Court File and Parties
Court File No.: Brampton 1962/04 Date: 12·05·15 Ontario Court of Justice
Between: Rikki Szuky, Applicant
— And —
William Pereira, Respondent
Before: Justice P.W. Dunn
Heard on: 8 May 2012
Ruling on Applicant's Motion dated 26 March 2012, released on 15 May 2012
Counsel:
- Paul C. Buttigieg Esq. for the applicant
- Anthony V.R. Martin Esq. for the respondent
P.W. DUNN, J.:
Background and Motion
[1] Before the court was the applicant's motion dated 26 March 2012, in Volume 7, Tab 16. Ms. Rikki Szuky, as applicant, requested that the respondent, William Pereira, pay child support of $880 a month from 1 January 2010, based on an income to be imputed to him for that year of $100,000. Financial disclosure for 2011 was not complete enough for the court to base an order on the respondent's 2011 income. In general, the reasons for this demand were, in the applicant's opinion, excessive business deductions taken by the respondent in 2010. Also his credit card receipts demonstrated unwarranted expenditures when compared to Mr. Pereira's claimed income for tax purposes.
[2] Mr. Martin objected strongly to this motion proceeding. His concern was that the expenses were complicated and fairness demanded that there be cross-examination in a trial. It is often more beneficial to determine financial matters at trial, especially where there are concerns about credibility. However in this case, with no court order at all in place for support, and with the large variance in the parties' positions about the respondent's income, fairness for the applicant requires that this motion proceed.
[3] This case started in 2005, and the first order on 27 July 2005 gave final custody of Ayres Szuky, born 19 September 2004, to the applicant. There has never been a child support order in the history of this eight-year-old case. One significant reason for this has been the difficulty in obtaining financial disclosure from the respondent as a self-employed Remax real estate salesman.
[4] There were periods when the respondent voluntarily paid child support. In the applicant's affidavit sworn 26 March 2012, she stated that from 1 January 2010 to June 2010 (six months) the respondent paid $300 a month child support. From February 2011, Mr. Pereira paid $172 a month child support. In the period July 2010 to February 2011, he stopped all payments because he did not have access. Mr. Martin was careful to underline that these amounts of child support exceeded the Guidelines based on the respondent's declared income.
Respondent's Reported Income and Guidelines
[5] Mr. Pereira's notices of assessment for recent years, together with what would be the Guidelines amount based on the current tables, were:
| Year | Line 150 Income | Current Guidelines Child Support Payable |
|---|---|---|
| 2008 | $13,064 | $59 |
| 2009 | $19,872 | $159 |
| 2010 | $15,672 | $100 |
[6] Mr. Pereira's Statement of Gross Business or Professional Activities (herein called Statement of Business Activities) for those same years were:
- 2008: $48,213
- 2009: $133,201
- 2010: $152,535
For 2011, the respondent only produced a Remax Production Report for the first eight months of the year (1 January 2011 to 31 August 2011) that indicated total realty sales commissions of $92,926. Mr. Buttigieg projected that the respondent's sales commissions for all of 2011 would be $139,000.
Analysis of Business Deductions
[7] According to Mr. Pereira's Statement of Business Activities, the following were his business write-offs for which no back-up information was provided to confirm that the expenses were proper business expenses. Other years are referenced for comparison purposes to 2010, but only the figures for 2010 are being considered in this Ruling.
(1) Meal and Entertainment Write-Offs
| Year | Amount |
|---|---|
| 2008 | $4,961 |
| 2009 | $14,308 |
| 2010 | $2,843 |
Mr. Buttigieg urged that these expenses should not be considered for child support purposes. However, I believe some allowance would be appropriate for business expenses.
(2) Auto Write-Offs and Capital Cost Allowances for the Respondent's Car
| Year | Auto Write-Off | Capital Cost Allowance |
|---|---|---|
| 2008 | $15,333 | $2,631 |
| 2009 | $20,857 | $2,880 |
| 2010 | $17,665 | $2,759 |
The respondent did not produce his Auto Schedule for each income tax year; nor did he provide a log book to show work related driving. Mr. Buttigieg objected to any deduction for capital cost allowance because it was not an actual expense incurred by the respondent. The applicant's counsel would permit some auto write-off, but opined that the amount claimed was grossly over-inflated.
