 15, 2020 [Exhibit “A”]; c. Ms. F.’s Responding Document filed July 14, 2020; d. Affidavit of Matthew Mahoney sworn and filed July 15, 2020; e. Record on Amended Motion filed January 11, 2023; f.

Notice of Expert Witness of Matthew Mahoney with accompanying binder of materials and his revised report dated January 16, 2023 [Exhibit “B”]. III. ISSUES: [ 28 .] The Court is tasked with determining the following: a. Does this motion seek a variation of a final order or an interim order? b. Is a material change in circumstances necessary, and if so, has there been a material change in circumstances sufficient to warrant a variation in child support ? c. Should child support be varied, retroactively and prospectively, and if so, based on what earnings for Mr. H.? d. Costs. IV.

LAW AND ANALYSIS: Is this a variation of a final order or an interim order? [ 29 .] In order to consider a variation of the 2019 Order, I must first determine my jurisdiction to so and also determine whether I am varying an interim order or a final order. [ 30 .] Ms. F. filed a Petition for Divorce in 2010. The divorce has not been finalized, this despite the passage of 13 years and the granting of several court orders. [ 31 .] Mr.

H. seeks to vary the 2019 Order, which is notably entitled “FINAL ORDER OF THE COURT” and provides, in part: WHEREAS a Petition for Divorce was filed on October 15 th , 2010; AND WHEREAS F.H. filed a Motion on December 8 th , 2017; AND WHEREAS C.F. filed a Responding document on January 29 th , 2018; AND WHEREAS C.F., the Petitioner, filed a Motion on December 4 th , 2018 and the Respondent, F.H., filed an affidavit in Response on February 25 th , 2019; (…) AND WHEREAS it was the intention of the court to resolve all matters pursuant to the Divorce Act on a final basis ; [ Emphasis mine ]

[ 32 .] On the surface, the 2019 Order could read as though it is a final order under the Divorce Act , somehow equal to an Order for Corollary Relief. It is, after all, entitled “Final Order of the Court” and is further to the filing of a Petition for Divorce. However, the divorce was not granted during the 2019 hearing or before.

Calling the relief granted in the 2019 Order a “Final Order of the Court” does not make it the equivalent of an Order for Corollary Relief. [ 33 .] With due respect to the presiding justice in May 2019, it is my considered view that the 2019 Order can be no more than an order disposing of the relief sought in the two motions, and not a final order granting corollary relief under the Divorce Act . An Order for Corollary Relief pursuant to the Divorce Act is just that – “corollary”, meaning as a consequence of, divorce.

An order pursuant to the Divorce Act that is not corollary relief pursuant to a divorce is de facto an interim order, regardless of the title one might place on the court order itself. [ 34 .] As such, I am satisfied that the 2019 Order is an interim order for purposes of the within motion to vary. Has there been a material change in circumstances sufficient to warrant a variation of an interim order for child support? [ 35 .] The within motion seeks to revisit the 2019 Order for child support retroactive to May 1, 2019. Given that the 2019 Order is an interim order, a variation requires Mr.

H. to demonstrate a material change in circumstances, this in accordance with

section 14 of the Federal Child Support Guidelines , SOR/97-175 [“ Guidelines ”]. [ 36 .] Here again, the wording of the 2019 Order is important: “6. As a result of the lack of financial disclosure provided by F.H.… 9. The arrears owing to C.F. are set at $294,930.00 up to and including April 30, 2019. Should the respondent, F.H., provide current financial information for the purpose of a variation of prospective support, he shall be able to do so for ongoing support commencing on May 1 st , 2019 forward .” [ Emphasis mine ] [ 37 .] Mr. H. did not appear at the hearing that resulted in the 2019 Order.

Income was imputed to him based on the most recent financial record available to the Court, namely his 2016 income tax return showing an annual income of $723,735.00. [ 38 .] Counsel for Mr. H. argues that the income earned by Mr. H. since April 2019 is significantly less than that imputed to him in the 2019 Order, thereby constituting a material change in circumstances sufficient to allow for a variation. There is evidence to support this position: while the 2019 Order imputed annual earnings of $723,735.00, I have concluded that Mr. H. earned considerably less in 2019, and considerably more in 2020 and 2021.

I am satisfied that the shift in his earnings since April 2019 constitutes a material change in circumstances sufficient to warrant an interim variation. [ 39 .] Further, I am also satisfied that the wording of the 2019 Order leaves the door open for an interim variation upon the production of Mr. H.’s financial records “for the purpose of a variation of prospective support… commencing on May 1st, 2019 forward”. The 2019 Order confirms that updated financial disclosure will, by itself, be sufficient to allow for the filing of a motion to vary.

This makes sense, as the imputation of income was based on outdated financial information. The goal is always for child support to be based on a payor’s most up-to-date financial information. [ 40 .] Therefore, I find there is a sufficient basis to proceed with this motion to vary on its merits, based on the wording of the 2019 Order itself as well as the existence of a material change in Mr. H.’s income since the 2019 Order. Should child support be varied, and if so, based on what earnings for Mr. H.? [ 41 .] Mr.

H.’s total income earning capacity from May 2019 to the end of 2021 requires a determination pursuant to sections 16 , 17 , 18 and 19 of the Guidelines . [ 42 .] Mr. H. receives a pension from the Canadian Armed Forces, as well as several non-taxable Veterans affairs benefits. He is also the director of various companies, is a trustee and beneficiary of a family trust, owns or has owned considerable real estate holdings, and is a shareholder in several companies tied to the production of “craft” or medicinal cannabis. [ 43 .] Ms. F. describes Mr.

H.’s income as “expansive”, in that he “holds a number of assets capable of producing income, including investments, corporate assets, shares, bank accounts and real estate”. It is her position that he earned income of over $5 million in 2019, $726,561.00 in 2020, and $693,902.00 in 2021, for a 3-year average of $2.3 million per year. [ 44 .] Mr. H. submits that his only source of recurring, disposable income is his military pension and benefits, as well as a few modest holdings. He argues that the lion’s share of the “assets” Ms.

F. relies on to generate income were acquired as a result of one- time, non-recurring transactions in 2016 and 2017. He submits that the various corporate shares he owns are “illiquid”, cannot be traded or sold, and have dropped significantly in value. He wants these assets excluded from the calculation of income available to him for child support. [ 45 .] Mr. H.’s motion is hotly contested, and significant resources have been expended to advance and defend against the relief sought. Ms. F. retained an accountant to analyze Mr. H.’s holdings and pursue financial disclosure from Mr.

H., with only some success. [ 46 .] Ms. F. is highly critical of Mr. H.’s persistent lack of disclosure, and to a great extent, she is right. The bedrock of family law is financial disclosure, and Mr. H. has been sorely lacking in this regard. Even during the hearing of the within motion, Ms. F. was still identifying important gaps in the financial information she received.

[ 47 .] Mr. H.’s assertions concerning his limited income are also coloured by the fact that he has marketed himself as a hugely successful entrepreneur in the field of craft and medicinal cannabis market. It is not surprising that Ms. F. spent years chasing down his “true” earnings to fit with this narrative. His persistent reluctance to provide complete and timely financial disclosure only added fuel to the fire. Expert reports [ 48 .] Before proceeding to an analysis of the case on the merits, I must address the admissibility and reliability of the expert evidence.

