Court File and Parties
Court File No.: D60024/13
Date: 2013-07-10
Ontario Court of Justice
Toronto North Family Court
Between:
Mackenzie Price Applicant
-and-
Owen Hezekiah Reid Respondent
Counsel:
- Elena E. Mazinani, for the Applicant
- Ryan Gillisse, for the Respondent
Heard: July 8, 2013
Justice: S.B. Sherr
Reasons for Decision
Part One – Introduction
[1] This trial was about the respondent's (the father) support obligations for the parties' two children, ages 7 and 8 (the children).
[2] The applicant (the mother) asked the court to impute the father's income at $52,000 per annum for the purpose of assessing his support obligations. She asked for an order that support begin as of January 1, 2010, with credits to the father for support he has paid since that date. She also seeks an order requiring the father to contribute to special expenses of the children starting on January 1, 2013.
[3] The father asked the court to base his support obligations on an imputed annual income of $26,654. He proposed to pay child support beginning on April 1, 2010, with credits for the amount of support he has paid since that date. He submitted that based on his calculations, child support arrears should be fixed at $7,962. He proposed to repay these arrears at the rate of $100 per month. The father opposed the mother's request for a contribution to special expenses.
Part Two – Background Facts
[4] The mother is 31 years old. The father is 40 years old.
[5] The parties began living together in 2003. They disagree on when they separated for the last time. The mother believes that this happened at some point in 2009 and the father believes this happened at the end of March of 2010. It appeared from the evidence that the relationship between the parties was on and off for its last year. The father provided some evidence that the mother used his address to send a FedEx package as late as December of 2009 and that the parties still had a joint account in 2010. Taking into account the mother's delay in seeking child support, the court will use April 1, 2010 as the start date for calculating the father's child support obligation.
[6] The mother is presently in receipt of Ontario Disability Support Payments. According to her financial statement, she receives $1,645 per month ($19,740 per annum) from this source. She testified that she is in receipt of these benefits due to a back injury. She is currently a student and will complete a Paralegal program in August of 2013. She will be writing the exam for her paralegal licence in February of 2014. She hopes to find work in this field once she obtains her licence.
[7] The father has been self-employed for many years as a barber. His income is in dispute.
[8] The mother started this application on January 7, 2013, seeking custody and child support.
[9] On February 20, 2013, temporary custody, access and support orders were made. On a without prejudice basis, the father was ordered to pay to the mother child support of $324 per month starting on March 1, 2013, based on an attributed annual income to him of $21,300. The father was also ordered to provide specific financial disclosure.
[10] The matter returned before Justice Harvey Brownstone on April 19, 2013. Justice Brownstone endorsed that the father had not complied with the financial disclosure order and had provided no explanation for his non-compliance. He extended the time for the father to produce his financial disclosure and ordered him to pay the mother's costs fixed at $750.
[11] On June 13, 2013, the parties agreed that the mother should have sole custody of the children and access was arranged.
[12] The father claimed that he paid $210 towards child support in 2010. He provided receipts and will be credited with this amount.
[13] The parties agreed that the father has paid the following amounts for child support from January 1, 2011 until June 30, 2013:
- 2011 - $1,355
- 2012 - $3,280
- 2013 - $2,278
[14] The father's total credit for support paid as of June 30, 2013 is $7,123.
Part Three – The Father's Income
3.1 Legal Considerations
[15] Section 19 of the Ontario Child Support Guidelines (the guidelines) reads as follows:
Imputing income
- (1) The court may impute such amount of income to a parent or spouse as it considers appropriate in the circumstances, which circumstances include,
(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 any child or by the reasonable educational or health needs of the parent or spouse;
(b) the parent or spouse is exempt from paying federal or provincial income tax;
(c) the parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
(d) it appears that income has been diverted which would affect the level of child support to be determined under these guidelines;
(e) the parent's or spouse's property is not reasonably utilized to generate income;
(f) the parent or spouse has failed to provide income information when under a legal obligation to do so;
(g) the parent or spouse unreasonably deducts expenses from income;
(h) the parent or 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; and
(i) the parent or spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.
Reasonableness of expenses
(2) For the purpose of clause (1) (g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act (Canada).
[16] Imputing income is one method by which the court gives effect to the joint and ongoing obligation of parents to support their children. See: Drygala v. Pauli.
[17] The self-employed parent must clearly demonstrate the basis of his or her net income. See: Whelan v. O'Connor. 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.). The self-employed parent should 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. See: Meade v. Meade.
3.2 The Mother's Evidence
[18] The mother claims that the father is earning about $52,000 per annum.
[19] The mother stated that the father earned a good income while they were together. She deposed that he would often work seven days per week and often over 12 hours each day. She said that he was a popular barber. She introduced a reference letter that a co-worker provided to the father in July of 2008 when the parties were seeking housing. This letter stated that the father earned net income (after taxes) of $1,000 per week.
[20] The mother also produced the father's application to sponsor his mother to come to Canada in 2010. This application represents that the father earns total income of about $42,000 and net income of $36,000 per annum.