(3) Statement of Business Activities for Office Expenses and Supplies
| Year | Office Expense | Supplies |
|---|---|---|
| 2008 | $2,053 | $533 |
| 2009 | $6,737 | $2,894 |
| 2010 | $5,723 | $1,321 |
Mr. Buttigieg would disallow these claims without proof of expenditure for business purposes.
(4) Telephone and Utilities Write-Offs (Cell Phone)
| Year | Amount |
|---|---|
| 2008 | $2,456 |
| 2009 | $11,158 |
| 2010 | $1,949 |
Mr. Buttigieg objected to the full allowance because he argued that part of the claim would be for personal use.
(5) Legal Accounting and Professional Fees
2010: $9,854
With no explanation given by the respondent for this expenditure, the applicant in paragraph 35 of her affidavit sworn 26 March 2012 alleged that the expense was for the respondent's legal fees to defend himself in an impaired driving charge. If that was so (and it was not denied in the respondent's pleadings nor in argument) then it should not be used in calculating the respondent's income for child support purposes.
(6) Other Expenses
| Year | Write-Offs and Capital Cost Allowances |
|---|---|
| 2008 | $5,328 |
| 2009 | $45,102 |
| 2010 | $74,898 |
Mr. Buttigieg broke down the 2010 expenditure:
- Promotional: $4,655
- Activity fee: $8,975
- Home office at 14 per cent: $898
- Other sales expenses: $6,229
- Commissions paid: $54,139
Mr. Buttigieg requested that these deductions not be used in calculating income for child support, without proof they were business expenses.
(7) The Respondent's Lifestyle
| Year | Amount Spent |
|---|---|
| 2009 | $64,526 |
| 2010 | $99,240 |
| 2011 | $23,771 |
Mr. Pereira did not dispute these summaries.
[8] It is unfathomable that based on the respondent's stated income for tax purposes for each of the above years, namely $13,064, $19,872, $15,672, that he would have the resources to spend so much, unless his real income was measurably higher.
[9] Mr. Buttigieg analyzed the quantum of monies flowing into Mr. Pereira's National Bank account and his Bank of Montreal account for 2010:
| Bank | Amount |
|---|---|
| National Bank | $92,256 |
| Bank of Montreal | $307,988 |
| Total | $400,245 |
These were large sums deposited to the respondent's bank accounts for which there was no explanation.
Respondent's Late Disclosure
[10] Although the applicant's demand for complete financial disclosure has been ongoing since at least the order of 1 March 2005 by Justice Dunn, as late as 10 April 2012 the respondent sent Mr. Buttigieg his affidavit sworn 10 April 2012 with fresh claims for business expenditures. It was served on Mr. Buttigieg on the same date. In paragraph 9, Mr. Pereira claimed that he paid:
(a) a "salary" to several employees, including to his fiancé, Dianna Egredzija.
(b) to Remax a fee of $1,045 a month or $12,540 a year.
(c) office space rent of $3,960 a year to Remax and $896 a year to Remax for office supplies.
(d) $8,800 annually to Remax for an advertising fund.
(e) five per cent gross commission annually paid to Remax.
(f) $15,000 to $20,000 annually to the Brampton Guardian newspaper for advertising.
(g) $9,542 annually to advertise in Homes and Land Magazine.
(h) twenty-five to fifty per cent gross commissions to persons when he received a referral for a transaction.
Then followed Mr. Pereira's surprising statement in paragraph 10 of his affidavit sworn 10 April 2012:
I would be happy to provide the applicant with all receipts associated with these expenses.
[11] Mildred Nacar, a legal assistant at Kania Buttigieg, did an affidavit sworn 24 April 2012. She averred that on 11 April 2012, the day after the applicant's counsel received the respondent's affidavit sworn 10 April 2012, Mr. Buttigieg wrote Mr. Martin requesting particulars of his client's claims in paragraph 9(a) to (h) inclusive in his affidavit. He also sought the following inter alia:
(i) A breakdown of the salaries Mr. Pereira claimed he paid persons, one of whom (his fiancé) was not being dealt with at arm's length.
(ii) A statement of adjustments to show what funds the respondent received from the $400,000 that flowed from the sale of the house in 2010 in which the respondent had an interest.
Ms. Nacar's affidavit stated that as of 24 April 2012, Mr. Pereira had not authorized any response to Mr. Buttigieg's queries. Indeed, as of the hearing of this motion on 8 May 2010, the applicant still had not obtained a response. So although the respondent professed to be "happy" to provide the respondent with receipts, his actions belied his words.