On consent, two individuals were declared expert chartered accountants, capable of giving opinion evidence on the subject of Mr. H.’s income and net worth. [ 49 .] According to his Notice of Expert, Matthew Mahoney was retained by Ms. F. in 2019 to analyze financial and other documentation pertaining to Mr. H.. He prepared an expert report dated January 16, 2023 [Exhibit “B”] and testified as an expert at the hearing. He is a chartered professional accountant, holds a post-graduate degree in finance, and works as a corporate finance and tax advisor with Connors Stilwell.

He had no prior professional or personal connection to either party. I take no issue with his qualifications and am satisfied that his evidence is admissible and relevant. That being said, I have declined to approach the calculation of child support as he proposed. Mr. Mahoney’s approach was to take all of the assets owned by the companies under Mr. H.’s control, his personally held assets, as well as assets diverted through the family trust, and apply a rate of return to the “value” of those assets, thereby creating an “income” attributable to Mr. H..

This approach was, in my view, unusual and not suited to the assets in question, thus rendering most of his calculations unusable. [ 50 .] Nick Norrad is also a chartered professional accountant. He authored 3 affidavits and gave viva voce evidence. An important difference between he and Mr. Mahoney is that Mr. Norrad has been Mr. H.’s personal and corporate accountant since 2017. He authored many of the financial statements in evidence.

He testified that he understood his obligation to assist the Court with expert evidence that was unbiased and impartial. [ 51 .] Experts owe a duty to the Court to provide evidence that is fair, objective, and non-partisan. Indeed, this common law duty has been codified in the rules of court of most provinces. In the decision of the Supreme Court of Canada in White Burgess Langille Inman v.

Abbot and Haliburton Co. , 2015 SCC 23 , Justice Cromwell clarified that independence and impartiality are to be considered at the threshold stage, in that “a proposed expert’s independence and impartiality goes to admissibility and not simply to weight”. [ 52 .] Ms. F. did not oppose the admission of Mr. Norrad’s expert evidence, which I took to mean that she believed he would provide fair, objective and non-partisan expert evidence to the Court. While Mr.

Norrad’s ability to give evidence was not questioned at the threshold stage, the Court remains the gatekeeper of such evidence and has the option of rejecting it outright or tempering its weight. At this stage of my analysis, I do have concerns. [ 53 .] Mr. Norrad’s accounting credentials are appropriate, and he is qualified to give expert accounting evidence as to an individual’s income and net worth. However, his evidence was used, not infrequently, to provide evidence on behalf of Mr. H. that should have been given under oath by Mr. H. himself, either by affidavit or viva voce evidence.

A considerable amount of Mr. Norrad’s evidence was information he obtained from Mr. H. or others who were unidentified. This evidence was not properly before the Court as it was unsworn evidence presented through a 3 rd party, making it untested and inherently unreliable. [ 54 .] I also question Mr. Norrad’s appreciation of the fact that while certain practices may be permissible in the accounting world, they do not pass muster in court. Mr. Norrad testified that his work on this file, including the preparation of affidavits and his time giving testimony, was being invoiced to one of Mr.

H.’s corporations, namely 678734 NB Inc. I found this to be a questionable practice. Mr. H. could only authorize this because he controls the company. Mr. Norrad’s participation in these legal proceedings is for the benefit of Mr. H. personally, not his corporation. This admission gave me serious pause and was a prime example of Mr. H. benefitting from his corporate income without it being “paid” to him in hand and forming part of his taxable income available for child support. [ 55 .] As I understood Mr.

Norrad’s evidence, 678734 NB Inc. was a company created in 2016 to receive shares (Aphria Inc.) in a large public cannabis company as part of a significant transaction involving Mr. H.. For Mr. Norrad to argue that the proceeds from that one-time 2016 transaction should not form part of Mr. H.’s income for purposes of child support, while Mr. H. uses these very proceeds to pay for Mr. Norrad’s professional services in his personal court proceedings, is questionable to say the least. The fact that Mr. Norrad agreed to bill 678734 NB Inc. for his personal services to Mr.

H. suggests he is not impartial in these proceedings. Indeed, courts have imputed 100% of the legal fees paid by a payor’s company for litigation to the payor where the legal fees related solely to the matrimonial litigation [see Gosse v. Sorensen-Gosse , 2011 NLCA 58 ]. [ 56 .] Despite my misgivings as to Mr. Norrad’s impartiality, there was nevertheless some utility to his evidence, which I will take into consideration in my overall analysis.

As for the expert nature of his evidence and the expression of an opinion, I will be approaching this with considerable caution and tempering its weight accordingly given Mr. Norrad’s inclination to act in a way that primarily benefits his client.

Section 16 – Total Income - Earnings and Pensions [ 57 .]

Section 16 of the Guidelines states that 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. [ 58 .] The parties agree that Mr. H. earned the following Line 150 income in 2019-2021 as confirmed by his Notices of Assessment:

Year Line 1502019 $76,989.632020 $68,753.152021 $69,441.24 [59.] Mr. H. also received tax-free benefits each year, namely payments from Veterans Affairs Canada for the upkeep ofhis personal property, and additional disability benefits (Additional Monthly Amount and Additional Pain and Suffering Allowance), allof which need not be declared on an income tax return but does form part of Mr. H.’s income available for child support. These benefitsare received net of tax and should be grossed-up for their preferential tax treatment. Mr.

Norrad took issue with the gross-up of theamounts for property maintenance, as he claimed it was simply a reimbursement for expenditures Mr. H. made for these services,however I was provided no evidence of such expenditures. Most individuals who hire such services do so with after-tax money. I amsatisfied that these benefits should be grossed-up and included in Mr. H.’s income. [60.] Mr. H. received the following tax-free benefits: in 2019 he received $3,508.77 from the Veterans IndependenceProgram, and $35,187.98 in additional pension and other benefits, for a total of $38,696.75.

Similar benefits in 2020 amounted to$48,744.11, and in 2021 to $49,154.15. [61.] The parties did not agree on the on the marginal tax rate to be applied to gross-up these tax-free benefits: Mr.Mahoney used the highest rate at 53.3% for his calculations, while Mr. Norrad suggested Mr. H.’s tax bracket was closer to 36% basedon his earnings. Being unable to reconcile their evidence on this issue, I have relied on DivorceMate to make the appropriate gross-upcalculation once I have factored in all additional income to be attributed to Mr. H..

Section 18 – Shareholder, director, or officer - Corporate Assets & Investments

Section 19 – Imputing Income [62.]

Section 18 of the Guidelines allows the Court to “pierce the corporate veil” and ensure that the true financial meansavailable to a shareholder/director/officer who is a payor are assessed for child support purposes. This is because a simple “Line 150”approach may not be an accurate reflection of the money a spouse with corporate holdings has available for support payments. Theoften-cited decision of Goett v. Goett, 2013 ABCA 2016 at para 16 speaks to the criteria a court may employ to determine a spouse’sincome in relation to the pre-tax income of a corporation: “A body of jurisprudence has developed under

section 18 in an effort to address the fundamental unfairness that arises if a parent candivert, manipulate or shelter income through the use of a corporate structure to avoid the payment of adequate child support. At the sametime, in an effort to balance legitimate business expenses and capital requirements, criteria have developed to inform the exercise ofjudicial discretion.