3.3 The Father's Evidence
[21] The father eventually complied with the financial disclosure orders of this court.
[22] The father filed income tax returns and notices of assessment for the years 2010-2012. The returns state his gross and net income for these years as follows:
| Year | Gross | Net |
|---|---|---|
| 2010 | $24,581 | $10,442 |
| 2011 | $25,864 | $10,985 |
| 2012 | $26,265 | $12,977 |
[23] The father also filed two financial statements in this case. In his first financial statement sworn on January 31, 2013, he represents his annual income as being $10,985. In his second financial statement, sworn on July 3, 2013, he deposes that his annual income is $26,640.
[24] The father acknowledged at trial that he under-reports his income to Revenue Canada. He deposed that he runs a cash business. He produced no meaningful evidence of monies he receives or expenses that he pays, such as journals, ledgers, invoices or receipts.
[25] The father estimated that $7,800 should be added to his income each year for unreported tips. In paragraph 28 of his affidavit sworn on July 3, 2013, he estimated that he sees 30 clients each week at $25 per haircut, including tips, for 52 weeks each year. This calculation comes to a gross annual income of $39,000. The father then suggested deducting expenses of $9,950 each year - $7,200 to rent his barber chair, $2,000 for supplies, $500 for meals and $250 for accounting fees. Based on these figures, the father's net annual income would be $29,050.
3.4 Credibility
[26] I preferred the evidence of the mother where it conflicted with the father's.
[27] I found the father's evidence at several points to be evasive, vague, contradictory and self-serving. He was not a credible witness.
[28] The father provided several different estimates of his income throughout this case.
[29] The father acknowledged that he has under-reported his income to Revenue Canada. He gave the court little reason to believe that he was being candid about his financial circumstances in this proceeding.
[30] The father gave contradictory answers when confronted with his sponsorship application. He claimed that it included the mother's income (when it clearly didn't). He then acknowledged that it didn't include her income and blamed her for backing out on her promise to sponsor his mother to come to Canada. He later circled back to his original statement that her income was included in the application. The father also tried to deflect responsibility for the contents of the document, blaming his representatives for improperly completing it. He claimed that he hadn't read it.
[31] The father's answers about the letter from his co-worker in 2008 were also not credible. He claimed that this person only wrote him a letter of recommendation and not a statement about his income. He didn't believe that his co-worker wrote the letter produced. I find it more likely that the prospective landlord required a letter verifying the father's income and this was the letter that was produced. There are two possible interpretations of the letter – neither of which assists the father. One interpretation is that it is an accurate statement of his income. The second interpretation is that it was an exaggerated statement of the father's income to assist him in obtaining housing. The second interpretation supports the conclusion that the father is quite willing to misrepresent his income if it suits his purposes.
[32] I did not find the father's evidence about the number of customers he sees to be credible. The numbers kept changing. In his affidavit of July 3, 2013, he deposed that he sometimes sees "upwards of 10 customers each day" and on average 5 to 6 each day. He claimed in this affidavit to "typically" work five days each week. When examined, he acknowledged often working six days each week. He tried to minimize the number of customers he sees, stating at one point, "there are some days where I have no customers". I found his evidence about the number of customers he sees improbable for an experienced and hardworking barber. After considering the conflicting evidence, I find that it is most likely that the father is seeing between 40-45 customers each week.
[33] Lastly, the lifestyle represented by the father's financial statements did not support his evidence about his income. This will be set out in more detail below.
3.5 Analysis
[34] So what income is the father actually earning? Due to his lack of credibility, the father's self-reported income and expense numbers gave the court little guidance.
[35] One way to assess the father's income is to project how much he would earn based on the number of customers that he sees each week. Working on the assumption that he sees about 42 customers each week at an average of $22 per customer (including tips), he would gross about $46,200 for the year (based on working 50 weeks each year). While the father did not produce receipts, I find that his expenses claimed for chair rental, barber supplies and accounting fees are reasonable. It is not reasonable to deduct his meals of $500 per year. Accordingly, his reasonable annual deductions total $9,450. This leaves net annual income of $36,750.
[36] A second way to assess the father's income is to examine his lifestyle. Analysis of a payor's lifestyle is a well-recognized method of providing the criteria for imputing income. See: Jonas v. Jonas, [2002] O.J. No. 2117 (SCJ). To determine the father's lifestyle, the court carefully examined his two sworn financial statements.
[37] The father deposed in his second financial statement sworn on July 3, 2013, that he is paying expenses that project to $33,488 per annum. On examination, the father confirmed that this did not include the child support of $2,278 he has paid for the first six months of 2013 (average of $379.67 per month) and $150 per month (on average) that he has been paying towards his debts in 2013. Based on the father's evidence (and prorated over an entire year), he has been paying expenses at the rate of $39,844 per annum since January 1, 2013.
[38] In examination, the father confirmed that his assets had not changed since the start of 2013 and that his only additional debt has been an increase of $1,000 on one of his credit cards.
[39] The father was unable to explain how he was able to pay these expenses in 2013. The logical inference is that he is earning more money than he has claimed. Based on this analysis of his financial statements, he is earning at least $37,844 per annum ($39,844 of expenses less increased debt of $2,000).
