Docket: CACV2424 Howard John Thompson Appellant (Respondent) - v. -, 2014 SKCA 111

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2014 SKCA 111 Date: 2014-10-29 Between: Docket: CACV2424 Howard John Thompson Appellant (Respondent) - and - Samantha Melanie Bear Respondent (Applicant) Coram: Klebuc, Ottenbreit and Whitmore JJ.A. Counsel: James Morrison for the Appellant Aaron M. Friedman for the Respondent Appeal: From: 2011 SKQB 254 and 2013 SKQB 174 Heard: November 17, 2013 Disposition: Appeal allowed, interim child support order set aside Written Reasons: October 29, 2014 By: The Honourable Mr. Justice Klebuc In Concurrence: The Honourable Mr. Justice Ottenbreit The Honourable Mr. Justice Whitmore

Klebuc J.A. I. Introduction [ 1 ] Mr. Thompson, the appellant, appeals from a decision by the Chamber judge that varied an earlier interim child support order by significantly increasing the amount of child support Mr. Thompson is to pay for his daughter K.B. The resulting order is based on the average of Mr. Thompson’s employment income and the attribution from Thompson’s Plumbing and Heating Ltd. [TP&H] of a sum representing the average of TP&H’s annual pre-tax income for the fiscal years of 2010, 2011 and 2012, each ending on January 31. Mr. Thompson is the sole shareholder of TP&H. [ 2 ] The principal grounds relied on by Mr. Thompson are that the learned Chamber judge erred in his

interpretation of ss. 17 and 18 of the Federal Child Support Guidelines, SOR/97-175 [ Guidelines ] and erred by definitively attributing to him an amount significantly greater than TP&H’s pre-tax income for its most recent tax year ending on January 31, 2013. [ 3 ] I would set aside the decision of the Chamber judge and his interim child support order dated May 8, 2013, and would order that Mr. Thompson pay child support for K.B. of $1,130.00 per month retroactive to June 1, 2013. Given the mixed results, I would not award taxable costs for either party. II.

Background and History [ 4 ] The parties cohabited intermittently and a child, K.B., was born of their relationship on March 20, 1999. Sometime after the parties ceased living together, Ms. Bear issued a petition dated February 7, 2011. In the petition, she claimed the following relief:

a) division of family property pursuant to The Family Property Act , SS 1997, c F-6.3, which included a claim for an equity position in TP&H;

b) custody of K.B. pursuant to The Children’s Law Act , 1997 , SS 1997, c C-8.2; and

c) maintenance for herself and K.B. pursuant to The Family Maintenance Act, 1997 , SS 1997, c F-6.2. [ 5 ] While the aforementioned claims are linked, and a decision regarding one issue may materially affect the other claims, the issue of interim child support was dealt with separately by the Court below (see Bear v Thompson , 2013 SKQB 174 [ Bear ]) and is the only issue before this Court. A. March 2011 Application for Child Support [ 6 ] On March 3, 2011, Ms. Bear applied by notice of motion for an order requiring Mr.

Thompson to pay interim maintenance for her and increased interim child support for K.B., both retroactive to July 1, 2009 [the 2011 Application]. The 2011 Application and an application by Mr. Thompson concerning other matters were heard in Chambers by Rothery J. Ms. Bear submitted to Rothery J. that all of the pre-tax income of TP&H for the years of 2008, 2009 and 2010 should be attributed to Mr. Thompson and child support for K.B. and maintenance for her should be based on Mr.

Thompson’s earned income plus a sum representing an average of TP&H’s pre-tax annual income over the aforementioned three years. [ 7 ] Mr. Thompson acknowledged that he is the father of K.B. and was prepared to pay appropriate child support for her but opposed child support being based on an attribution to him of the whole of TP&H’s pre-tax income for the most recent tax year. Mr.

Thompson deposed that the whole of TP&H’s pre-tax income for its most recent tax year, being the year ending on January 31, 2011, was required to maintain its operations by virtue of a slowdown in the residential housing boom in the area where TP&H operated its plumbing business. [ 8 ] Mr. Thompson specifically deposed that TP&H required additional equipment and additional facilities to enhance TP&H’s efficiency and competitiveness in the changing market place and that its pre-tax income was required to fund part of necessary expenditures. In these circumstances, Mr.

Thompson maintained the proposed attribution of TP&H’s pre-tax income to him involved complex issues and should be left for the trial judge to decide. [ 9 ] As an alternative pending the trial of all issues, Mr. Thompson proposed that interim support for his daughter should be calculated based on the total of his annual salary and dividend income of approximately $100,000.00. Examinations for discovery and the exchange of documents had been completed to the point that Mr.

Thompson believed the issues between the parties could move on to a pretrial conference and a trial thereafter. [ 10 ] Of particular relevance to the 2011 Application were TP&H’s financial statements for the fiscal years 2008, 2009 and 2010. These statements confirm that TP&H’s pre-tax income during those years, each ending January 31, was $191,387 (2008), $255,436 (2009) and $197,427 (2010). The financial statements for the year ending January 31, 2011 had not been prepared but would be prepared by an independent chartered accountant.

The established practice was for the chartered accountant to prepare TP&H’s financial statements and tax returns in July of each year, being a date shortly before TP&H was required to file a tax return for the tax year ending on January 31st of that year. [ 11 ] Following a review of the affidavits deposed to by the parties, and the aforementioned financial statements, Rothery J. awarded interim support for K.B. based on Mr. Thompson’s salary of $100,000 per year. She declined to attribute to Mr. Thompson any of TP&H’s pre-tax income for the years 2008, 2009 and 2010, which TP&H had kept as retained earnings.

In her reasons dated June 28, 2011, she stated “the issue of utilizing retained earnings for determining child support is better left for expert evidence at trial” ( Bear para. 6). At para. 7, Rothery J. described the relationship between pre-tax income and retained earnings and their significance to TP&H’s financial standing as follows:

[7] That being said, the mother is entitled to revisit the issue of interim child support once the corporation’s January 31, 2011, financial statement is prepared and disclosed.

Should the corporation show a much healthier balance sheet than anticipated because of continued business or an increase in retained earnings without reasons to support increased retained earnings over the previous year, the mother may apply to vary interim child support [emphasis added]. [ 12 ] Justice Rothery further concluded that retroactive child support was not appropriate because the facts and circumstances were far from clear and the Court’s general practice is not to award interim retroactive child support, except in the clearest of circumstances or exceptional cases.

In support of her decision, she cited Skomorowski v Bernier , 2009 SKQB 55 . [ 13 ] Justice Rothery dismissed Ms. Bear’s application for maintenance on the grounds that her claim had not been adequately pled and also raised issues that should be determined by way of a trial. She granted Ms. Bear leave to amend her petition. B. Application to Vary the Interim Child Support Order of Rothery J. [ 14 ] The Queen’s Bench Court’s file indicates that considerable time had elapsed between the date Rothery J. delivered her decision and March 5, 2013, the latter being the date Ms.

