Court File and Parties

Court File No.: D51460/10 Date: 2013-01-21

Ontario Court of Justice

Toronto North Family Court

Between:

Sarah Ehiagwina Acting in Person Applicant

- and -

Kingsley Ehiagwina Respondent

Counsel: Minipreet Bhattia, duty counsel assisting the respondent Barry Nussbaum, counsel for the Respondent

Heard: August 31st and November 16th, 2012 and January 14th, 2013

Justice: S.B. Sherr

Reasons for Decision

Part One – Introduction

[1] The applicant (the mother) and the respondent (the father) have both brought motions to change the order of this court dated March 25, 2011 that requires the father to pay the mother the child support guideline table amount of $537 per month for their two children, who are ages 4 and 6, based on an agreement that the father's income was $37,400 per annum.

[2] The mother issued her motion to change on July 12, 2012, asking the court to review the table amount of child support and to order the father to contribute to the children's child-care expenses pursuant to section 7 of the child support guidelines (the guidelines). She asked the court to start the section 7 payments as of July 1, 2012. At the hearing, she asked the court to impute income of $70,000 per annum to the father for support purposes.

[3] The father responded with his own motion to change, issued on August 17, 2012, asking the court to reduce his child support obligation and to reduce his support arrears. At the hearing, he asked the court to fix his income at the minimum wage level for support purposes, adjusted back to April 1, 2011.

[4] The court heard viva voce evidence on the motions to change. The hearing began on August 31, 2012. On that date, the mother acted in person and the father was assisted by duty counsel.

[5] The mother testified on that day, was cross-examined by duty counsel assisting the father, and satisfied the court that she was paying $1000 per month for a nanny for the children and that it was both reasonable and necessary for her to hire the nanny, given that she worked shifts, including nights, as a nurse.

[6] The father also testified. It quickly became apparent that his documentary evidence in support of his motion to change was seriously deficient and he was given an adjournment to gather the necessary information and to complete his testimony. A financial disclosure order was made.

[7] The father subsequently retained counsel and at his request the hearing was adjourned on the return date of November 16, 2012. The hearing was completed on January 14, 2013.

Part Two – Background Facts

[8] The parties were married in 2005 and separated near the end of 2008. They have lived separate and apart since that time.

[9] The mother has custody of the children. She is 37 years old and is a registered nurse.

[10] The father is 39 years old, lives alone and exercises access with the children. He is a trucker and is the sole director, shareholder and employee of a corporation that operates as a trucking business. The corporation presently has one customer for whom the father drives. He invoices the customer for his work through his corporation.

[11] The parties, on consent, finalized the issue of child support in this court on March 25, 2011. The parties agreed that the father's income was $37,400 per annum and that he would pay the table amount of child support for the two children, being $537 per month, starting on April 1, 2011.

[12] The father's sole customer stopped using his business on April 25, 2011 due to the father having accumulated demerit points.

[13] The father testified that he was able to obtain occasional driving work in 2011 through his corporation until he found a new primary customer. He has driven exclusively for this customer for over one year.

Part Three – Legal Considerations

The motions to change support are governed by subsection 37(2.1) of the Family Law Act that reads as follows:

Powers of Court: Child Support

(2.1) In the case of an order for support of a child, if the court is satisfied that there has been a change in circumstances within the meaning of the child support guidelines or that evidence not available on the previous hearing has become available, the court may,

(a) discharge, vary or suspend a term of the order, prospectively or retroactively;

(b) relieve the respondent from the payment of part or all of the arrears or any interest due on them; and

(c) make any other order for the support of a child that the court could make on an application under section 33.

[14] A self-employed person has the onus of clearly demonstrating the basis of his or her net income. This includes demonstrating that the deductions from gross income should be taken into account in the calculation of income for support purposes. See Whelan v. O'Connor. This principle also applies where the person's employment income is derived from a corporation that he or she fully controls. See MacKenzie v. Flynn, 2010 ONCJ 184.

[15] The self-employed have an inherent obligation to put forward not only adequate, but comprehensive, records of income and expenses, from which the recipient can draw conclusions and the amount of child support can be established. Meade v. Meade.

[16] The onus rests upon the parent seeking to deduct expenses from income to provide meaningful supporting documentation in respect of those deductions, failing which an adverse inference may be drawn. See: Orser v. Grant, [2000] O.J. No. 1429 (S.C.J.).

[17] In Elder v. Dirstein, 2012 ONSC 2852, the court set out the legal considerations in assessing income where a sole shareholder controls a corporation in paragraphs 13-16 as follows:

Section 19(1)(a) of the Child Support Guidelines Provides:

19(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:

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

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

(g) the spouse unreasonably deducts expenses from income;

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

Section 19 Exception

Section 19 is an exception to the method of calculating income set out under s. 16, which determines income according to the "total income" set out in the payor's most recent income tax form, and under s. 17, which considers the payor's patterns of income over the past three years.

