Halliday v Chambers, 2023 ABKB 289

Court of King’s Bench of Alberta Citation: Halliday v Chambers, 2023 ABKB 289 Date: 20230511 Docket: FL03 58418 Registry: Edmonton Between: Bobby-Ann Halliday Applicant - and - Darcy Chambers Respondent _______________________________________________________ Memorandum of Decision of the Honourable Justice L.K. Harris _______________________________________________________ [ 1 ] The Applicant, Bobby-Ann Halliday, applies for an order directing the Respondent, Darcy Chambers, to pay his proportionate share of retroactive and ongoing s 7 expenses for the parties’ daughter. [ 2 ] Ms.

Halliday’s application calls for a determination of which expenses are true s 7 expenses such that Mr. Chambers is obligated to contribute to them. As Ms. Halliday is self-employed this also calls for a determination of her income for child support purposes. I. Background [ 3 ] The parties were in a relationship which ended in January 2019. They were never married. They have one daughter, born January 4, 2018, who is currently five years old. Ms. Halliday is the primary parent.

[ 4 ] Ms. Halliday previously brought an application for an order directing the payment of child support. That application was heard by Whitling J on August 28, 2020. Whitling J ordered Mr. Chambers to pay s 3 child support of $554 per month based upon a Guideline Income of $65,000 per annum from January 2019 onwards but noted that the issues of the Applicant’s Guideline Income and the parties’ responsibility for s 7 expenses remained unresolved. Those issues were adjourned: Halliday v Chambers , 2020 ABQB 501 . [ 5 ] After the application before Whitling J, Ms.

Halliday produced some additional financial records, and the parties rescheduled the application to deal with the determination of her income and s 7 expenses. [ 6 ] The parties appear to agree that Ms. Halliday is entitled to retroactive s 7 support back to January 2019 based upon DBS v SRG , 2006 SCC 37 and Colucci v Colucci , 2021 SCC 24 , and accordingly, I will not engage in an analysis on the issue of Ms. Halliday’s entitlement. The issues to be decided here relate to the determination of Ms.

Halliday’s income for the purposes of assessing each party’s obligations and whether the expenses being claimed are true s 7 expenses. II. Ms. Halliday’s Income [ 7 ] Ms. Halliday is self-employed and is an accountant by training. [ 8 ] In 2018, Ms. Halliday sold a very successful accounting business. She invested the sale proceeds into two new businesses: Bobby’s Accounting Services Inc. (“BASI”) and 1828886 AB Ltd. (“182”). Ms. Halliday says that the two new businesses are not yet profitable. [ 9 ] Ms.

Halliday’s personal income tax returns disclose the following line 15000 income: 2019 $60,524.09 2020 $14,675.56 [1] 2021 $26,295.91 [2] [ 10 ] She says 2022 is roughly the same as 2021. [ 11 ] Ms. Halliday has also produced financial statements for BASI and 182. [ 12 ] The financial statements for 182 show that it holds considerable assets in the form of property. For example, there was an increase in assets reported between 2020 ($208,043) and 2021 ($1,208,318).

However, in 2021, there was also a considerable increase in liabilities, with long term debt increasing in 2021 to $551,887 and a shareholder’s loan increasing to $708,467. [ 13 ] Despite its assets, 182 reported a net loss for each year: 2020 ($11,994) 2021 ($1,879) [ 14 ] The financial statements for BASI also disclose that it holds considerable assets. In 2019, BASI held property valued at $815,982 and total assets of $1,478.815, while in 2020, the property held was valued at $337,049 with total assets of $871,860. On the other hand, the liabilities of BASI decreased, from $1,478,815 to $871,860.

The financial picture for 2021 was roughly the same as 2020 overall, although the cash on hand had decreased significantly from $167,002 to $47,503. [ 15 ] Again, overall, BASI shows a net loss from operations, but that is very much offset by the company’s retained earnings: Net Loss Net Retained Earnings 2019 ($111,132) $338,985 2020 ($176,825) $162,160 2021 ($114,840) $46,452 [ 16 ] Ms. Halliday initially appeared to put forward the position that her personal income, as reported on her income tax returns, should be the basis for assessing s 7 child support. During oral submissions before me, Ms.

Halliday indicated she was prepared to add $419,611 to her income in 2019 to take into account the capital gain arising from sale of her business, which would put her 2019 income at $480,135. [ 17 ] Mr. Chambers disagrees. He argues that Ms. Halliday chose to invest the money earned from the sale of her successful business into two new businesses. While that decision might be financially prudent and appropriate, she must balance it with her obligations to support the parties’ daughter and cannot be used to avoid paying her fair share of support. He is prepared to agree to Ms.