Bear brought an application to vary the interim child support order granted by Rothery J. [ 15 ] Counsel for Mr. Thompson was concerned that the Chamber judge may have considered the delay to be a deliberate act on his part or on the part of Mr. Thompson and then took the imputed delay into account when assessing child support. In these circumstances, I reviewed the Queen’s Bench Court file solely for the purpose of providing a full factual background regarding the counsel’s concerns and found the following: (

a) In July, 2011, Ms. Bear’s counsel withdrew and asked the Court to adjourn Ms. Bear’s application in order to provide her time to retain new counsel. (

b) Sometime thereafter, Ms. Bear retained her current counsel, who prepared an Amended Petition and served it on Mr. Thompson’s counsel on or about August 15, 2011. (

c) Shortly thereafter, Mr. Thompson’s counsel left the practice of law to pursue a new career. (

d) Mr. Thompson then retained new counsel, who filed and served an Answer to the Amended Petition and a Counter-Petition by Mr. Thompson for joint custody of K.B. (on or about December 20, 2011). (

e) Thereafter, the parties exchanged required information in an orderly and timely manner. [ 16 ] By notice of motion dated March 5, 2013, Ms. Bear applied for an order varying the interim child support order granted by Rothery J. In support of her application, she filed copies of TP&H’s financial statements for the years ending on January 31 of 2008, 2009, 2010, 2011 and 2012. The date she received the financial statements for the year ending on January 31, 2012 was not disclosed by either party.

Since the financial statements for TP&H for the year ending on January 31, 2013 would not be available until July of that year, Mr. Thompson arranged for the chartered accountant who would be preparing them to prepare a comparative income statement for TP&H for the fiscal year ending on January 31, 2013. A copy thereof was filed with the Court of Queen’s Bench. [ 17 ] Given that the financial statement for the year ending January 31, 2012, was attached to Ms.

Bear’s affidavit, the Chamber judge appears to have misdirected himself when he wrote the following: [12] It was not explained why some 14 months after the close of its January 31, 2012 year end, Howard Thompson has not produced the accountant-prepared financial statements that would normally incorporate year-end adjustments to the internal financial statements and be used for income tax filing purposes. [ 18 ] The aforementioned error by the Chamber judge is unfortunate, but is not significant in this appeal. Moreover, any delay is not attributable to either counsel nor is it attributable to Mr.

Thompson. [ 19 ] That said, I turn to the evidence before the Chamber judge consisting of TP&H’s financial statements for the years of 2008 to 2012, inclusive, and the Comparative Statement for the year ending on January 31, 2013.

They confirm the following concerning TP&H’s financial status: Year Pre-tax Income Net Income Retained Earnings 2008 $225,961 $192,387 $796,188 2009 $307,051 $255,436 $1,036,524 2010 $230,876 $197,427 $1,226,950 2011 $212,117 $180,272 $1,401,224 2012 $526,431 $451,985 $1,853,208 2013 $188,317 $2,029,625 [ 20 ] Of significance are TP&H’s financial statements for the years ending January 31, 2011 and 2012.

The 2011 statements record “Inventory” of $50,099 and “Inventory-housing project” of $239,095 while the financial statements for the year ending January 31, 2012 record “Inventory” of $35,459 and “Inventory-housing project” of “(0).” The reduction in inventory of approximately $200,000 may have resulted in the substantial increase in TP&H’s pre-tax income for 2012. This question was not addressed by the Chamber judge, although Mr.

Thompson had deposed that TP&H had reduced its inventory in anticipation of a move to new premises and, therefore, new inventory would have to be purchased following the move. [ 21 ] Mr. Thompson’s combined employment and dividend income for the years 2008 to 2012 are as follows:

Year Combined Income 2008 $125,534 2009 $122,681 2010 $99,482 2011 $114,963 2012 (est.) $110,000 [ 22 ] The only other evidence before the Chamber judge consisted of the affidavit of Mr. Thompson dated April 17, 2013, wherein he deposed the following regarding TP&H’s business: 23. Thompson’s currently employs 12 people, including myself. Although Thompson’s has experienced growth over the past 5 years, based on the current economic conditions in the Meadow Lake and surrounding area, and the general slowdown in construction, I do not anticipate that the growth will continue.

In fact, as further detailed below, the financial information for Thompson’s as of January 31, 2013 indicates that revenues have decreased considerably from the year prior, and that Thompson’s is in the midst of a period of declined sales. 24. … At present, Thompson’s has not secured a sufficient number of contracts to keep the entire crew working at full capacity through the 2013 construction season. There is undoubtedly a slowdown from the record construction pace experienced in the years of 2007–2011. 25.

Thompson’s is also experiencing increased competition from other contractors for the available work owing to the fact that plumbing and heating companies are moving in to the Meadow Lake and surrounding area from other parts of the Province, including Saskatoon, as well as other parts of the Country where the economic conditions are not as favourable as Saskatchewan. 26.

In light of this new reality in the local plumbing, heating, and ventilation market, it is crucial that Thompson’s is able to maintain the competitive advantage that arises from having ready access to sufficient cash flow in order to service the capital requirements of the business without incurring debt, including the posting of performance bonds required in relation to the larger contracts. … 32.

As can be seen in the Comparative Income Statement, the net income (before taxes – the after tax income is not yet available) for Thompson’s for the fiscal period of February 1, 2012 to January 31, 2013 has decreased considerably to $183,962.00 from the previous year of $451,985.00. This is the lowest level of income that the company has earned in at least the last 6 fiscal years. … 41.

When Thompson’s first started operations, it had no retained earnings for the first 5 years of operation, which meant that Thompson’s was continually having to rely on its trade creditors and lenders in relation to the performance of its various contracts and unable to place competitive bids on larger key contracts. … 43.

Thompson’s requires its retained earnings for the purposes of facilitating such large contracts and for the purposes of obtaining bonding, appropriate liability insurance and requires the retained earnings in cash for the purposes of providing the 10% performance bond required in such large projects. (Appeal Book pp. 273–279) [ 23 ] Mr. Thompson also described the cost of improvements TP&H has made or intends to make in order to compete in the current competitive market:

a) TP&H had purchased a larger building at a cost of $400,000 in order to facilitate its operations;

b) an estimated additional $200,000 will have to be spent replenishing supplies and inventory that had intentionally been depleted prior to moving into the new building;

c) approximately $50,000–$75,000 will have to be spent improving the new premises;

d) the former premises used by TP&H was put up for sale and no offers were received, thereby leaving TP&H with the cost of carrying two buildings;

e) TP&H has six to eight service trucks that should be replaced in the next six to twelve months at a cost of approximately $50,000 per truck;

f) TP&H is working on securing a large contract. In relation to the proposed contract, it will have to post a $35,000 performance bond by way of cash and purchase approximately $100,000 in equipment. In addition, it will have to carry labour costs and wages until the first progress payment has been earned and is releasable to TP&H;

g) TP&H is attempting to obtain large plumbing contracts with mining companies and will need to use its cash and retained earnings to facilitate such projects. [ 24 ] Ms. Bear provided no material evidence contradicting Mr. Thompson’s statement concerning the financial needs of TP&H. C. Decision Under Appeal

[25] The Chamber judge determined the level of child support payable by Mr. Thompson for K.B. based on Mr. Thompson’spersonal income and the attribution to him of $308,955 per year, being a sum substantially greater than TP&H’s pre-tax income of$188,317 for its most recent tax year ending on January 31, 2013. The Chamber judge arrived at the attributed sum by averagingTP&H’s pre-tax income for the years 2010, 2011 and 2012 and by concluding solely on his

interpretation of the financial statementsbefore him and Mr. Thompson’s affidavit that no portion of TP&H’s pre-tax income for the fiscal years ending on January 31 of 2010,2011, 2012 or 2013 was required for its operations.