These criteria include the role the payor plays in the corporation, whether he or she is the sole shareholder, the degreeof control of the payor exercises, the evidence as to the availability of retained earnings to pay child support, and whether those earningsare required to manage the business and ensure its ongoing financial viability.” [63.] Mr. H. is a shareholder, director, or officer of several corporations. As such, these assets must be consideredpursuant to

section 18 of the Guidelines, which allows me to consider the nature of the relationship between Mr. H. and these entities,and the financial means available to Mr. H. from these entities, having due regard for each corporation’s business obligations, legitimatecalls on its income, its capitalization requirements, historical income patterns, and non-recurring gains and losses. This is particularlyimportant where Mr. H. has the sole ability to control the income of a corporation, how it is used, and what amount is drawn to himpersonally, including its retained earnings.

As stated by Justice Larlee of our Court of Appeal in Milton v. Milton, 2008 NBCA 87 atpara. 30 (referencing Wildman v. Wildman, (ON CA), [2006] O,J, No. 3966): “The Court concluded that while abusiness person was entitled to create corporate structures and relationships for valid business, tax, and other reasons, the law had to bevigilant to ensure that permissible corporate arrangements did not work an injustice in the realm of family law.” [64.] Working in tandem at times with

section 18 is

section 19 of the Guidelines, which gives the Court discretion toimpute income where the amount stated in income tax returns does not truly represent the income available to pay child support. Section19 affords the court a broad discretion to “impute such amount of income to a spouse as it considers appropriate in the circumstances”,including when: (

d) it appears income has been diverted (…)”, when “(

f) the spouse has failed to provide income information whenunder a legal obligation to do so”, when “(

h) the spouse derives a significant portion of income from dividends, capital gains (…) andwhen “(

i) the spouse is a beneficiary under a trust (…)”. The circumstances outlined in

section 19 do not constitute an exhaustive listand the

section gives the court a significant amount of discretion in imputing income [see M. (J.A.) v. M. (D.L.) 2008 NBCA 2]. 686574 NB Inc. [65.] According to Mr. Norrad (letter dated December 13, 2019), Mr. H. was a director of this corporation, which 50% ofits outstanding shares were owned by 678734 NB Inc. (described below). The company was created by Mr. H. and 2 other unidentifiedindividuals with the intention of starting a marijuana growing facility. A property was purchased by the company, but the project wasultimately abandoned, and the company was wound up.

I was provided no other evidence concerning this corporation, including whathappened to its assets or its shares owned by 678734 NB Inc. I identified no evidence of income available in this corporation forpurposes of child support. 678734 NB Inc. [66.] This corporation is the one that continues to hold assets that Ms. F. claims earn Mr. H. an income.

[ 67 .] 678734 NB Inc. is wholly controlled by Mr. H.. It has 2 classes of shares: voting preferred shares owned entirely by Mr. H., and non-voting common shares owned by the Myco Family Trust (described below). As a beneficiary of the Myco Trust, Mr. H. has a beneficial interest in the common shares of the corporation owned by the Trust, of which Mr. H. is also a Trustee. [ 68 .] According to Mr. Norrad, the genesis of 678734 NB Inc. was two “very significant transactions” involving Mr.

H., namely the sale of Marijuana For Trauma Inc. to Canada House, and the sale of CannWay Pharmaceuticals Inc. to Aphria Inc. [ 69 .] Concerning the latter transaction, Mr. H. started several cannabis companies prior to 2016, including CannWay Pharmaceuticals, a small company that he owned one third (1/3) of along with 2 other unnamed business partners. Mr. H.’s 1/3 ownership of CannWay Pharmaceuticals was through his company, 678734 NB Inc. [ 70 .] In 2016, 678734 NB Inc. (i.e. Mr.

H.) sold its 1/3 interest in CannWay Pharmaceuticals in exchange for 1.2 million shares in Aphria Inc., a much larger public marijuana company. According to Mr. Norrad, 678734 NB Inc. was created “just to receive those 1.2 million Aphria shares” . Mr. Norrad believes that everything presently owned by 678734 NB Inc. was obtained using the proceeds from the 2016 Aphria deal. [ 71 .] Mr. Norrad testified that while other ventures by Mr. H. have not worked out so well (i.e. the Canada House transaction, described below), this one was “much much better, much more lucrative”.

Though the market for marijuana shares was “volatile” at the time, the Aphria shares were trading at nearly $20.00 per share, making this transaction a “20 million dollar deal”. [ 72 .] From 2016 to 2018, 678734 NB Inc.’s financial statements show significant capital gains on its income statement, all from the sale of the Aphria shares that it received. According to Mr. Norrad, as 678734 NB Inc. sold some of the shares and received the payments, the proceeds were largely reinvested by Mr.

H. in a portfolio held with CIBC Wood Gundy, mostly in small cap marijuana companies, as well as some private company investments, and used to make several loans to other ventures involving Mr. H.. [ 73 .] Mr. Norrad testified that Mr. H. did not manage his significant earnings well over this period. In 2018, when 678734 NB Inc. realized most of its Aphria gains, there was a commensurate tax liability to the Canada Revenue Agency [“CRA”]. Though Mr. H. was repeatedly advised to set aside 25% of these earnings to remit to CRA, he did not.

Instead, he reinvested the earnings into small cap marijuana stocks, which later dropped significantly in value. The company ultimately sold several pieces of real property to settle its tax liability. [ 74 .] The investments with CIBC Wood Gundy held by 678734 NB Inc. also took a turn in 2019, when marijuana stocks began losing significant value. A capital dividend to shareholders (i.e. the Myco Trust) was declared in 2019 in the amount of $3.9 million, which dividend was then distributed to Mr.

H. by the Myco Trust, non-taxable in his hands as a “distribution of the after-tax earnings of 678734 NB Inc.” [page 97 of the Amended Record]. According to Mr. Norrad and the related financial statements, this was a “paper dividend only”, in that no money changed hands, and much of the tax-free money is still owed to Mr. H. today [Amended Record, page 95]. As of the end of 2019, the Balance Sheet for 678734 NB Inc. was showing “Current Liabilities – due to shareholder $3,814,813.00”, meaning $85,187.00 was already paid to Mr. H..

In 2020, $3,285,448.00 was due to shareholders, meaning another $529,365.00 was paid to Mr. H.. In 2021, $2,919.868.00 remained due to shareholders, meaning another $365,580.00 was paid to Mr. H.. Overall, Mr. H. received $980,132.00 of the tax-paid capital gain (i.e. the dividend) owed to him over 3 years. [ 75 .] In his expert report, Mr. Mahoney opted to include the dividend total of $3.9 million as part of Mr. H.’s “available income” in 2019. Not surprisingly, Mr. H. takes issue with this.

His argument is two-fold: first, the dividend issued in 2019 is derived from a non-recurring capital transaction (the Aphria deal) that occurred in 2016 and should be excluded pursuant to

section 17 of the Guidelines as a “non-recurring amount”. In addition, Mr. Norrad argues that much of the funds have not yet been disbursed to Mr. H., and as such do not form disposable income in Mr. H.’s hands. [ 76 .] With respect to the latter argument, Mr. Norrad is correct and the caselaw largely aligns with his position. For instance, in Korman v. Korman , 2015 ONCA 578 , the payor historically reported annual dividend income on his income tax returns from a company controlled by his mother, but in fact he never received this income.