[12] As a separate issue, Mr. Buttigieg complained that the respondent had not complied with Rule 13(12) in that he had not provided an updated financial statement before the 8 May 2012 court appearance.
Legal Framework for Income Imputation
[13] I accept Mr. Martin's argument that for income tax purposes, so far, Mr. Pereira's expense claims have been accepted by the government. However, expenses for income tax purposes may be considered differently when calculating income for child support reasons.
[14] The court now considers section 19 in the Child Support Guidelines (Ontario):
19(1) The court may impute such amount of income…as it considers appropriate in the circumstances, which circumstances include the following:
(g) the parent or spouse reasonably deducts expenses from income
19(2) For the purpose of paragraph (1)(g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act.
[15] Justice Aston's dicta in the following case emphasized that a court, when considering business expenses, should examine whether the claimed expenses be disallowed in favour of a finding of income for child support.
Osmar v. Osmar, 8 R.F.L. (5th) 368, at para. 5:
In my view, the guidelines require the court to examine expenses from the perspective of balancing the business necessity against the alternative of using those funds for child support. The court should respect the right of self-employed persons to run their business as they see fit, but may, nevertheless, question whether particular expenditures ought to be indirectly subsidized by lower child support.
[16] Mr. Pereira claimed he provided all the financial disclosure the applicant requested, and that if the applicant sought more, she should have asked for it. This position is contrary to the legal obligation a payor has to validate all his expenditures as business expenses.
[17] I accept that father's expenses so far have proven to be acceptable for income tax purposes. Mr. Martin's argument on this point was quite convincing.
[18] Justice Masse wrote in paragraph 22 of the following case:
Wilson v. Wilson, 2011 ONCJ 103, [2011] O.J. No. 1088, Belleville Registry No. 478/06:
Para. 22 A self-employed person…has the onus of clearly demonstrating the basis of his net income. This includes demonstrating that the deductions from gross income should be taken into account, i.e. the calculation of income for support purposes…
Such payors 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…the onus rests upon the parent seeking to deduct expenses from income to provide meaningful supporting documentation in respect to those deductions, failing which an adverse inference may be drawn…
Justice Masse gave supporting case authority for each of the above statements.
Court's Determination of Imputed Income
[19] The respondent's business deductions shall be varied in the following manner for child support and income purposes. Certain amounts will be restored to income:
Amount Restored to Income
(1) Meals and Entertainment
The respondent claimed $2,843. Since some of this must have been personal, one-half will be included back into income: $1,421
(2) An auto write-off of $17,665 and CCA of $2,759 for 2010
Only one-half of the write-off will be permitted: $8,832 No CCA may be deducted: $2,759
(3) Statement of Business Activities for Office Expenses and Supplies
The claims seem excessive, especially when the respondent said he paid Remax for similar services. One-half of the office expenses and supplies will be restored to income. ($5,723 plus $1,321 = $7,044): $3,522
(4) Telephone and Utilities Write-Off (Cell Phone)
The respondent claimed $1,949 for his cellular telephone deduction. Without proof to the contrary, one-half the expense will be put into income, because it can be assumed some use of the telephone was personal: $974
(5) Legal Accounting and Professional Fees
If the applicant is correct that most of the $9,854 was for a criminal defence lawyer, there will be a deduction for that: $7,000
(6) Other Expenses
The respondent claimed $74,898 in 2010. Without a detailed explanation, doubts are raised about its authenticity as business expenses. Restore eighty per cent to income: $59,918
(7) Respondent's Lifestyle
Credit card expenses were $99,240 for 2010. Without explanation, an adverse inference should be drawn against the respondent that much must have been for personal use. Restore sixty per cent to income: $59,544
There may be grounds to find that the respondent's 2010 income (for child support purposes) should be: $143,970.
However:
(1) The applicant only requested that the respondent be found to have an income of $100,000 for 2010, so it would be unfair to impute a larger income to the respondent than that.
(2) The calculations used in this Ruling are approximate, and the respondent may yet produce better financial disclosure before trial.
(3) It would appear that the applicant's suggestion that the respondent had an income of at least $100,000 in 2010 for child support purposes was correct.