He summarized his approach in the following manner: [35] … I am satisfied that Howard Thompson’s income, calculated pursuant to s. 16 of the Guidelines is not the fairest determinationof the income available to him for child support purposes. [36] Having reached that conclusion, I must determine what portion of [TP&H]’s income should be attributed to Howard Thompson.In doing so, s. 18(1) provides that I may consider the situations described in s. 17 of the Guidelines, that is, patterns and fluctuations ofincome as well as non-recurring income and/or losses over the last three years.

In the circumstances, I am satisfied that an averaging ofincome is warranted to establish the “fairest” income for child support purposes. [37]

Section 17 of the Guidelines provides that where the court decides that s. 16 is not the fairest way of determining the spouses’income, then the court may have regard to the spouses’ income over the last three years and determine an amount that is fair andreasonable in light of any pattern of income. [38] For the three years ending January 31, 2012, the average pre-tax income of [TP&H] is $323,141. For the three years endingJanuary 31, 2013, the average pre-tax income of [TP&H] is $308,955.

Given that the corporate year ends are one month following thecalendar year ends to which Howard Thompson’s annual personal income is referenced, I am of the opinion that the appropriate three-year average should include the three corporate years ending January 31, 2013 since these fiscal periods most closely correspond toHoward Thompson’s calendar tax years 2010 to 2012. This period includes [TP&H]’s best year in the last six years as well as its worsttwo income years.

This satisfies me that this period and the average amount are fair and reasonable in light of any patterns andfluctuations in income [emphasis added]. (Bear, paras. 35–38) [26] Although Ms. Bear and Mr. Thompson were never married, the Chamber judge relied on s. 17(1) and s. 17(4) of the DivorceAct, RSC 1985, c 3 (2nd Supp), based on his understanding that these sections and s. 3 of The Family Maintenance Act, 1997, SS 1997, c.F-6.2 “require the same conclusion” regarding a parent’s obligation to provide support for his or her child (paras. 16 and 18).

For thepurposes of this appeal, I need not address whether these Acts arrive at the same conclusions regarding child support issues. However, acommon ground does exist between the two Acts to the extent s. 2 of The Family Maintenance Act, 1997 defines “guidelines” as“guidelines established or adopted pursuant to the regulations” (s. 2).

Section 2 of The Family Maintenance Regulations, 1998 C. F-6.2Reg 1 defines “Child Support Guidelines” as meaning “the Federal Child Support Guidelines” established pursuant to s. 26.1 of theDivorce Act (Canada).

Section 3 of the aforementioned regulations adopt the Federal Child Support Guidelines for the purposes ofcalculating maintenance orders pursuant to s. 3 or s. 4 of The Family Maintenance Act, 1997. III. Jurisdiction and Standard of Review [27] The appellant’s right to appeal the aforementioned decisions arises pursuant to s. 7.2 of The Court of Appeal Act, 2000, SS 2000,c C-42.1, as amended.

Justice Cameron aptly described the scope of an appeal under s. 7.2 in Valley Beef Cooperative Ltd. v Farm CreditCorporation, 2002 SKCA 100, 223 Sask R 236. [28] The applicable standards of review are articulated in the following: H.L. v Canada (Attorney General), 2005 SCC 25, [2005] 1SCR 401; Hickey v Hickey, (SCC), [1999] 2 SCR 518 [Hickey]; Great Sandhills Terminal Marketing Centre Ltd. v J-Sons Inc., 2008 SKCA 16, 307 Sask R 294; and Ethier v Skrudland, 2011 SKCA 17, 366 Sask R 203.

While Hickey calls for significantdeference to be given to “trial judges” in relation to support orders, it provides that appellate courts “must intervene when there is amaterial error, serious misapprehension of the evidence, or an error in law” (para. 12). IV. Analysis [29] The following issues arise out of the grounds of appeal, the evidence and the submissions by the parties: A. Did the Chamber judge err by attributing to Mr. Thompson a sum greater than TP&H’s pre-tax income for its mostrecent tax year, ending January 31, 2013? B.

If the answer to issue “A” is yes, should the whole or any portion of TP&H’s pre-tax income for the year ending onJanuary 31, 2013 be attributed to Mr. Thompson? C.

Did the Chamber judge err in attempting to definitively decide complex issues that required a trial or viva voce hearingduring which expert evidence could be fully presented and challenged? [30] For the purposes of clarity and consistency the terms “payor,” “payor’s corporation(s),” “pre-tax income,” and “retainedearnings” mean the following, unless the context otherwise requires: a) “payor” means the parent or other person who is required by law to provide financial support for a child; b) “payor’s corporation” means a corporation that is controlled by the payor by virtue of her or his shareholdings or position as adirector or officer of the corporation; c) “pre-tax income” is the sum equal to the taxable revenue generated by a corporation during the year less deductible expensesfor that year, other than income taxes;

d) I would broaden the definition of retained earnings in this respect. Retained earnings are the basic source of equity for a

corporation (in addition to capital invested by the shareholders). As entered on a financial statement, retained earnings do not necessarily consist of cash or any particular asset owned by the corporation. It is not an asset that can be attributed to the controlling shareholder but may be a significant factor in determining the financial viability of a corporation (see Miller v Joynt , 2007 ABCA 214 , 48 RFL (6th) 256 and R.E.G. v T.W.J.G. , 2011 SKQB 269 , 376 Sask R 1 [ R.E.G. ]) . [ 31 ] I turn to the first issue. A. Did the Chamber judge err by attributing to Mr.

Thompson a sum greater than TP&H’s pre-tax income for its most recent tax year, ending January 31, 2013? [ 32 ] This issue involves clarification of the extent ss. 17 and 18 of the Guidelines permit present and past pre-tax income of the payor’s corporation to be attributed to the payor. Sections 15 , 16 , 17 and 18 provide the following : Determination of annual income 15.

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

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

section 21. Calculation of annual income 16 . Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with

Schedule III. Pattern of income 17.

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

section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. … Shareholder, director or officer 18.

(1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under

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

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

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

b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income [emphasis added] …. [ 33 ] While I will address the role of s. 17 later, I note that it was amended in 2000 by SOR/2000-337 s 4 and came into force in August 2004 [2000 Amendment] .