The court found that the amount of dividend income which the payor had never received should not be included in the calculation of his annual income for child support, income which the trial judge had imputed to him. The same could be said here, in that Mr. H. has only received $980,132.00 between 2019 and 2021, and not the entire $3.9 million as Mr. Mahoney’s calculations suggest. He is owed the rest. Those amounts he has not received in hand should not be counted as income available to calculate child support. [ 77 .] Mr.

H. also argues that – regardless of what amount he received in hand from 2019 to 2021 - none of the $3.9 million should be included in the calculation of his income, as it was earned as a result of a “one-time, non-recurring transaction which will not continue to occur over time… and is not indicative of an ongoing, stable income source” [Mr. Norrad letter at page 95 of Amended Record on Motion]. He relies on

section 17 of the Guidelines : 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 . [ Emphasis mine ] [ 78 .] Mr. H. cites several cases in support of his position. In Arnold v. Washburn

(2001) CarswellOnt 10731 , a leading case in Ontario about stock options and recurring income, a payor made an additional $3.1 million (over his employment income) when he disposed of shares which had been acquired as stock options. In a brief decision, the trial judge did not include any part of the $3.1 million in the payor’s income available for child support, though he did include income earned from an investment portfolio where the proceeds from the sale of the shares were placed.

He stated at para. 7: 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 the fairest determination of the respondent's annual income from his employer, and I rely on my authority in paragraph 17 (1) (

c) of the

Support Guidelines to exclude all of these amounts. They are large amounts, which do not form a pattern of "income" and otherwise skew 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. These large elements of the respondent's wealth have come into his hands in relatively recent years and this is not one of those cases in which the children may now be deprived of a highend lifestyle that they enjoyed before the divorce.

The evidence here suggests that the children have always been more than adequately supported, and that their lifestyle has not only not deteriorated in any way, but is supported by both parents, well beyond what might be said to be their minimum legal obligation. I note, for example, that in the current year the respondent has already paid some $25,000 to or for the eldest child's postgraduate year at university in England.

This is in addition to the on-going child support he has continued to pay to the applicant for the support of that child notwithstanding that the child has ceased to become eligible for child support under the terms of the 1991 divorce judgment and has not resided with the applicant for some 3 years. [ 79 .] The above outcome was upheld, albeit “with some reservation”, by the Ontario Court of Appeal [see Arnold v. Washburn

(2001) CarswellOnt 4439 ], which held that section 17(1) of the Guidelines gave the trial judge discretion to “include any part of a non-recurring amount in a spouse’s annual income” [para. 8]. In essence, the Court of Appeal opted not to interfere with the trial judge’s discretion. [ 80 .] The Arnold decision offers little by way of analysis of the law on when profits from stock options/capital gains should be included in income for child support purposes. It is also distinguishable from the present matter.

In Arnold , the payor was fully meeting his child support obligations, and the children spent considerable time with both parents. The payor had “complied with the support provision continuously” and had supported his children “beyond [the] terms” of the minutes of settlement in place. There was no fairness issue, nor had the payor shirked his disclosure obligations. That is hardly the case here. It was the uncontested evidence of Ms. F. that Mr. H. was paying none of his share of the children’s

section 7 expenses, has continued to withhold disclosure, and has resisted her attempts to collect on over $400,000.00 in child support arrears. Finally, the sale proceeds in Arnold were placed in an investment portfolio and contributing to the payor’s annual income, which is not the case here. [ 81 .] Closer to home, Mr. H. relies heavily on the decision of a unanimous N.B. Court of Appeal in McNeil v.

McNeil , 2013 CarswellNB 607 , a matter which grappled with whether a capital gain of almost $1.4 million arising from the exercise of employee stock options should have been included in the payor’s income for purposes of child support. The Court of Appeal held that the trial judge erred by including that amount in income because it was non-recurring. [ 82 .] The facts in McNeil are also distinguishable. The father of 2 children was paying child support in a nominal amount. In 2005, he exercised employee stock options at $0.60 per share that had a market value of $25 per share.

In essence, he acquired the options but did not then sell them, therefore receiving no money in hand . Nevertheless, under the Income Tax Act , he was required to report a taxable capital gain of $1,383.000.00. Excluding that capital gain, the father’s income for 2005 would have been a little over $300,000.00. [ 83 .] The father did not tell the mother about this gain, nor did he provide her his income tax return. She ultimately learned of the gain on a variation motion and hired a chartered accountant to audit the father’s “actual income”.

The motion judge determined that the father should pay $232,000.00 in retroactive child support, of which $195,000.00 related to the capital gain. The appeal dealt exclusively with the decision to award retroactive support in regard to the 2005 taxation year and the unrealized capital gain. The father argued that the gain did not equate with a true source of disposable income and would lead to a child support payment of $17,874 per month, which was 70% of the income the payor actually received in 2005. [ 84 .] The Court of Appeal found the fairness argument in McNeil compelling. As was the case with Mr.

H., the acquisition of shares in McNeil had generated a paper gain but had not generated further disposable income from which child support might be paid. It concluded that the Guidelines as well as the jurisprudence excluded such capital gains from the income available for child support.

Of importance, it went on to add: “Indeed, as the law presently stands, even the ultimate gain realized on a subsequent disposition of the shares so acquired might not qualify as income for support purposes ” [ Emphasis mine ]. [ 85 .] I highlight the above quote from our Court of Appeal, as the language used in reference to excluding realized capital gains was permissive and not mandatory: an ultimate gain realized on a disposition of shares “ might not qualify ” as income, meaning it may very well qualify as income, depending on the facts.

A non-recurring amount is not automatically excluded from the calculation of income available for child support: it is a matter of discretion and fairness [see Ewing v. Ewing , 2009 ABCA 227 beginning at para. 35] . [ 86 .] Ms. F. persuasively argues that Mr. H. is a serial entrepreneur in the cannabis sector, building, buying, selling, and trading assets and shares associated with his involvement in various cannabis companies. He has earned considerable attention and income in the cannabis world - a second career of sorts.

He owns additional shares in at least one other company that may or may not mature into a lucrative investment. In that sense, Mr. H.’s venture into the cannabis market with the Aphria transaction has not been a one-off: he continues to explore opportunities in this sector. [ 87 .] The Court’s ultimate objective in determining a payor’s annual income is to use the method that is the fairest, which is consistent with the objectives set out in

section 1 of the Guidelines , which include “(

a) to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses after separation ”. [ 88 .] In McNeil , the payor had no funds in hand, only a paper transaction giving him ownership of shares he had not yet disposed of. That is not the case for Mr. H.: he has received almost $1 million in hand from the sale of the Aphria shares between 2019 and 2021, funds that he has not reinvested or used to generate income as had the payor in Arnold .

His lifestyle between 2019 and 2021 reflected these earnings: he and his common law partner live on a “sprawling” property in N.S., he bought homes for his parents to live in, and sponsored his children’s sports teams, to name but a few expenditures. Though he did not prioritize paying any of his fair share of

section 7 expenses for his children, his lifestyle with them was hardly modest, as Ms. F. described in her affidavit sworn December 23, 2022 at paragraph 34: “… Mr. H. refuses to follow the Order and does not assist me with the children’s special expenses. Despite correspondence and receipts

being sent to his lawyer, he has not contributed to the high costs associated with our children’s extraordinary extra curricular activities. He attends the children’s sporting events and presents himself as charitable to the team - sponsoring the team, paying to take the whole team out to a restaurant for dinner (as a budget for premium hockey sticks) but he has not paid for one registration and has contributed very little to their equipment and associated costs. He did not contribute to the expense of [his daughter’s] Driver’s Ed course which was $600 but then purchased her a car for her 16 th birthday day.