Section 18 Application

As the father is the sole shareholder of the business, s. 18 also comes into play. This section gives the court discretion to attribute some or all of the pre-tax income of a corporation to the shareholder, director or officer personally or, in the alternative, to attribute an amount less than or equal to the pre-tax corporate income that is commensurate with the services that the parent provides to the corporation. Section 18 provides:

18(1) [where] 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.

(2) In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits to or on behalf of persons with whom the corporation does not deal at arm's length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.

Onus on Shareholder

Whenever s. 18 comes into play the onus is on the shareholder, director or officer to show that corporate monies, whether retained earnings or pre-tax corporate income, are not available for support purposes: Nesbitt v. Nesbitt, 2001 MBCA 113; Hausmann v. Klukas, 2009 BCCA 32. That is because the payor parent knows more about the business than the recipient, and is therefore in the best position to explain why some or all of the company's pre-tax income is not available for support.

Part Four – The Father's Income

[18] The father claimed that he has been earning $12,000 per annum since April 1, 2011. He says that he is paid this income in the form of director fees by his corporation.

4.1 2011 Income

[19] Despite being granted two adjournments, the father's financial disclosure for 2011 was deficient. While he provided statements of his company's gross revenue and expenses in 2011, he failed to provide any supporting documentation showing how the income and expenses were calculated for the business that year.

[20] It became clear during the hearing that the father was writing off personal expenses through the company. In the corporate statement of revenues and expenses attached to his 2011 tax return, the father deducted money for office expenses and supplies, but his business really has no need for an office and has no significant supplies. He deducted expenses for occupancy costs, but couldn't explain what these were. He acknowledged that he used the telephone and internet for personal use. He deducted travel expenses (on top of vehicle expenses deducted), but had no proof of these expenses. In fact, he provided no meaningful documentation for any of the expenses deducted in his business statement.

[21] The father satisfied me that there was a change in his income in 2011, but not to the degree deposed. I accept that he suffered a short-term reduction in his income due to the loss of his primary customer. However, I draw an adverse inference against him due to his failure to provide adequate supporting documentation about his business.

[22] The company's 2011 statement showed gross revenue of $43,742, with net income of $8,518. The company paid the father $12,050. The father said that he paid HST with the pre-tax profits of the company. He did not provide proof of this, but even if accepted, this would leave a pre-tax profit for the corporation of about $3,000. The father did not meet his onus to show that this income was unavailable for support purposes. I have added back this sum to the father's 2011 income.

[23] I further added back the amount of $11,000 to the father's 2011 income for personal expenses unreasonably deducted by the company (as this would otherwise have been available to him as income). This included approximately $3,000 for office expenses and supplies, $3,000 for occupancy costs, $1,500 for telephone and internet expenses and $3,500 for travel expenses.

[24] The income analysis does not end there. It is appropriate in these circumstances to gross up the father's income, as the father declared and paid tax on substantially less income than he actually earned in 2011. This is done to ensure consistency of treatment where a party is found to have arranged his affairs to pay less tax on income. See Sarafinchin v. Sarafinchin, O.J. No. 2855, (Ont. S.C.).

[25] A software analysis shows that with these adjustments, the father's income for 2011 was $29,164. The table amount for two children at this income level is $433 per month. I will adjust the father's income to this level starting on April 1, 2011. The father will be credited with the sum of $936. This reflects the nine-month difference in 2011 between the original order of $537 per month and the new table amount of $433 per month.

4.2 2012 Income

[26] The father's financial disclosure regarding his 2012 income was also deficient.

[27] The father did provide invoices from his company. He provided few of them prior to March of 2012, but did provide all of them for the period from March 10th to September 22nd of 2012, a period of about six and one-half months. He provided no ledgers setting out what his business expenses were. He filed bank and credit card statements, but was unable to articulate how those statements would explain what his business expenses were in 2012.

[28] The father's lack of financial disclosure made it difficult to assess his actual income in 2012.

[29] This analysis was made more difficult by the inconsistency of the father's evidence.

[30] The father claimed that he was earning $27,000 per annum in 2010, yet agreed on March 25, 2011 that he was actually earning $37,400 per annum for support purposes. In his financial statement of August 21, 2012, he claimed to be earning $12,050 per annum, with monthly expenses of $336 per month. He deposed that he had assets of $200 and debts of $14,100.

[31] In his financial statement sworn on November 5, 2012, the father maintained that he had the same income, but that his monthly expenses were now $1,614 per month. He deposed that he had assets of $6,300 and debts of $10,150.