This amendment extended the authority of courts to fairly and reasonably determine a payor’s income based on, or having regard to, the payor’s income over the preceding three years, while also taking into account any pattern of income, fluctuation of income, or receipt of non-recurring amounts during those years: for example, the discretion to exclude all or part of an exceptional performance bonus, or income generated by a non-recurring reduction in the inventory of a sole proprietorship. [ 34 ] Against this background, I turn to whether s. 18(1) (

a) of the Guidelines entitles a court to attribute to the payor more than the current pre-tax income of the payor’s corporation for the purpose of calculating child support. There are conflicting decisions on whether it does. [ 35 ] One line of decisions interprets s. 17 and s. 18 of the Guidelines in a manner that entitles courts to attribute to the payor an annual sum equal to the average of the pre-tax income of a corporation during the preceding three years, even if that sum exceeds the corporation’s pre-tax income for the most recent year. This

interpretation is hereinafter referred to as the “Unlimited Rule,” unless context otherwise requires. [ 36 ] The other line of decisions essentially interprets s. 17 and s. 18 in a manner that limits the authority of courts to attribute to the payor no more than the pre-tax income of a corporation for the most recent tax year. This

interpretation is hereinafter referred to as the “Limited Rule,” unless context otherwise requires. [ 37 ] The nature of the conflicting decisions and other inconsistencies were considered by Dinyar Matzban, Q.C. and Jamie R. Wood in “Lifting the Corporate Veil: Income Determinations for Shareholders, Directors and Officers Under

Section 18 of the Federal Child Support Guidelines ” (2012) 31 CFLQ 1. 1. The Unlimited Rule [ 38 ] I start with a review of a number of decisions that directly approved and applied the Unlimited Rule and also several decisions that endorsed the Unlimited Rule, notwithstanding the attribution in question did not exceed the corporation’s pre-tax income for the most recent tax year. In Giene v Giene , 1998 ABQB 961 , 234 AR 355 [ Giene ] , the pre-tax income of the corporation’s most recent tax year was $85,979 (being 1998) and previously $184,000 (1995), $189,419 (1996), and $209,417 (1997).

The corporation’s projected loss for the forthcoming 1999 tax year was $100,000. Binder J. attributed 51% of the average of the corporation’s pre-tax income during the preceding three years to the payor (who held 51% of the shares), and deducted from that amount the projected loss for the year ending

January 31, 1999. Based thereon, he attributed a sum of $49,603 to the payor. The end result is that he did not attribute to the payor morethan the corporation’s pre-tax income for its most recent year, but still used an average of the three most recent pre-tax values todetermine the amount attributed. [39] Binder J. arrived at his decision based on his understanding that s. 17 empowers a court to (

a) attribute to a payor all or a portionof a corporation’s average pre-tax income during the preceding three years, notwithstanding the amount attributed exceeds the whole ofthe corporation’s pre-tax income for the most recent tax year, and (

b) deduct projected future losses from any amount potentiallyattributable to the payor. At paras. 11 and 12, Binder stated the basis of his

interpretation of ss. 17 and 18: [11] … The “most current information” refers to the most current information where an amount is determined on the basis ofspecified information.

It is open to me, pursuant to the provisions in s. 17, to look at the pattern of income from the corporationhistorically, as well as to consider the evidence of the Father that this coming year will not be as profitable as in the past. [12] For the same reasons that I will not consider only the projected loss, I also do not believe it would be equitable to consider onlythe corporate income for the most recent taxation year where the corporation showed a significant pre-tax profit.

The spirit of theGuidelines is to arrive at a fair and equitable determination of income on which to base child support to ensure that the children benefitfrom the financial means of both spouses after separation. Strict

interpretation of any one

section often will not produce this result if weare to take a “snapshot” of the corporate income at any one moment in time; counsel for the Mother looking only to the most profitableperiod and counsel for the Father looking only prospectively where the company may suffer a loss. [40] The decision in Kowalewich v Kowalewich, 2001 BCCA 450, 19 RFL (5th) 330 [Kowalewich] is often cited as an authoritysupporting the Unlimited Rule, notwithstanding the only issue before the Court was whether the trial judge had erred by attributing tothe payor all of the pre-tax income of the payor’s corporation for its most recent tax year.

The Court reduced the amount attributed to thepayor to a lesser amount. Writing for the Court, Justice Hubbart made the following observations regarding the relationship betweens. 18(1) and s. 17(1) of the Guidelines, and the manner in which they apply in circumstances where attribution of a corporation’s incomeis sought: [47] The Guidelines give no explicit guidance as to how a parent or a court might go about choosing whether to use the corporateincome method or the personal services method in determining annual income.

However, s. 18 suggests two considerations in thepreconditions for its application: (1) which method produces an annual income that more fairly reflects “all the money available to thespouse for the payment of child support;” and (2) which method does the nature of the spouse’s relationship with the corporationsupport.

Section 18 also permits reference to the “situations described in s. 17,” and thus to the spouse’s income pattern over the previousthree years. … [54] The Guidelines allow a court to include all of the pre-tax income of a corporation for the most recent taxation year in a spouse’sannual income for Guideline purposes. They do not require it. I am not persuaded they make the inclusion of all pre-tax income thedefault position. [55] The only explicit guidance the Guidelines provide as to how much of a corporation’s pre-tax income to include in a spouse’s annualincome is found in the words “… the court may consider the situations described in

section 17 ….” That

section refers to the historicalincome pattern of a spouse and to non-recurring gains and losses. … 58] It seems to me regard should also be had to the nature of the company’s business and any evidence of legitimate calls on its corporateincome for the purposes of that business. Justice Drake cautioned about not killing the goose who lays the golden eggs. Monies neededto maintain the value of the business as a viable going concern will not be available for support purposes. In my view they should not beincluded in determining annual income. In Hollenbach v.

Hollenbach, 2000 BCCA 620, the trial judge recognized the need for a reservefor depreciation as an appropriate factor to be considered in a real estate business. Justice Dorgan recognized Mr. Kowalewich’s businessexpansion plan as a valid business purpose in a retail business. [41] In Nesbitt v Nesbitt, 2001 MBCA 113, 19 RFL (5th) 359 [Nesbitt], the Court approved and applied Giene but not incircumstances where the issue before it involved either the Unlimited Rule or the Limited Rule.

The issue before the Court was whetherthe trial judge had erred by attributing to the payor all of a corporation’s pre-tax income for the most recent tax year. The Court variedthe attribution to an amount less than the corporation’s pre-tax income for the most recent tax year.

When doing so, it took into accountthe average of the corporation’s pre-tax income during its three preceding tax years when assessing the corporation’s financial needs andability to continue operating without the benefit of all or a significant portion of its pre-tax income for the most recent tax year. [42] The following statement in Nesbitt is often cited as an endorsement of the Unlimited Rule (i.e., the attribution to the payor of anamount greater than a corporation’s pre-tax income for its most recent tax year): [25] Turning finally to this last issue, it is my opinion that fairness, equity and common sense mandate in a case such as this that athree-year averaging process be used to determine the imputation of income for Guideline purposes.