Since 2020 I have incurred approximately $7000 in special expenses, and despite requests Inc. submitted via counsel, Mr. H. has not contributed anything at all to the special expenses of his children.” [ 89 .] Parents should pay the appropriate amount of child support that reflects their lifestyle and the needs of the children. Certainly, the Aphria proceeds Mr. H. received enhanced his lifestyle and his ability to pay support. He has not been living solely on his disability income, and it is reasonable for his children to benefit from the improvement in his financial status.

I am exercising my discretion to include the portion of these non-taxable gains he has received in hand to his available income in 2019, 2020 and 2021, as they reflect disposable income available to him. I will gross-up these amounts to reflect the gross income Mr. H. would have to earn at his (then) marginal tax rate to have this non-taxable income. [ 90 .] 678734 NB Inc. also recorded 2 notable losses in its Financial Statements in 2019, namely an “unrecoverable deposit” of $580,000.00 and an “Impairment Loss” of $500,000.00. According to Mr.

Norrad, the first loss related to a non-refundable deposit of $580,000.00 on a property 678734 NB Inc. intended to purchase, however Mr. H. was not able to close the deal as his investments in marijuana stocks continued to depreciate and he did not have the funds to complete the purchase. According to Mr. Norrad, Mr. H. ultimately walked away from the purchase and lost the deposit. The $580,000.00 was written off by 678734 NB Inc. as uncollectible. [ 91 .] I received no direct evidence of this loss claimed by 678734 NB Inc. Mr.

Norrad’s evidence as to the nature of this loss was all hearsay and never validated by Mr. H. directly. There were no records beyond the financial statements documenting this loss. Mr. Mahoney sought to include the $580,000.00 as a corporate asset owned by Mr. H. and capable of earning an income. [ 92 .] I am in no position know where this deposit went and to whom, or whether it was an arms-length transaction. The parties agreed to proceed with the motion on the basis of the affidavits and the expert evidence. Absent evidence otherwise, I accept that it is reasonable that Mr.

H. made such a deposit and ultimately sustained a loss. One presumes Mr. Norrad had a paper trail to record this loss, though none was produced. With some reservation, I accept the financial statements at face value and that the $580,000.00 deposit was ultimately a loss to the corporation. I will not include it in income available for child support. [ 93 .] I am not prepared to make the same accommodation for the impairment loss of $500,000.00, which was a loan 678734 NB Inc. made to Veterans For Healing. According to the financial statements for 678734 NB Inc., the loan was booked as a complete loss in 2019.

Yet, in his letter of March 1, 2021, Mr. Norrad argued that $59,000.00 deposited to Mr. H.’s personal bank account from Veterans For Healing in 2019 was a repayment of a portion of the $500,00.00 loan from 678734 NB Inc. A few paragraphs later, he positioned the $59,000.00 as a draw of some of the money owed to Mr. H. personally (loan due to shareholder) by 678734 NB Inc. While this might work as an accounting exercise, it was also a contradiction: either Mr. H. took a draw from the $3.9 million he was owed, or Veterans For Healing was repaying a loan to 678734 NB Inc. - it cannot be both.

No financial statements or tax returns were disclosed for Veterans For Healing. Mr. Norrad’s explanation of these events was clearly framed to favour Mr. H. and allow for the best accounting outcome, and therefore shall be given no weight. [ 94 .] In my view, the $59,000.00 deposited to Mr. H.’s bank account in 2019 (and discovered quite by accident by Mr. Mahoney) can and should be positioned as Veterans For Healing reimbursing 678734 NB Inc. for part of the loan it received. There is no other logical explanation for the money coming from Veterans For Healing.

As such, I find that these funds should be considered a repayment to 678734 NB Inc., which Mr. H. then withdrew from the corporation that year. This income is taxable in Mr. H.’s hands and shall be included in his taxable income for 2019 to calculate child support. [ 95 .] Mr. Norrad testified that 678734 NB Inc. sold 2 properties in 2021. In March 2021, it sold property at 3144 Stellarton Trafalgar Road in Hopewell, N.S. for gross sale proceeds of $384,000.00. The property was purchased in 2019 for $420,000.00, and as such a loss of $36,000.00 was recorded in the financial statements.

In June 2021, 678734 NB Inc. sold a property at 184 Woodstock Road in Fredericton, N.B. for gross sale proceeds of $550,000.00. The property was on the company’s books for $733,593.00 (purchase cost of $424,900 in 2018 plus significant renovations). After closing costs, a loss of roughly $200,000.00 was recorded [see Norrad report dated November 2, 2021]. Although the company recorded the sale of these properties as losses, the properities were not mortgaged, and Mr. H. used the net proceeds to pay off the company’s debt to CRA, a legitimate debt of the corporation.

I will not include the sale proceeds in the income available to Mr. H. for child support. [ 96 .] 678734 NB Inc. still owns a property in Port Hawkesbury, N.S., namely a large industrial facility. The company paid $2 million for the property using money from the Aphria transaction. The property was originally intended for a commercial cannabis growing facility. Mr. H. and others created the Breton CannaPharms entity (described below) to obtain a commercial growing license for medical-grade marijuana, and planned to lease this property from 678734 NB Inc. for its production. [ 97 .] Ms.

F. seeks to include the rental income earned by 678734 NB Inc. for the Port Hawkesbury property as part of Mr. H.’s available income for child support. According to Mr. Norrad, the property is leased to an “arm’s length” party at a rate of $11,022.96 per month, including HST (15%) and the company “breaks even” with the rental income. The financial statements seem to reflect this: in 2020, the company earned just over $115,000.00 gross rental income, but incurred expenses of over $125,000.00 for property taxes, repairs and maintenance, and utilities. No copy of the lease was provided, with Mr.

Norrad claiming that “the other parties to the lease have not consented to its release”. Despite the incomplete evidentiary record, I accept that there is no rental income remaining, after expenses, that could constitute an income to Mr. H.. In my view, he appears to be making appropriate use of the building with a rental income equal to more than the 6.4% rate of return advanced by Mr. Mahoney as reasonable. 678737 NB Corp [ 98 .] This corporation’s structure is virtually identical to 678734 NB Inc. in that it also has 2 classes of shares: voting

preferred shares owned entirely by Mr. H., and non-voting common shares owned by the Trust. Mr. H. controls this corporation and has a beneficial interest in the common shares of the corporation owned by the Trust. [ 99 .] According to Mr. Norrad and the financial statements he prepared [Exhibit “A”, Tab Q], this corporation has “basically no activity”, but simply holds 1 million Canada House shares “that were rolled in at a total cost of $2”. The asset of $2.00 is shown as a “long term investment at cost” on the company’s Balance Sheet. The company has no other assets or liabilities.