Orders
1. Child Support
Temporary order for the respondent to pay child support of $880 per month from 1 January 2010 and regularly monthly thereafter. Payments to the Family Responsibility Office. Support Deduction Order to issue.
This order is based on an annual imputed income to the respondent of $100,000 and the Guideline tables for one child are $880 per month.
Once the respondent's income for 2011 is determined, his child support payments may need to be adjusted.
Special Expenses
[20] The applicant asked that the respondent contribute to the PLASP payments. Ms. Szuky replied on this facility to care for and stimulate the child after school, until Ms. Szuky can collect her daughter when she finishes work. Ayres was said to enjoy at PLASP the socialization and activities, the structured games, the crafts and team sports. The applicant believed the parties' child benefitted from the professional attention she received at PLASP. This facility offered Ms. Szuky a reliable arrangement for the child's care after school.
Mr. Pereira refused to pay for PLASP, because he was available to provide after school care until the girl could return to her mother's. The applicant saw the following difficulties with the respondent's plan, and I share in those concerns:
(1) Making arrangements with the respondent would be problematic, given their lack of personal accord.
(2) Mr. Pereira's real estate work has unpredictable hours. On the occasions when he attends to clients, Ayres' care would be delegated to someone else.
(3) Yes, when the respondent would be available to care for his daughter, the child would be with family, but in the applicant's opinion, the structure and activities and socialization aspects of PLASP are significant benefit to Ayres.
The court finds that PLASP is a legitimate expense, and the respondent will be ordered to contribute for the years 2010 and 2011. The court determines that the applicant's PLASP expense in 2010 was $1,700. In 2011 it was $1,866. The total for the two years was $3,566. The applicant's income was $27,000 annually, and the respondent's income has been imputed at $100,000. The applicant's share of special expenses would be 21 per cent. The respondent's is 79 per cent. 79 per cent of $3,566 is $2,817.
2. PLASP Contribution
Order for the respondent forthwith to pay $2,817 to the Family Responsibility Office as the respondent's contribution to the child's PLASP expenses for 2010 and 2011.
Summer Camp
[21] The applicant spent $1,000 at Mississauga Recreation and Parks for Ayres' summer camp in 2011. Mr. Pereira refused to contribute, because he offered his mother to care for the parties' daughter when the applicant would be at work. The court finds that this is a legitimate expense, because there are educational and socializing components to summer camp. The respondent will be required to reimburse the applicant for the 2011 summer camp. The respondent's share would be $790, which is 79 per cent of $1,000.
3. Summer Camp Contribution
Order for the respondent to pay forthwith $790 to the Family Responsibility Office which is his contribution to the child's 2011 summer camp.
4. Future Special Expenses
Temporary order for the respondent to contribute to the child's special expenses upon which the parties concur, in proportion to the parties' respective incomes. If the parties do not agree on the special expenses, the applicant will decide in which activities the child will participate.
Applicant's Request for Respondent to Pay $688 Costs
[22] The respondent was required previously to pay a cost award of $2,500 ordered by Justice Dunn on 14 October 2011. I accept Mr. Buttigieg's submissions that the applicant had a reasonable apprehension that the respondent was not going to pay the $2,500. That sum was eventually paid, but in anticipation of it not being forthcoming, the applicant incurred further costs in an effort to secure payment of the $2,500. I find that this is a legitimate claim in view of the respondent's actions.
5. Costs Award
Order for the respondent forthwith to pay the applicant's costs of $688 inclusive of disbursements and H.S.T.
Procedural Matters
[23] The applicant's motion dated 26 March 2012 in Vol. 7, Tab 16, is complete except for paragraph 4 in the motion which was a request for costs in connection with the 26 March 2012 motion. Any request for costs must be served on the opposing counsel and filed with the Judicial Secretary, Ruth Evans, by fax at 905-456-4839 by 31 May 2012. An Answer by opposing counsel to the Costs Request must be served and filed by 15 June 2012. A Reply if desired by the moving counsel to be served and filed by 29 June 2012.
[24] The case is adjourned for case conference to 10:00 a.m., 18 September 2012, courtroom 210. Allow 60 minutes.
[25] I am particularly thankful to Mr. Martin for his very strong submissions on his client's behalf. Mr. Pereira was very well served by the serious efforts of Mr. Martin bringing his position so clearly before the court.
Released: 15 May 2012
Justice P.W. Dunn