In so concluding, I acknowledgethere are cases which have held, for example, that if a corporation incurred a loss in its most recent taxation year, no attribution shouldbe made. See Beeching v. Beeching (1998), (SK KB), 169 Sask. R. 18; 40 R.F.L.(4th) 15 (Q.B. Fam. Div.) andMorley v. Morley. Other trial courts, however, have adopted a less strict application. As an illustration, in Blackburn v. Elmitt, [1997]B.C.T.C. Uned. G09; [1997] B.C.J. No. 2569 (S.C.) and Verot v. Verot, [2000] S.J. No. 15; 2000 SKQB 18 , 188 Sask. R. 274(Q.B. Fam.

Div.), the courts looked at the historical patterns of income from the corporation. A case which is particularly persuasive is

that of Giene v. Giene (1998), 1998 ABQB 961 , 234 A.R. 355 (Q.B.), where Binder, J., had the following to say (at paras. 11and 12). … [26] In my opinion, this analysis is to be preferred.

Not only is it both “fair” and realistic, but it should also reduce the risk that, if themost recent taxation year only is relied upon, and it is an unusual year (either positively or negatively), an application for a variation willpredictably follow. [43] Given the issue before the Court did not involve either the Unlimited Rule or the Limited Rule, which counsel had theopportunity to fully address, the aforementioned opinion may be obiter dictum. [44] In Hendrickson v Hendrickson, 2005 NSCA 67, 15 RFL (6th) 163 [Hendrickson] the Court took into account the average of thepre-tax income of the payor’s corporation over the three proceeding years when projecting the needs of the corporation and what portionof its pre-tax income for its most recent year was available for attribution to the payor.

It did not apply the Unlimited Rule. [45] In O’Neill v O’Neill (2007), (ON SC), 39 RFL (6th) 72 (Ont SC) [O’Neill], the Court applied the UnlimitedRule articulated in Giene. In O’Neill, Harvison Young J. held that s. 18 did not preclude the attribution to the payor of more than acorporation’s pre-tax income for the most recent tax year in circumstances where the average of its pre-tax income over four years wassignificantly higher. He provided the following reasons for his conclusion: [100] A literal and restrictive

interpretation of section 18(1)(

a) would create an incentive for litigants seeking to avoid or minimizesupport obligations to manipulate the success or lack thereof of the corporation for the year preceding the trial. This runs counter to thepolicies and purposes of the Guidelines. Averaging previous years to take account of fluctuations makes sense where taking pre-taxcorporate income into account, just as it makes sense to do so in

section 17. I would also note that the definition of “income” at

section 2of the Guidelines is “the annual income determined under sections 15 to 20.”

Section 17 is broad enough to include the “pattern ofincome” with respect to pre-tax corporate income. Of course, as

section 18 prescribes, one must always look at the most recent year’sfinancial statement for the corporation, but I find nothing in sections 15 to 20 of the Guidelines that precludes a court from consideringother years as well. In Bruzas v. Bruzas, Mr. Justice Campbell gave a similarly expansive

interpretation of s. 18(1). In that case herejected the payor’s argument that because s. 18(1) refers to pre-tax income of the corporation for the most recent taxation year a court isprecluded from considering income from any other tax year. Mr. Campbell held: … the wording of subsection 18(1) of the guidelines allows the court to decide whether a payor’s income tax return “fairly reflect(

s) allthe money available to the parent or spouse for the payment of child support.” In order to come to an opinion, the court should, in myview, examine all of the best and most recent evidence available to it in order to accurately determine the “availability” to the payor offunds generated by the corporation “for the most recent taxation year”: Bruzas v. Bruzas, [2005] O.J.

No. 4303 at para. 17 [emphasis inoriginal]. [46] In Chapman v Summer, 2010 BCCA 237, 287 BCAC 128, the issue was the amount of child and spousal support the payorshould have paid in 2005, 2006 and 2007, and prospectively based on his employment income of $48,000 and a third of the pre-taxincome of three corporations in which he held shares. The payor conceded that the subject corporations did not require their pre-taxincome for business purposes during the years in question.

The initial step involved the first trial judge ordering the payor to pay childand spousal support based on a sum equal to the payor’s employment income and one third of the three corporations’ pre-tax income forthe most recent tax year.

The payor appealed to the Court of Appeal and the Court varied the trial judge’s order on the ground that theamount attributed was based on an error in law and remitted the attribution issue to the trial Court to determine “anew, both retroactivelyto 1 July 2005 and prospectively” (Chapman v Summer, 2007 BCCA 103 at para 52, 37 RFL (6th) 122). [47] The second trial judge awarded spousal and child support based on the attribution to the payor of a substantially smaller portionof the corporations’ pre-tax income.

This led to the payor’s spouse appealing the latter decision on the grounds that the trial judge erredby not attributing to the payor a larger portion of the corporations’ pre-tax income for the years in question. The Court of Appealessentially averaged the pre-tax income of the corporations (being $1,690,001 in 2005, $359,902 in 2006 and $340,211 in 2007) andattributed the averaged amount to the payor for the purpose of calculating child and spousal support retroactive to 2005.

Although theCourt of Appeal did not articulate how it arrived at its assessment, it appears to have applied a combination of approaches available unders. 17, s. 18(1)(a), s. 18(1)(

b) and s. 19 of the Guidelines. It did not approve the Unlimited Rule or the Limited Rule. [48] In Hodgkinson v Hodgkinson, 2011 BCSC 634, 1 RFL (7th) 82, the Court essentially applied the Unlimited Rule and made thefollowing observation regarding the

interpretation of ss. 17 and 18(1)(a): [39] Neither party addressed the interplay between section 17(1), which permits the court to have regard to a spouse’s income overthe last three years if it is of the opinion that the determination of the income under

section 16 would not be fair, and

section 18(a), whichpermits the court to consider all or part of the pre-tax income of a relevant corporation for the most recent taxation year.