Whatever the value of the Canada House shares (discussed below), they do not generate income to Mr. H. at present. Myco Family Trust [ 100 .] The Myco Family Trust (the “Trust”) was set up in 2014 and is the common shareholder of Mr. H.’s companies, 678734 NB Inc. and 678737 NB Corp., after the significant transactions involving Aphria and Canada House. The Trust owns shares in both companies, which allows those companies to distribute income to the Trust and onto its beneficiaries. Mr. H. fully controls the Trust. Indeed, the terms of the Trust require that Mr.

H. agree with any decision that is to be made and allow him to remove any Trustee for any reason. [ 101 .] Mr. Norrad had no first-hand knowledge of the Trust or its holdings, as it was set up by Mr. H.’s previous accountants. Mr. Norrad does not do the accounting work or income tax reporting for the Trust. [ 102 .] The Trust issued taxable dividends to F.H. Sr. and I.H. – Mr. H.’s parents - totalling $213,258.87 in 2019, in 2020 and again in 2021. According to the hearsay evidence of Mr. Norrad, the dividends were intended “for them to purchase modest homes”. Mr.

Norrad considers these funds to be a proper distribution of 678734 NB Inc.’s “corporate-earned income” that should not be included in Mr. H.’s income. [ 103 .] Section 19(1) (

d) of the Guidelines has generated considerable caselaw and examples of income being diverted with the effect of reducing income for the calculation of child support. For example, courts have found income has been diverted where the payor conducts non-arms length business transactions, unjustifiably splits income, or purchases property unnecessarily. [ 104 .] In Fong v. Fong , 2010 MBQB 5 , the court found a diversion of income where the payor practiced income splitting with his son. In Stewart v.

Stewart , 2010 NSC 100, a court found that the payor was unjustifiably diverting income in attributing half his business earnings to his stepson. [ 105 .] I find that the taxable income distributed to Mr. H.’s parents should be included in the income available to Mr. H. for the calculation of child support. Mr. H. had complete control over the distribution of funds from the Trust, money which was earned only by him. The fact that his parents are beneficiaries to the Trust does not entitle them to any of these assets: the money was Mr. H.’s to distribute at his discretion.

It should be included in the income available to him, regardless of how he opted to spend it. Mr. H.’s mother lives in the home in Iverness (described further below) purchased with this money, though it is still owned by Mr. H.. In essence, the money was diverted to his parents – likely for tax-planning purposes – and used to purchase an asset Mr. H. still owns to this day. I am satisfied that this income should be attributed to him. [ 106 .] The fact that Mr. H. was in a position to distribute these funds to his family members casts a real doubt over Ms.

N.’s suggestion that he was, during this time, having to “live in a car or other people’s basements and not being able to afford to eat” [see her social media post of 2020, Exhibit “M” to the affidavit of Ms. F. sworn July 14, 2020]. Breton Cannapharms [ 107 .] Mr. Norrad had no first-hand knowledge of the Breton CannaPharms operation, nor did he prepare its financial statements or tax returns. Any information provided was sourced from 3 rd parties, including Mr. H., and amounted to hearsay.

The internal financial statements were said to have been prepared by an unidentified bookkeeper “without audit or review”. [ 108 .] Mr. Mahoney reviewed the company’s “T2 filed with CRA” for 2017, which confirmed Mr. H. to be the sole director and owner of 100% of the issued shares (voting common) for Breton CannaPharms. Mr. H. offered no evidence to the contrary. I will assume, therefore, that he maintained his controlling and beneficial interest in the company. [ 109 .] According to Mr.

Norrad, Breton CannaPharms was created to obtain a commercial growing license for medical marijuana. [ 110 .] Between 2019-2021, 678734 NB Inc. loaned Breton CannaPharms $711,295.48 to fund “start-up and operating costs”. The loan was written off in 2021. Mr. Norrad testified: “I have correspondence in my corporate year end file from one of the other directors of Breton CannaPharms that the company was unsuccessful and would be wound up”.

The author of the letter was not identified, and the letter was not produced. [ 111 .] The Breton CannaPharms Financial Statements are of questionable accuracy: they show duplicate entries and considerable spending in 2019, 2020 and 2021 that is uncategorized and/or unjustified, and at times appears exorbitant, none of which was explained by Mr. H. or Mr. Norrad: 2019 2020 2021 Travel Expense $38,199.25 Uncategorized Expense $104,919.68 Consulting $10,701.80 Organization Costs $9,927.35 Organization Costs $9,927.35 Organization costs $9,927.35 Credit Card $8,556.16 Credit card $4,266.90

Professional Fees $61,238.89 Professional Fees $3,800.00 TOTAL 2019 $109,365.49 TOTAL 2020 $ 127, 203.19 TOTAL 2021 $24,896.05 [ 112 .] In essence, over $250,000.00 in spending on “start-up and operating costs” has gone unexplained. [ 113 .] 678734 NB Inc. is wholly controlled by Mr. H.. If he was concerned about any of this unexplained spending of $250,000.00 by Breton CannaPharms over 3 years, money that ultimately translated to a loss to him personally, I heard no evidence of it. With what must have been Mr.

H.’s authorization, the loan was written off as unrecoverable. [ 114 .] As the payor of child support, Mr. H. is subject to important disclosure obligations. Section 21(2) of the Guidelines incorporates the filing requirements of s.21(1) , which include: 21.

(1) A spouse who is applying for a child support order and whose income information is necessary to determine the amount of the order must include the following with the application: (…) (

d) where the spouse is self-employed, for the three most recent taxation years: (

i) the financial statements of the spouse's business or professional practice, other than a partnership, and (ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the spouse does not deal at arm's length; (…) (

f) where the spouse controls a corporation, for its three most recent taxation years: (

i) the financial statements of the corporation and its subsidiaries, and (ii) a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal at arm's length; (…) [ 115 .] When a court finds it difficult to determine a party’s income due to that party’s inadequate financial disclosure, the non-disclosing party must bear the consequences [see Goodhew v. Summers , 2022 BCSC 1080 at para. 98] .

The Court may draw an adverse inference against a spouse who does not disclose income information as required [ s. 23 of the Guidelines ] and impute income accordingly. [ 116 .] The disclosure provisions in

section 21 of the Guidelines must be interpreted broadly for child support purposes. The evidential and persuasive onus under sections 18 - 21 of the Guidelines as to the reasonableness of expenses rests with the self-employed or corporate parent throughout, in this case Mr. H. [see Cunningham v. Seveny , 2017 ABCA 4 at paras. 23 & 28] . While he could have produced source documents establishing that the shareholder loan and significant expenses claimed by Breton CannaPharms were reasonable, he did not do so.

I must assume that the disclosure, had it occurred, would not have been favourable to him. [ 117 .] There is an underlying assumption that the controlling shareholder (in this case, Mr. H.) gains personal benefit through corporate expenses [see Sweezey v. Sweezey , 2016 ABQB 131 ]. The loan was not an arm’s-length transaction. To suggest that the money was simply “lost” when the corporation was no longer deemed viable amounts to no more than Mr. H. forgiving a loan to himself after the money was spent, presumably to his benefit. [ 118 .] In the decision of Church v.

Chafe , 2010 NLTD(F) 31, 2010 CarswellNfld 297 , a payor invested a portion of pre-tax company money in his own name but testified that this was an investment on behalf of the company. The court held that as the sole shareholder and director, the father could have directed a portion of this money to be paid to him in income and therefore imputed income. Justice Butler wrote: 43 In light of this evidence I consider it appropriate pursuant to section 18(1) of the Guidelines to include an additional portion of the Company's pre-tax income in Mr.