[40] These income calculations correlate pretty closely to the net income of $36,000 per annum that the father represented that he made in 2010 when sponsoring his mother to come to Canada.
[41] I find that the father is earning net income of $37,000 per annum for support purposes.
[42] The income analysis does not end there. The father has not paid tax on most of his actual income. It is typical in such cases to gross-up the payor's income. I have considered Sarafinchin v. Sarafinchin, which stands for the principle that grossing-up of income is done to ensure consistency of treatment where a party is found to have arranged his or her affairs to pay less tax on income. Simply put, the father has much more disposable income than a payor who accurately reports and pays taxes on the same earned income. A software analysis indicates that grossing-up the father's income will result in an attributed income to him of $43,935 per annum for support purposes.
[43] The guideline table amount of child support for two children at $43,935 per annum prior to January 1, 2012 was $664 per month. This amount shall be used to determine the father's child support obligation between April 1, 2010 and December 31, 2011. The guideline table amounts changed on January 1, 2012. At this income, it is now $646 per month. This amount will used to determine the father's child support obligation starting on January 1, 2012.
Part Four – Special Expenses
[44] The mother provided satisfactory evidence that she is paying $1,200 per year for the before and after-school program for the children and $400 this year for their summer camp. These expenses are reasonable and necessary, particularly since the mother attends school during the day and requires childcare. I find these to be valid special expenses as defined in clause 7 (1) (a) of the guidelines.
[45] The mother is also claiming tennis expenses of $120 per year for the children. The mother did not meet her onus to show that these are extraordinary expenses for extracurricular activities as defined in subsection 7 (1.1) of the guidelines and did not provide adequate evidence of payment of these expenses. This minor claim will not be granted.
[46] Subsection 7 (3) of the guidelines states that in determining the amount of an expense referred to in subsection 7 (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.
[47] Subsection 7 (2) of the guidelines states that the guiding principle in determining the amount of a special expense is that the expense is shared by the parents or spouses in proportion to their respective incomes.
[48] Software analysis shows that the mother's income after gross-up is $21,344 per annum. The father's proportionate share of the special expenses is 67.3%. The software analysis shows that after taking into consideration tax deductions and credits related to the special expenses the father should be paying $90 per month towards them. The mother's request to start this contribution as of January 1, 2013 is reasonable.
Part Five – Arrears
[49] The terms of this order will require the father to pay the mother $18,989 for support arrears, calculated as of June 30, 2013, as follows:
| Item | Amount |
|---|---|
| Table amount of child support of $664 per month for 21 months | $13,944 |
| Table amount of child support of $646 per month for 18 months | $11,628 |
| Plus: Special expenses of $90 per month for 6 months | $540 |
| Less child support paid (see paragraph 14 above) | ($7,123) |
| Balance owing: | $18,989 |
[50] The mother has proposed that the father pay support arrears at $150 per month. The father proposes to pay the arrears at $100 per month. I have considered that the mother and the child have been deprived of the appropriate level of support for the past three years and, as a result, the mother has incurred considerable debt. I also note that, according to his financial statement, the father has been spending $433 per month for entertainment (at the expense of the mother and the child). Even at $150 per month it will be many years before these arrears are satisfied. The father shall repay the arrears at $150 per month.
Part Six – Conclusion
[51] An order will go on the following terms:
a) Based on an imputed income of $43,935 per annum, the father shall be required to pay the mother the sum of $664 per month for child support, being the guideline table amount for two children, for the period April 1, 2010 – December 31, 2011. Starting on January 1, 2012, the support amount shall change to $646 per month, being the new guideline table amount.
b) The father shall be required to pay the mother for special expenses (being camp and before and after-school expenses) the sum of $90 per month, starting on January 1, 2013.
c) The father shall be credited with support paid of $7,123 since April 1, 2010.
d) The arrears created by this order are fixed at $18,989 as of June 30, 2013.
e) The Director of the Family Responsibility Office is requested to adjust their records in accordance with the terms of this order.
f) The father may repay the support arrears at the rate of $150 per month starting on August 1, 2013.
g) Nothing in this order precludes the Family Responsibility Office from collecting arrears from any lottery or prize winnings, or any government source (such as HST or income tax refunds).
h) The parties shall exchange their complete income tax returns and notices of assessment, and the mother shall provide the father with all receipts for special expenses by June 30th of each year.
i) A support deduction order shall issue.
[52] The software calculations showing how the parties' incomes and relative contributions to special expenses are calculated are attached to this decision. The parties will have 10 days from the date of this order to make any submissions about inaccuracies in the software calculations (such as figures being inputted incorrectly). 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.
[53] If either party wishes to seek costs, they shall serve and file written submissions by July 29, 2013. The other party will then have until August 9, 2013 to serve and file a written response to these submissions. The written submissions are not to exceed 3 pages, not including any offer to settle or bill of costs. The submissions should be filed at the trial coordinator's office on the second floor of the courthouse.
[54] I thank counsel for their presentation of this case.
Justice S.B. Sherr
Released: July 10, 2013