Section 18 saysnothing about considering the pre-tax income of a corporation over the last three years. [40] The issue does not appear to have been squarely addressed in British Columbia. The jurisdictions that have addressed the issuehave not reached a consensus. In Nesbitt v. Nesbitt, 2001 MBCA 113, 19 R.F.L. (5th) 359, for instance, Chief Justice Scott for theManitoba Court of Appeal concluded that fairness, equity and common sense mandated a three-year-averaging process to determine theimputation of income to be made under

section 18. In Boser v. Boser, 2003 SKQB 477, 47 R.F.L. (5th) 259, however, Wright J. of theSaskatchewan Court of Queen’s Bench disagreed that the Guidelines permitted that approach. [41] In British Columbia, the averaging approach seems to have been adopted without any particular discussion of the issue: see, e.g.,Cotter v. Cotter, 2009 BCSC 488 at para. 13, and Chapman v. Summer, 2010 BCCA 237, 4 B.C.L.R. (5th) 262. I propose to follow thesame approach. In my respectful view, the Guidelines do indeed permit it where it would be unfair to do otherwise [emphasis inoriginal]. 2. The Limited Rule

[49] I turn to a series of decisions where s. 18(1)(

a) and s. 17 were interpreted as not allowing more than the pre-tax income of acorporation for the most recent tax year to be attributed to the payor, hereinbefore defined as the “Limited Rule.” [50] In Beeching v Beeching (1998), (SK KB), 169 Sask R 18 (QB) [Beeching], Wilkinson J. interpreted the18(1)(

a) limitation as follows: [16] … Section 18(1)(

a) prescribes that all or part of the pre-tax income of the corporation for the most recent taxation year may beincluded in the husband’s annual income, if the court is of the opinion his annual income as determined under s. 16 would not fairlyreflect all the money available to him for the payment of child support. [17] The corporation’s most recent taxation year is the fiscal year ending January 31, 1998 during which the company experienced aloss, before tax, of $30,903 and a net loss, after recovery of tax, of $24,092.

On the strict wording of the section, the wife is precludedfrom arguing for inclusion of any corporate income from previous years. Since the company experienced no income in its most recenttaxation year, there is nothing to consider unless I am able to adjust expenses or impute income to the company [emphasis in original]. [51] In Morley v Morley (1999), (SK KB), 176 Sask R 287 (QB) [Morley], the payor’s corporation had no pre-tax income for its most recent tax year but had significant retained earnings.

In this circumstance, child support was sought based, in part,upon the retained earnings of the payor’s corporation being available for the payment of child support.

Wright J. refused to award childsupport based on an average of the undistributed pre-tax income of the payor’s corporation for prior years because those funds had beenconverted to retained earnings and, as such, constituted an asset of the corporation. [52] In Boser v Boser, 2003 SKQB 477, 240 Sask R 55, Wright J. affirmed her earlier decision in Morley regarding the authority of acourt, pursuant to s. 18(1)(a), and described the limited scope of the “averaging approach” applied in Giene and in Nesbitt: [26] With respect, while the result in both Nesbitt and Giene may have achieved the desired degree of fairness and equity, I disagreethat the Guidelines permit the approach adopted by those courts, and in particular the “averaging” of corporate pre-tax income for thepurposes of determining the amount of that income to be included in a spouse’s annual income for the payment of child support.

Itshould be noted that Giene was decided before s. 17 of the Guidelines was amended [Divorce Act Regulations, SOR/2000-337, s 4] inNovember, 2000. That amendment removed reference to the averaging of income in preceding taxation years, and substituted instead thecurrent provision which directs the court to, in appropriate circumstances, have regard to the spouse’s income spanning three years and todetermine an amount that is fair and reasonable in light of any pattern of income, fluctuation of income or receipt of non-recurringamounts during those years.

More importantly however is that at all times, s. 17 of the Guidelines, or its provincial counterparts, has onlyreferred to the pattern of income of a spouse or of a parent, not to that of a corporate entity. [27] In each of Nesbitt and Giene, the effect of the “averaging” of corporate pre-tax income was to reduce that amount to an amountthat was less than that earned in the most recent taxation year. The amount so determined, representing a “portion” of the pre-taxcorporate earnings, was then included in the spouse’s annual income.

The results in these cases accordingly were not inconsistent withs. 18 of the Guidelines which permits the court, pursuant to that section, to include all or a portion of the pre-tax income for the mostrecent taxation year only. However, in situations where the pre-tax income of a corporation is in decline, such an approach could achievea result in direct contradiction to the provisions of s. 18.

That is the circumstance here and to adopt the petitioner’s suggestion wouldresult in including in the respondent’s annual income an amount that exceeds the pre-tax income of [the corporation] for the most recenttaxation year [emphasis added]. [53] Subsequent to the decisions in Giene and Nesbitt, Justice Wilkinson reviewed the scope of ss. 17 and 18 in Olchowecki vOlchowecki, 2005 SKQB 144, 267 Sask R 83 [Olchowecki] and concluded that when the s. 16 fairness test is applied to s. 18(1)(

a) inconjunction with s. 17, income for the purpose of calculating child support may include “all or part of the pre-tax income of thecorporation or any related corporation for the most recent taxation year” (para. 10), but not more than that amount. [54] In Jarvis v Parker, 2008 SKQB 30, 309 Sask R 154 [Jarvis], McIntyre J. concluded that while “s. 18 of the Guidelines does notprovide for the ‘averaging’ of corporate pre-tax income for the purposes of determining the amount of income to be included inGuideline income” (para. 8), a court can consider the pattern of the corporation’s earning over the preceding three years when assessingwhether all or a portion of its pre-tax income for the most recent taxation years could be attributed to the payor. [55] In C. v S., 2010 NBQB 252, 373 NBR (2d) 77 [C.], Tuck J. applied the Limited Rule to s. 18(1)(a).

In arriving at his decision,he took into account the following

interpretation of s. 17 in Julien Payne and Marilyn Payne’s Child Support Guidelines in Canada, 2012(Toronto: Irwin Law, 2012) at p. 163: Given that fairness is the test mandated by

section 17 of the Guidelines, a court may average corporate income over the last three years todetermine the amount of income “that is fair and reasonable” to impute to a parent for the purpose of determining support under theGuidelines. Although

section 18 of the Guidelines allows the court to attribute corporate income to a parent only for the immediatepreceding year, it may be possible to apply section 19(1)(

d) or (

e) of the Guidelines as an additional potential source to impute retainedcorporate earnings to a parent. [56] In R.E.G., the payor’s employment and dividend income fluctuated over a period of three or more years, as did the pre-taxincome of the payor’s corporations. After having concluded that the fairness and equity test warranted further consideration of thepayor’s income, Ryan-Froslie J. (as she then was) addressed the issue of appropriate child support payable by the payor in the followingmanner. First, she determined the pre-tax income of each corporation for the years 2007 to 2009, inclusive.

Second, she examined theoperational and financial needs of each corporation during each of the years 2007 to 2009 inclusive for the purpose of establishing whatportion thereof was available for child support. Third, she attributed the whole of each corporation’s pre-tax income for each of the mostrecent tax year to the payor. She did not attribute to the payor an average of the corporations’ pre-tax income for the preceding threeyears. [57] In the instant appeal, the Chamber judge erred in his

interpretation of Ryan-Froslie J.’s reasons for judgment.

[58] Although the parities never cited or relied upon the decisions of this Court in Labrecque v Labrecque, 2014 SKCA 59, 43 RFL(7th) 71 [Labrecque] and Stelter v Stelter, 2012 SKCA 117, 30 RFL (7th) 1 [Stelter], I considered them and concluded that the issues inneither case are akin to the issues in this appeal.