Chafe's income to reflect my determination that these funds were available to him for the payment of child support. Leaving aside for the moment the $25,000.00 withdrawal, I conclude that it is appropriate to include in Mr. Chafe's 2009 income the sum of $47,000.00 representing $62,000.00 less corporate taxes and employee source deductions of $15,000.00. Mr. Chafe could have withdrawn this $47,000.00 from Source in weekly draws of $1,400.00. This income could, by my calculation, have continued for approximately 33 weeks from February 1, 2009, or until September 10, 2009.

Had he done so he would have been without income only between September 10, 2009 and October 21, 2009, when he obtained work with Choices for Youth. 44 Mr. Chafe was the sole director and shareholder of Source and could have directed the use of these funds in this manner. Pursuant to sections 18 and 19(1) (

d) of the Guidelines I therefore conclude that this portion of Source's pre-tax income should be added to Mr. Chafe's 2009 income. [ 119 .] In light of Mr. H.’s failure to meet the burden of justifying the loan to Breton CannaPharms and the expenses incurred under his stewardship, I find that the amount constituting the unjustified expenses was a diversion of income from 678734 NB Inc. with the effect of reducing income available to Mr. H. for the calculation of child support. If the funds were available to loan to another corporation, they were presumably equally available to Mr. H. as income, and shall be imputed to him accordingly in the years it was

spent: $$109,365.49 in 2019, $127,203.19 in 2020 and $24,896.05 in 2021. Marijuana For Trauma/Canada House [ 120 .] According to Mr. Norrad, Mr. H. sold his shares in Marijuana For Trauma in 2016 to Canada House for cash of $1,897,000.00 and receipt of approximately 25 million Canada House shares valued at $6,953,151.00, for a total consideration of $8,850,851.00. These amounts were to be paid to Mr. H. over time, including in late 2019. Mr. H. received the Canada House shares (they are owned by 678734 NB Inc, 678737 NB Corp and Mr.

H. personally), but any tax payable on them is deferred until such time as the shares are sold. Mr. H. still owns the Canada House shares in question. [ 121 .] Anticipating the payment of the $1.8 million in cash over a period of 4 years, Mr. H. opted to defer the related capital gain for income tax purposes over that same period, which are ½ taxable. This resulted in income inclusions on his tax returns of $189,765 in 2016 and again in 2017, $376,125 in 2018 and $193,171 and 2019. In fact, only $125,000.00 of the $1.8 million to be paid to Mr. H. was actually paid. Mr.

Norrad testified that he spoke with corporate in-house legal counsel at Canada House in late 2019 and learned that – albeit hearsay - the remaining cash proceeds of $1,772,700.00 would not be paid to Mr. H. by the previously agreed time, and that “eventual payment of any amount is now doubtful”. I accept this evidence for narrative purposes only. [ 122 .] In late December 2019, Mr. H. “settled” the remaining amount owed to him by Canada House with a note payable of $272,500.00, and 30 million Canada House shares with a deemed value of $1.5 million ($0.05 per share). [ 123 .] Mr.

Norrad offered the following in his December 13, 2019 letter concerning Mr. H.’s shares in Canada House: “… He and his various entities’ holdings of Canada House shares must also be viewed through the lens of liquidity and true value to be realized to Mr. H. upon disposition. Canada House trades more actively than Allied Corp., however, would take several years to realize his value. Also, attempting to realize said value by placing the stock for sale would likely cause a substantial decrease in share price.

Considering his significant holdings and his insider trading disclosure requirements, for all intents and purposes he and his companies’ Canada House shares are effectively illiquid. Realization of the value of his interest in Canada House it is almost entirely dependant upon management’s ability to negotiate an acquisition of the company, which at this point there appears to be no plan for.” [ 124 .] Mr. Norrad repeated this position in a letter dated November 2, 2021: “[Mr. H.’s] only hope of making a return on Canada House as for the company’s management to engineer a buyout.

The company pays no ongoing dividend and continually posts operating losses. [Mr. H.] cannot sell his shares due to his position as an insider with the company, without severe negative consequences for the company and its other shareholders”. [ 125 .] Mr. Norrad testified that Mr. H. remains a significant shareholder in Canada House, which recently entered into an acquisition transaction with MTL Cannabis. Mr. Norrad explained that there are “issues” with the paperwork for the transaction, and as such the Canadian Securities Exchange halted trading on Canada House in August 2022.

As of the date of this hearing, the shares remained illiquid and could not be sold. Mr. Norrad testified: “Prior to the trading halt, [Mr. H.] owned a significant percentage of the company. Technically the shares weren’t illiquid, but trying to sell them when you are that significant a shareholder would have a significant impact on the share price and could cause a significant decline in it, which would have severe negative impacts for the company…although he could have sold them before the halt, it definitely would have been an inadvisable thing to do. And now they are firmly illiquid.

They can’t be sold by anyone.” In his view, the shares have a “highly speculative” value. He added, “I am not very hopeful on [Mr. H.’s] behalf”. [ 126 .] While there was much discussion of the tax treatment of this transaction and a capital loss claimed by Mr. H. in 2019, it is of no utility given the approach I have taken to the shares and their value. These shares do not generate income to Mr. H. and their value shall not be factored into his available income for child support (see DLOM discussion below). Allied Corp. [ 127 .] In early 2019, Mr.

H. traded shares worth 5% of Breton CannaPharms Ltd. for shares equal to a 5% interest in a small private marijuana company called Advanced Micro. Since then, Advanced Micro has gone public on the U.S. “over-the-counter” (“OTC”) market through an intermediate entity called Secfac Exchange Corp. [Secfac]. Since Mr. H. owned the shares in Advanced Micro, and these were exchanged for shares in SecFac, he now owns 4.3 million SecFac shares. [ 128 .] Mr. H.’s deal for the Secfac shares gives him the option of exchanging them for shares of a small, public cannabis company called Allied Corp, which trades on the U.S.

OTC market. This represents an approximate 5% interest in the company. According to Mr. Norrad’s December 13, 2019 letter, the Allied Corp. shares were trading at $1.48 U.S. per share, though he described this price as “inflated” and the shares as “illiquid”. He added: “Should Mr. H. attempt to realize the value in his shares by placing them for sale, such action would likely cause the stock price to fall near $0.00. At the current volume, it would take Mr. H. several decades to fully liquidate his holdings. Any value actually placed on these shares for purposes of determining Mr.

H.’s net worth should be far closer to zero than $8.4M ($1.48 USD * 1.32 exchange * 4,311,585 shares).” [ 129 .] A December 2020 Personal Net Worth statement prepared by Mr. Norrad for Mr. H. described the shares as follows: “[Mr. H.] currently owns 4,311,585 shares of an intermediate entity called “Secfac Exchange Corp.”, which should he choose to do so, can be exchanged for shares of a small public cannabis company called Allied Corp., which trades on the United States “Over the counter” market. This represents an approximate 5% interest in the company.