Halliday’s 2019 income of $480,135 but says that $250,000 ought to also be added to each of 2020, 2021 and 2022. [ 18 ] The determination of Ms. Halliday’s income for child support purposes is governed by ss 16 to 18 of the Alberta Child Support Guidelines , A/R 147/2005 (“ ACSG ”). [ 19 ] If I am not satisfied that Ms. Halliday’s total income as reported on her T1 General form is the fairest determination of her

income, then I may employ other methods of assessing her income for child support purposes. ACSG s 17 provides that I may consider Ms. Halliday’s income over the last three years and determine an amount that is fair and reasonable. Since Ms. Halliday has an ownership interest in BASI and 182, ACSG s 18 permits me to consider whether the amount reported on her T1 General form fairly reflects all the money available to her for the payment of child support. If I determine that it does not, then I may include pre-tax income of the corporations or an amount commensurate with the services that Ms.

Halliday provides to the corporations. [ 20 ] Income tax returns may provide a starting point for determination of income, but that is subject to the reality of the situation, and what is a fair income to be used: Santha v Carlton , 2022 ABKB 657 at para 42 citing Lavergne v Lavergne , 2007 ABCA 169 at paras 20-22 ; Ewing v Ewing , 2009 ABCA 227 at para 22 ; Guidelines , s 17.

The determination of income must be fair and based upon the facts of the particular case and is subject to the discretion of the court: Ewing at para 31 . [ 21 ] There has also been a body of jurisprudence that has developed which emphasizes the need to identify a parent’s true ability to pay support. In Goett v Goett , 2013 ABCA 216 , the Court states at para 16: A body of jurisprudence has developed under s 18 in an effort to address the fundamental unfairness that arises if a parent can divert, manipulate or shelter income through the use of a corporate structure to avoid the payment of adequate child support.

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

These criteria include the role the payor plays in the corporation, whether he or she is the sole shareholder, the degree of control the payor exercises, the evidence as to the availability of retained earnings to pay child support, and whether those earnings are required to manage the business and ensure its ongoing financial viability. [ 22 ] The influx of cash into BASI and 182 is at this point a non-recurring capitalization arising from the sale of Ms. Halliday’s previous successful business. Although Ms.

Halliday’s pre-sale income is not in evidence before me, I find it reasonable to conclude based on the significant influx of cash and increase in assets in BASI and 182, that Ms. Halliday was likely earning significantly more pre-sale than what she is now reporting. The value of her prior business was likely due to her hard work and in that sense, represents to a certain degree the value of her work. Further, it is reasonable to conclude that it was the sale of the prior business that has caused a recent decrease in Ms.

Halliday’s income because she has chosen to use those funds to capitalize the two new businesses instead of paying herself. [ 23 ] I do not make these comments to suggest that Ms. Halliday’s financial decisions were imprudent or were made specifically to avoid paying child support; rather they will likely result in increased income and financial security moving forward. It is clear however that Ms. Halliday has structured the finances of both companies in a way which results in little income to her.

I pause to note that simply because financial arrangements are permitted for income tax purposes does not mean that the Court must ignore the fact that the companies have cash available and some of that cash can be attributed for child support purposes: Cunningham v Seveny , 2017 ABCA 4 . [ 24 ] I must also keep in mind the purpose of support orders when deciding whether an assessment of income is fair.

The Guidelines are to be interpreted purposively and are meant to establish a fair standard of support for children which ensures that they will continue to benefit from the financial means of both parents after separation…: Goett at paras 10 – 12 . [ 25 ] ACSG s 18 guides me in determining what is fair in these circumstances, directing me to consider whether Ms. Halliday’s reported income fairly reflects “all the money available” to her for the payment of child support. [ 26 ] It is clear that her annual reported income for the years 2019 – 2021 does not. Ms.

Halliday has ownership interests in both BASI and 182 and an element of control over how to allocate income, expenses, and liabilities for the two corporations, as well as how and how much to pay herself. While her allocations may be permitted under tax legislation and fiscally prudent from the corporations’ perspective, it is not fair, considering the significant influx of cash to those two corporations, to expect Mr. Chambers to pay more than her for s 7 expenses given that his income is $65,000. [ 27 ] To illustrate this point, I point out that the s 7 expenses being claimed by Ms.

Halliday are significant: approximately $27,102.49 between 2019 and approximately mid-September 2022, which she has said have been paid by her in their entirety. Those expenses are high when considering the level of her reported income for those years. I conclude that it is more than likely that Ms. Halliday has access to funds in addition to her income of $14,675.56 in 2020 and $26,295.91 in 2021, in order to pay these expenses. [ 28 ] The question then becomes what amount is a fair amount to include in Ms. Halliday’s annual income? The parties agree that $450,000 should be included in her 2019 income.

Although Mr. Chambers argues that $250,000 should be included for 2020 and 2021, I do not agree with that submission – that in effect treats the influx of cash into the corporations as a recurring gain, which I have determined it is not. [ 29 ] ACSG s 18 permits me to consider using two alternatives – either the corporations’ pre-tax income (s 18(a)) or “an amount commensurate with the services that the parent provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income. The problem, however, is that Ms.