In neither case did this Court or the trial judge attribute to the payor more than the pre-tax income of the payor’s corporation for its most recent tax year. [59] In Labrecque, the issue before the trial judge was limited to whether the pre-tax income of the payor’s farming corporationshould be calculated using the cash accounting method, which the corporation and the payor used for income tax purposes, or the accrualaccounting method applied when preparing the corporation’s financial statements. The trial judge applied the cash method and decidedthe following: (

a) the corporation had very little pre-tax income for its most recent tax year by virtue of an inventory payment to thepayor of $48,610; and (

b) if the inventory payment had not been made, $33,533 of the corporation’s pre-tax income would have been areasonable amount to attribute to the payor. In these circumstances, the trial judge concluded that attribution of the corporation’s pre-taxincome was not warranted. The parties subsequently discovered an accounting error and determined the corporation’s pre-tax income forits most recent tax year was $49,700. This Court rectified the error by attributing $33,533 of the corporation’s pre-tax income to thepayor.

The s. 18(1) limitation was never an issued before either court. [60] In Stelter, the payor’s annual income was $80,000 and the payor’s income from the corporation for its most recent tax year was$60,000. The payor withdrew the whole of the $60,000 and also used corporate assets for his personal benefit. The trial judge valued thepersonal benefit enjoyed by the payor to be in the range of $21,000 to $22,000 per year. The trial judge awarded child support based onthe total of $80,000.

In the result, the issue before this Court did not involve the attribution of corporate income to the payor. [61] In Canadian Family Law (Julien D. Payne and Marilyn A. Payne, Canadian Family Law, 5th ed (Toronto: Irwin Law, 2013),Julien D. Payne and Marilyn A. Payne summarized the extent s. 18(1)(

a) permits a corporation’s pre-tax income to be attributed to one ofits controlling shareholders. Regarding this subject, they wrote the following:

Section 18 of the Guidelines can be invoked whenever a spouse’s income, as determined under

section 16 of the Guidelines, does notfairly reflect all the money that ought reasonably to be available for child support, after the legitimate needs of the corporation are takeninto account. Given such a finding, the court has the discretionary jurisdiction under section 18(1) of the Guidelines to consider thespouse’s income as including (

a) all or part of the pretax income of the corporation … provided that the amount does not exceed thecorporation’s pretax income. Only the pretax income of a corporation for the most recent taxation year may be included in a spouse’sannual income under section 18(1)(

a) of the Guidelines. (p. 435–436) [62] With the benefit of the aforementioned decisions and the jurisprudential writings in mind, I turn to interpreting s. 18(1)(

a) ands. 17 of the Guidelines through the lens of the modern rule of statutory

interpretation, as applied in Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 SCR 27 and incorporated in s. 10 of the

Interpretation Act, RSO 1990, c I.11, and fully articulated by RuthSullivan in Sullivan on the Construction of Statutes, 6th ed (Markham: LexisNexis Canada, 2014). After stating the questions aninterpreter should consider when determining whether a provision applies to particular facts, Sullivan went on to say the following: At the end of the day, after taking into account all relevant and admissible considerations, the court must adopt an

interpretation that isappropriate. An appropriate

interpretation is one that can be justified in terms of (

a) its plausibility, that is, it’s compliance with thelegislative text; (

b) its efficacy, that is, its promotion of legislative intent; and (

c) acceptability, that is the outcome complies withaccepted legal norms; it is reasonable and just. (p. 3) [63] The uncontested purpose of the Guidelines is to assist courts in calculating, inter alia, child support in a consistent mannerbased on the income of the payor, who usually is a parent or guardian. To that end, the Guidelines provide courts with some discretionwhen determining what would be a fair and equitable amount of child support for the payor to pay based on the payor’s sources ofincome that fall within the term “Total Income,” as defined in the T1 Tax Return published by the Canada Revenue Agency.

In thisrespect, the Guidelines focus on fairness and equity based on specified sources of income and not on the assets of the payor. It also is notintended to override provisions of other statutes or ignore the interests of third parties, except where specifically provided for regarding amatter falling within the jurisdiction of the Parliament of Canada under the Divorce Act, or in the case of Saskatchewan, the provisionsof The Children’s Law Act or The Family Maintenance Act, 1997. [64] Of particular relevance in this case is the

interpretation and application of s. 17 and s. 18 of the Guidelines. In Giene, the Courtconcluded the “spirit” of the Guidelines is “to arrive at a fair and equitable determination of income on which to base child support …”(para. 12). As previously mentioned, Giene concluded that ss. 16, 17(1) and 18(1)(

a) authorize courts to attribute to a payor a sumexceeding the corporation’s pre-tax income for the most recent tax year. In O’Neill, the Court concluded that the policy and purposes ofthe Guidelines entitle a court to average the pre-tax income generated by a corporation during previous years for attribution purposes. [65] I do not agree that the general principles of fairness and equity contemplated by the Guidelines entitle a court to ignore thespecific provisions of s. 18(1)(a).

Nor do I agree with the decision in O’Neill that the provisions of s. 17 are broad enough to allow acourt to attribute to a payor the average of a corporation’s pre-tax income during the preceding three years if the averaged income isgreater than the corporation’s pre-tax income for the most recent tax year. [66] I start with the intended role of s. 17 as a stand-alone provision.

In circumstances where a court concludes that the payor’sannual income from sources falling within the aforementioned definition of Total Income (the income for the most recent tax year) doesnot constitute a fair determination of a payor’s annual income under s. 16, s. 17(1) entitles a court to impute a level of income to thepayor for the purpose of calculating child support “that is fair and reasonable in light of any pattern of income, fluctuations of income orreceipt of non-recurring amounts during” the preceding three years.

This process contemplates averaging the payor’s income over thepreceding three years and, thereafter, making appropriate adjustments for non-recurring income or losses. The goal of s. 17(1) is topromote consistency in the payment of child support by establishing a reasonable level of income comprised of sources defined asincome under the T1 Tax Return, subject to adjustments that are not relevant to the instant appeal. It does not entitle a court to includethe pre-tax income of a corporation or as a source of funds when calculating a payor’s adjusted average income during the preceding

three years, on a stand-alone basis. [ 67 ] The attribution of corporate income to a payor is a distinct source of income governed by the provisions of s. 18 and in some instances by s. 19 of the Guidelines . [ 68 ] Section 18(1) was implemented for the purpose of making some of the current pre-tax income of a corporation available for child support, without putting a corporation at risk or interfering with the legal and commercial rights of third parties who interact with the corporation.

To accomplish these objectives, it provides that a court may consider the payor’s income sources determined pursuant to s. 17 as part of the process of assessing whether “all or part of the pre-tax income of the corporation … for the most recent taxation year …” ( s. 18(1) (

a) of the Guidelines ) should be attributed to the payor. It does not expressly or implicitly contemplate a corporation’s pre- tax income being averaged pursuant to s. 17(1) . Nor does the general fairness principle override the specific provisions of s. 18(1)( a ). [ 69 ] The limitation prescribed in s. 18(1)(

a) has two clear objectives. It recognizes that a corporation is a distinct person at law with financial obligations to third parties, including its employees, creditors and customers who are dependent on it having sufficient capital and operating income to meet its obligations to them and to efficiently carry on its business activities in circumstances where the payor has no legal obligation to assume the corporation’s debts or fund its capital requirements.