[32] This inconsistency was further complicated by the father's testimony. He claimed to have paid the following monthly expenses for the past year:

Item	Amount
Rent	$600
Clothes	$150
Car, including gas, insurance, license and repairs	$665
Cigarettes	$140
Beer	$100
Entertainment – including for children	$250
Household supplies	$80
Food	$1,400
Total	$3,385

[33] This total does not include any payments for child support or towards debts. The father also testified that he recently spent about $3,000 to pay for a lawyer to deal with his demerit points. The father claimed that he is only earning $12,000 per annum ($1,000 per month). This would leave a monthly deficit of at least $2,385 per month, based on his oral testimony. However, the father did not experience any real reduction in his equity (assets minus debts) during 2012.

[34] The father's evidence was unreliable and incomplete and I draw an adverse inference against him.

[35] I will impute the father's income at $40,000 per annum for 2012 and on an ongoing basis and rely on the following evidence:

a) A review of the corporate invoices for the father's business for the six and one-half period from March 10 to September 22 of 2012 (the best evidence of his 2012 revenues) reflects a projected gross annual income of about $60,000. This is approximately a 37% increase in revenue for the business from 2011. A 37% increase from the 2011 personal income I fixed for the father would put him at close to $40,000 per annum for 2012.

b) The father's testimony at the hearing about his 2012 monthly expenses projects to supporting an income in the same range. The father is living the lifestyle of an individual who earns about $40,000 per annum.

c) The father's business has had the steady principal customer for over one year.

d) The father has historically earned income near this income level.

e) The father has many skills. He has a truck driver's license. He ran a construction business and has skills in roofing and installing aluminum. He presented as intelligent, resourceful and has no health limitations that would prevent him from earning income at this level.

[36] The mother provided no credible evidence that the father is earning $70,000 per annum, or even any more income than I have attributed to him. Her evidence amounted to no more than suspicion and speculation.

[37] The father has not yet filed his income tax return for 2012. The court won't assume that he will write off personal expenses on this tax return and accordingly won't gross up his income for 2012 or on an ongoing basis.

[38] The table amount for child support at $40,000 per annum for two children is $579 per month, and the father's support obligation will be adjusted accordingly starting as of January 1, 2012. This will increase the father's child support obligation by $598, being the difference between the original amount ordered of $537 per month and the new support obligation of $579 month, for the thirteen month period since January 1, 2012.

Part Five – Special Expense

[39] The mother pays her nanny $1,000 per month. She conceded that a portion of the nanny's job is to clean the house, do the laundry and prepare meals. She estimated that 80% of the nanny's work was related to her child-care responsibilities.

[40] The father argued that only 50% of the nanny's expense should be attributed to child-care responsibilities.

[41] It is only the child-care expense of the nanny that is incurred as a result of the mother's employment that is an eligible section 7 expense. See: clause 7(1)(a) of the guidelines; Zanewycz v. Zanewycz, [2007] O.J. No. 3567 (SCJ).

[42] In Low v. Robinson [2000] A.J. No. 96 (Alberta Queen's Bench), the court conducted a review of case law that considered what portion of a nanny's expense should be allocated to child care at paragraphs 65-79. In refusing to make any reduction for non-child-care services provided by the nanny, the court wrote at paragraphs 75-78:

75 If a parent chooses to engage a nanny, the home will obviously be occupied to a greater extent by the children, and possibly their friends from time to time, resulting in a need for frequent cleaning. The children will need to eat, and meals will therefore be prepared. Undoubtedly, a portion of a parent's daycare fees go to cleaning and maintaining the daycare environment, to provision of snacks, clean-up, and to some incidental laundry. Nevertheless, the full daycare fee is considered a child care expense.

76 Perhaps a helpful manner of viewing the issue is to imagine the situation if there were no children in the household. The house would be in the same state at 6:00 p.m. as it was when the owner left at 7:00 a.m. There would likely be little need to prepare "sit-down" meals. Laundry would be minimal. Viewed from this perspective, it is apparent that the incidental benefits of a nanny relate very likely to child care.

77 The distinction urged by the Defendant in this case between child care and housekeeping would surely be offensive to those parents who stay at home to care for their children. Child care is not restricted to the time a child is on the lap of the caregiver, but rather encompasses a myriad of activities directed at promoting or maintaining the well-being of the children. The fact that those activities take place in the custodial parent's home rather than in another environment should not negate a sharing of the cost between the parents.