Halliday has structured the corporations’ liabilities and expenses in such a way that they each have reported either very minimal pre-tax income (182) or a significant loss (BASI). The low level of corporate net income is obtained by deducting significant expenses. [ 30 ] There are numerous cases in Alberta that discuss when corporate expenses should be imputed back into income for child support purposes.

Sometimes, for example, expenses might be added back into income because the parent receives a personal benefit from them, or because a rate of amortization is simply an accounting entry for the purposes of artificially reducing the income of a corporation.

In all cases, there is a significant amount of evidence supporting the reasons for the expenses claimed, or the rate of amortization used, and considerable assessment of the reasonableness of those calculations. [ 31 ] In this case, the evidence presented for the purposes of this application is not sufficient to allow me to perform those assessments and calculations. Although Ms. Halliday has argued that her financial disclosure is complete, it is evident that it is not because neither Mr. Chambers nor the Court are able to assess whether the expenses deducted by BASI and 182 were reasonable,

whether Ms. Halliday enjoys a personal benefit from any of them, and if so, what that personal benefit is worth. In Cunningham v Seveny , 2017 ABCA 4 , starting at para 22 , the Court states; In our view, the respondent [support payor] did not fully comply with his disclosure obligations. While his counsel has stated that he provided all financial statements required under section 21(1)(d)(

i) of the Guidelines , there was no indication that the respondent provided all of the information required under section 21(1)(d)(ii) - “a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the parent does not deal at arm’s length.” The latter provision must also be interpreted broadly for child support purposes where a parent’s corporation or business undertaking is the primary vehicle through which he or she earns income.

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

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

A court cannot make an informed decision under the income sections of the Guidelines (sections 15-20), unless and until full and complete disclosure is made under section 21(1) or (2) of the Guidelines. … The content of required disclosure must be sufficient to allow meaningful review by the recipient parent, and must be sufficiently complete and comprehensible that, if called upon, a court can readily discharge its duty to decide what amount of the disclosing parent’s annual income fairly reflects income for child support purposes .

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

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

As provided by Yungwirth J in Roseberry , information regarding corporate expenses is within the knowledge, possession and control of the shareholder, director or officer parent, not the challenging parent, and that information is relevant and necessary to determine income for child support guideline purposes . Moreover, the obligation to provide a reasonable explanation for expenses fits soundly within the initial onus on the claiming parent under

section 21 of the Guidelines to provide adequate disclosure of their corporate and personal income and expenses. ... [ 32 ] In short, Ms. Halliday has the obligation of establishing that the expense deductions claimed by BASI and 182 were reasonable through the production of source documents. She has not done so. Accordingly, those expenses should not be allowed to reduce the companies’ income for the purposes of assessing Ms. Halliday’s available income.

Instead, I will consider the gross income of each corporation, summarized as follows: 182 BASI 2019 $128,902 2020 $148,102 $148,380 2021 $235,837 $232,980 [ 33 ] Determining what is a reasonable to attribute to Ms. Halliday for the purposes of assessing her child support obligations from these figures runs into the same difficulty as determining whether the corporate expenses deducted were reasonable – a lack of evidence. [ 34 ] All that can be said from the numbers at hand is that the money that may be attributable to Ms. Halliday is significant, and it far exceeds the income earned by Mr. Chambers.

In addition, BASI and 182 continue to own significant assets, funded in large part by the sale of Ms. Halliday’s successful business, which most likely will result in Ms. Halliday accumulating a high net worth over time. [ 35 ] Because Ms. Halliday has a significant amount of income available to her, because she chose to use the funds from the sale of her business to capitalize two new businesses, and because she has not provided sufficient evidence to permit a meaningful review of the expenses claimed, I conclude that the fairest outcome in this case is that Ms.

Halliday ought to be responsible for paying 100% of her daughter’s s 7 expenses from the date of separation onwards. [ 36 ] Given my conclusion on Ms. Halliday’s obligation to pay s 7 expenses I do not need to decide the issue of whether each individual expense she has put forward are claimable under s 7 or not. [ 37 ] Finally, I wish to address the issue of whether the parties had an agreement to share s 7 expenses equally. Ms. Halliday has argued there was. Mr. Chambers argues there was not. I do not have any evidence before me to support the fact that there was an agreement other than Ms.

Halliday asserting that she believed there had been an agreement. Given the absence of evidence confirming such an agreement from Mr. Chambers I conclude that the parties had not in fact reached an agreement on responsibility for s 7 expenses.

III. Conclusion [ 38 ] Ms. Halliday’s application is dismissed. If the parties cannot agree on costs they may make submissions to me in writing, no more than three pages in length, no later than June 30, 2023. Heard on the 24 th day of February, 2023. Dated at the City of Edmonton, Alberta this 11 th day of May, 2023. L.K. Harris J.C.K.B.A. Appearances: Erik Bruveris Stillman LLP for the Applicant Jordan Lefaivre TC Family Law Group for the Respondent