At December 31, 2020 the stock was trading on the OTC market for USD $0.75 per share. Per our discussions with [Mr. H.’s] investment advisors at CIBC Wood Gundy, this value is over- inflated as the shares are illiquid; the trading volume is very low – oftentimes only 2,000-3,000 shares per day. CIBCWG advisors cannot even trade on the OTC market without special permission from their head office, which is certainly not always granted. Further, [Mr. H.]

is not able to actually sell any Allied shares received on exchange until September 2022, pursuant to a lock-up clause in the agreement he signed when obtaining the shares. Even at that point only 10% of his shares are free to be traded, with the remaining shares coming out of lock-up over the subsequent two years. The majority of the company’s outstanding shares, held by various shareholders including [Mr. H.], are in this lock-up phase.

What will happen to the company between now and then is highly speculative, as is the impact of the end of lock-up on the share price and the amount of shares available for trading. As such, no value has been recorded in [Mr. H.’s] personal net worth statement for the Secfac/Allied shares.” [ 130 .] During his testimony, Mr. Norrad confirmed that Mr. H. has not yet exercised his option to trade his Secfac shares for shares in Allied Corp. Such a transaction would be a taxable transaction, and where the Allied Corp. shares are very thinly traded on that market, Mr.

H. would not be able to sell enough shares to cover off his immediate tax liability. As of yet, it has not made sense to convert to the Allied shares. [ 131 .] Mr. Norrad describes Mr. H.’s Secfac/Allied Corp. share holding as highly speculative, with no dividends. Mr. Norrad has advised Mr. H. to hold the shares until they get onto a legitimate stock market or until there is more trading on them and he can realize his position properly. He testified: “They are so thinly traded now, it would take him years, if not decades, to actually sell all of his shares and get any actual money for them”. [ 132 .] Ms.

F. relies on section 19(1) (

e) of the Guidelines to argue that Mr. H. is not using his share assets in Canada House and Allied reasonably in order to generate income for the purpose of child support. She relies on a calculation proffered by Mr. Mahoney to value Mr. H.’s share holdings and thereafter assign a reasonable rate of return to that value as “available” income for the purpose of calculating child support. [ 133 .] Mr. Maloney did not take issue with the descriptions of the shares provided by Mr. Norrad. He agrees they are volatile, thinly-traded, and that the market cannot support a large volume of them being sold at once.

Nevertheless, he proposes a value can be assigned to the shares by calculating the “DLOM” - Discount for Lack Of Marketability – and then assigning a reasonable but discounted rate of return on those shares. He explained the valuation as follows: “…These shares are thinly traded and so a discount for lack of marketability (“DLOM”) must be applied to calculate their value, since the market cannot support a large volume of shares being sold at once. To calculate the DLOM, a Black-Scholes option pricing model was utilised.

This is the same method that [Canada House] and Allied used to determine the value of executive stock options for compensation expense purposes. Several factors contribute to the price of the option (and therefore the DLOM). The primary factors are the volatility of the returns of the stock and the time to expiration of the option. The higher the volatility of stock returns and the longer the time that the option may be exercised makes the option more valuable to the holder. This un turn increases the DLOM.

The option pricing model effectively calculates the DLOM by estimating the price of waiting to dispose of the shares. The DLOM is then subtracted from the current price of the shares in order to determine their actual value.” [ 134 .] Mr. Mahoney used a DLOM calculation to significantly discount the value of the Canada House and Allied shares and subtracted the DLOM from the current price of the shares in order to determine their “actual value” [see Methodology, Exhibit “B”]. In his opinion, the DLOM approach allows for a “valuation of the shares today if they were sold in mass”.

He then included that value in Mr. H.’s overall holdings and opined that these could earn a “reasonable rate of return of 5%”. [ 135 .] I must disagree with Mr. Mahoney’s approach. In reality, the Canada House/Allied shares cannot be sold “in mass” or in any amount at present. It is not reasonable to attribute income to Mr. H. based on a rate of return he is not making on assets he cannot reasonably be expected to sell. While this accounting exercise may be useful in theory, it is based on a fictional scenario and not reality. Mr.

H. has no option to sell these shares at present and invest the earnings in a manner that would earn income. Mr. Norrad shared my concern over this approach [see his letter of March 1, 2021]: “We understand the DLOM theoretically and how they are applying it generally would make sense, however, Mr. H. has no option to sell these investments and invest in something else that is income-earning. For Canada House, he’s an insider, so him selling even a small number of shares could tank the stock - ruining his investment and many others’, and potentially putting people at [Canada House] out of work.

For [Allied], he actually doesn’t even own these shares - he owns shares of an intermediate company which can be exchanged for [Allied], after which he’s subject to lock-up for two years - the shares can’t be sold over that time. These were the deals he made, that he felt were good offers, and he is a reasonable, knowledgeable person in respect of the industry he invests in. The assets received pay no ongoing dividend and are basically illiquid. His potential return would be a capital gain at some point in the future, but the investments are extremely risky. They may very well also go to zero value. Having Mr.

H. pay cash child support based on what they feel he should be making in terms of a return on these investments is unreasonable. The assets do not provide funds to pay child support and cannot reasonably be disposed of to acquire such assets.” [ 136 .] There is caselaw that asserts that the true value of share units matters. In Warren v. Warren , 2021 ABQB 213 , a determination of a payor’s income for 2017, 2018 and 2019 included restricted share units valued based on their price at the date of their purchase.

They were subsequently sold at a significantly lower price in 2019 upon the father’s termination from employment. The father’s child support obligation was adjusted to reflect the value of the share units on the date on which they were disposed of. The court offerd the following on the fairness of including the value of stock options in income only after their disposition: 19 The case law pertaining to stock options, RSUs, and similar instruments indicates that their value ought generally to be included in a child support payor's income after disposition: MacDonald v MacDonald 1997 ABCA 409 at paras. 18–19 .

Where, however, such instruments have not yet been converted into cash, such that their disposition value cannot yet be determined, their inclusion as income may result in unfairness. In the illustrative case of McCaffrey v Dalla-Longa , 2008 ABQB 183 , it was argued that the market value of certain stock options ought to be included in the payor's income for child support purposes notwithstanding the fact that the options had not yet been exercised or otherwise disposed of. In rejecting that argument, McIntyre J. wrote: 141 . . .

Child support is to be based on the payor parent's income or available means of providing support. It would be unfair to impute

an income to the Respondent based on the market value of these options (whether historical or present) when the Respondent has not realized an actual gain. The notion of imputing a hypothetical income is unsettling. The stock market is by nature volatile. Options which are currently "in the money" may not be so in the future and should not be considered as income. A payor parent should not be made to pay child support based on a gain which might occur in the future .

Conversely, a payor parent who hold options that are trading at a loss cannot claim to have suffered a drop in income for calculating support. 20 Similarly, in Warren v Baird 2015 ABQB 479 at paras. 18–20 , Kenny J. held that the value of certain stock options acquired by a payor were not to be included in the payor's income for child support purposes.

Although stock options form part of Line 150 income, and are therefore presumptively to be included as income for child support, the stock options at issue in that case were non-recurring, varied greatly in amount, had never been disposed of, and were being saved by the payor for retirement purposes. [ Emphasis mine ] [ 137 .] Similarly, the decision of Brown v. Brown , 2014 BCCA 152 stands for the principle the dividends which are not directly available to the payor should not be included as income.

In that case, the payor had received dividends under an employee benefit program, which the trial judge had excluded from his income for child support purposes under section 17(1) of the Guidelines . The Court of Appeal found that the dividends were not directly available to the payor as income, and that he had not received money or acquired an asset that could be pledged or otherwise used to obtain funds immedia

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