It also recognizes that in some circumstances a payor’s income may not fairly reflect all of the sums available for child support and in those circumstances allows for the attribution to the payor of a corporation’s pre-tax income for the most recent tax year, which often will be readily available. [ 70 ] The limitation facilitates both objectives. It makes current pre-tax income, surplus to the corporation’s needs, available for child support without exposing the corporation to an encroachment on its capital, which undermines its viability should the corporation encounter adverse market conditions.

It also avoids courts having to forecast future market conditions and the capital requirements of a corporation, usually without the benefit of adequate evidence. [ 71 ] In my view, the restricted

interpretation of s. 18(1), i.e., the Limited Rule, complies with the legislative text, promotes the legislative intent, complies with acceptable legal norms and provides a reasonable result. [ 72 ] The Unlimited Rule, by its very nature, may compel a corporation to convert an asset (e.g., retained earnings or equipment) into funds sufficient to cover a court ordered attribution and the income tax payable by the payor on the sum attributed to the payor.

It also tends to closely link a corporation with the payor by making its cash flow requirement, commitments of capital and obligations to third parties subject to being adversely affected by court orders related to the personal responsibilities of a payor with respect to which the third parties have no right to intervene.

Such results are inconsistent with the legislative text and can be unreasonable and unjust, particularly to third parties who have no say in the matter. [ 73 ] The following argument is often relied upon in support of the Unlimited Rule: by averaging a corporation’s income over three years one can avoid the need to frequently pursue variation applications based on the corporation’s pre-tax income for the most recent tax year.

While future variation applications may reduce the frequency of variation applications, if a corporation’s earnings remains relatively stable and the parties cooperate, the consequences to all concerned can be far more egregious if the corporation’s future pre-tax income is less than projected (particularly if it had little or no pre-tax income when the attribution order was made) and a further encroachment on a corporation’s earnings and capital are required in order to meet the payor’s court ordered obligations.

In those circumstances, corporations may fail – and have failed – before a variation application, supported by current financial statements and expert evidence in written form, could be filed and heard. In my opinion, s. 18(1) (

a) is intended to avoid such disastrous events by limiting the attribution of a corporation’s pre-tax income, if any, to the most recent tax year. [ 74 ] I agree that s. 18(1)(

a) contemplates a court considering the historical earning pattern of a corporation as a factor in determining what portion of its pre-tax income for the most recent tax year should be attributed to the payor. This was done in Hendrickson , Jarvis , Kowalewich and R.E.G., The objective of such an analysis is to establish the payor’s personal income and then consider what portion of a corporation’s pre-tax income for the most recent tax year is required to meet the reasonable needs of the child, assuming the whole such income is not required by the corporation.

Section 18(1) is not intended to allow for an average of a corporation’s pre-tax income during the preceding three years to be attributed to the payor, as suggested in Giene . [ 75 ] In sum, I conclude that the Chamber judge erred in his application of s. 18(1) by attributing to Mr. Thompson a sum greater than TP&H’s pre-tax income for the tax year ending January 31, 2013. [ 76 ] I turn to the second issue. B. If the answer to issue “A” is yes, should the whole or any portion of TP&H’s pre-tax income for the year ending on January 31, 2013 be attributed to Mr.

Thompson? [ 77 ] The established practice of the Queen’s Bench Court is not to conclusively vary interim child support orders based on a definitive attribution of pre-tax income of a corporation to the payor without the benefit of a trial or viva voce hearing, except where it is clearly necessary to do so.

In the latter circumstances, the practice of the Court is to cautiously approach such applications and make conservative assessments based on the clear understanding that the trial judge is not bound by any attribution the Chamber judge made or refused to make (see Kosior v Kosior , 2013 SKQB 42 , 413 Sask R 18 and Beeching v Beeching , 2006 SKQB 542 , 290 Sask R 298 [ Beeching 2006]). [ 78 ] The application by Ms. Bear for increased child support is based on the attribution to Mr.

Thompson of a sum equal to the average of TP&H’s pre-tax income during the preceding three years, being an amount substantially greater than TP&H’s pre-tax income for its most recent tax year. Her application involved complex evidentiary issues, including an assessment of TP&H’s financial needs and changing market condition, without the assistance of an expert or someone knowledgeable on the requirements of a plumbing contracting business, and someone capable of providing a full explanation of aspects of TP&H’s financial statements.

Without such evidence, the Chamber judge could not have reasonably assessed the credibility of Mr. Thompson or reasonably arrive at the conclusion he did.

[ 79 ] This is a clear case where a trial or viva voce hearing was required, during which appropriate expert witnesses should be called, the parties cross-examined and their evidence assessed by a trial judge. That requirement was made known to the parties by Rothery J. [ 80 ] In the instant case, Mr. Thompson was required to present “clear” evidence establishing, on a balance of probabilities, that TP&H required the whole of its pre-tax income for the 2013 tax year and, therefore, it would be “unfair” to attribute all or a portion of the corporation’s pre-tax income to him.

While the evidence he provided satisfies me that TP&H required some of its pre-tax income for the most recent year for legitimate business purposes, I am unable to determine what would be an appropriate amount in the absence of comprehensive evidence regarding the market conditions applicable to the plumbing contracting industry in the area TP&H operates and the capital, equipment, staffing and facilities reasonably required by it to carry on its contracting business.

The evidence of experts on such matters would be desirable but is not absolutely necessary. [ 81 ] At the same time, I appreciate that substantial costs would be involved in retaining experts to prepare comprehensive and sometimes complex evidence in written form for the purposes of an interim variation application and thereafter to testify at a trial. These circumstances demonstrate the need for a trial or viva voce hearing as soon as possible. [ 82 ] In these circumstances, I would attribute to Mr. Thompson $25,000 of TP&H’s pre-tax income for the 2013 tax year on an interim basis.

This attribution is not intended to restrict any future court in its determination of what portion, if any, of TP&H’s pre-tax income should be attributed to Mr. Thompson for the purpose of calculating child support. V. Conclusion [ 83 ] In sum, I would grant the appeal, set aside the May 8, 2013 decision and order of the Chamber judge and would order Mr.

Thompson to pay child support for K.B. of $1,130.00 per month, based on the aggregate of his estimated income of $110,000 and the attribution of $25,000 of TP&H’s pre-tax income for 2013 tax year, retroactive to June 1, 2013 and prospectively until ordered. [ 84 ] Given the mixed results, I would not award taxable costs for either party. DATED at the City of Regina, in the Province of Saskatchewan, this 29th day of October, 2014. “Klebuc J.A.” Klebuc J.A. I concur “Ottenbreit J.A.” Ottenbreit J.A. I concur “Whitmore J.A.” Whitmore J.A.