78 In the present case, there is no evidence before the court which would enable it to compare nanny costs for the three children with other suitable alternatives. There is scanty evidence as to what duties the nanny performs, and to what extent those duties relate to the children, or to the Plaintiff. Nor is there evidence regarding the time spent by the nanny on her various activities, nor the value of any services provided for the exclusive benefit of the Plaintiff. Given the fact that the youngest child is in kindergarten, and therefore only absent from the home for part of the day, it can be assumed that the vast bulk of the nanny's time is occupied with directly meeting the demands of one or more of the children. Even where the children are all school-aged (as these children will soon be), there must be sufficient evidence to enable the court to assess the nature and value of the nanny's activities, in order for the court to discount the expense.

[43] The mother's proposal to set the child-care portion of the nanny's income at 80% is very reasonable. Since she is a shift-worker, with unpredictable hours, it is reasonable and necessary for the mother to use a nanny, instead of an outside child-care provider. As a result, many of the nanny's cooking, cleaning and laundry responsibilities are intertwined with her child-care responsibilities. The children in this case are even younger than those in Low v. Robinson (who were 9 and 5) and require more intensive child care. They are frequently in the home and housekeeping is essential to promote their well-being. The personal benefit that the mother obtains from the nanny is no more than the 20% suggested by her. The nanny is primarily there to care for the children.

[44] The gross amount of the child-care expense will be fixed at $800 per month.

[45] The guiding principle in determining the amount of a special expense referred to in subsection 7(1) of the guidelines is that the expense is shared by the parents or spouses in proportion to their respective incomes after deducting from the expense, the contribution, if any, from the child (subsection 7(2) of the guidelines).

[46] In determining the amount of an expense referred to in subsection (1), the court must take into account any subsidies, benefits or income tax deductions or credits relating to the expense, and any eligibility to claim a subsidy, benefit or income tax deduction or credit relating to the expense (subsection 7(3) of the guidelines). Here, the mother is entitled to claim the entire amount of the child-care expense as a tax deduction. At her marginal tax rate, this is a significant deduction.

[47] I have reviewed the father's financial circumstances and see no basis to deviate from the general principle that he should pay his pro-rata share of the section 7 child-care expense.

[48] A software analysis shows that the father's pro-rata share of the section 7 child-care expense (after taking into consideration tax deductions and credits) is $152 per month. This amount shall be ordered from July 1, 2012, as requested by the mother. The sum of $1,064 has accumulated for this expense since July 1, 2012 (7 months at $152 per month).

Part Six – Conclusion

[49] The father's support arrears as of this date shall be increased as follows:

Item	Amount
Increased table amount of child support since January 1, 2012	$598
Section 7 expense accumulated since July 1, 2012	$1,064
Total	$1,662
Less: Adjusted support credit for 2011	($936)
Final increase in arrears	$726

[50] The father will be permitted to repay outstanding support arrears at the rate of $150 per month until they are repaid, provided that he complies with both the ongoing and arrears support payments ordered.

[51] A final order shall go changing the support order of March 25, 2011 on the following terms:

a) The father's support arrears shall be increased by $726 as of today, calculated as set out in these reasons for decision.

b) The father's ongoing income is fixed at $40,000 per annum for support purposes. He shall pay the mother the guideline table amount of child support for two children of $579 per month starting on February 1, 2013.

c) The father shall also pay the mother the sum of $152 per month for the section 7 child-care expense starting on February 1, 2013.

d) The Family Responsibility Office is asked to adjust their records in accordance with this order.

e) The father may repay child support arrears at the rate of $150 per month, starting on February 1, 2013. However, if he is more than 30 days late in making an ongoing support payment or an arrears payment as required by this order, then the entire amount of arrears shall immediately become due and payable.

f) Nothing in this order precludes the Family Responsibility Office from collecting support arrears from any government source, such as HST or income tax refunds, or lottery or prize winnings.

g) The parties shall exchange their complete income tax returns and notices of assessment and the mother shall provide the father with copies of all receipts for the children's special expenses by June 1st of each year.

h) A support deduction order shall issue.

[52] The software calculations showing how the father's income and contribution to the special expenses were calculated are attached to this decision. The parties will have 14 days from the date of this order to make any submissions about possible inaccuracies in the software calculations (such as figures being inputted incorrectly), or any possible mathematical errors in this decision. Any submissions should be in writing, on notice to the other party, and be delivered to the trial coordinator's office. If submissions are made, the other party will then have 7 days to serve and file their written response. If no submissions are received in 14 days, this order may be taken out.

Justice S.B. Sherr

Released: January 21, 2013

Footnotes

[1] This is based on HST payments at the rate of 13%.

[2] This is the date when his child support obligation began.

[3] The father claimed to eat meals out of about $50 per day, 5-6 days per week.

[4] It also appears that the father has not paid his child support for the past few months despite his ability to pay for the lawyer.