Court File and Parties

Court File No.: D21134/02 Date: 2013-09-23

Ontario Court of Justice

Toronto North Family Court

Between:

Barry Ayow Applicant

- and -

Laura James Respondent

Counsel:

• William Sullivan, for the Applicant
• The Respondent, Acting in Person

Heard: September 13, 2013

Justice: S.B. Sherr

Reasons for Decision

Part One – Introduction

[1] The respondent (the mother) has brought a motion to change the parenting terms set out in the March 30, 2006 order of Justice Harvey Brownstone and the child support terms set out in my order dated August 14, 2006 (the existing support order).

[2] The order of Justice Brownstone provides that the parties have joint custody of their child, who is now 16 years old, with the child's primary residence being with the applicant (the father). The existing support order provides that the mother pay the father child support of $211 per month, based on an annual income of $25,000. She is also required to provide the father with annual financial disclosure.

[3] The mother moved to British Columbia in 2006. She paid the child support required by the existing support order until April of 2012.

[4] The mother returned to Toronto in April of 2009 and began discussions with the father to change the parenting arrangement.

[5] In March of 2010, the parents orally agreed to share parenting time with the child on a two-week rotational basis. This continues to be their parenting arrangement.

[6] The mother seeks a parenting order reflecting the oral arrangement that has been in place since March of 2010. The father does not oppose this request.

[7] This trial was about child support.

[8] The mother, in her change motion, asks that the father pay her child support retroactive to January 1, 2010. She asks that she be credited with the child support she paid to the father after April of 2010, since the father was earning far more income than her. She also asks that any arrears accumulated under the existing support order be rescinded.

[9] The father, in his response to motion to change, states that he is prepared to pay child support of $500 per month to the mother, but only on an ongoing basis. He also proposes to pay special expenses, as defined in section 7 of the Child Support Guidelines (the guidelines), in proportion to the gross incomes of the parties. He asks the court to take into account that the mother underpaid child support from 2006 to 2009. He asks that the balance of the mother's motion to change be dismissed.

[10] Both parties asked the court to impute income to the other for the purpose of the child support calculation.

[11] The parties were asked to set out in their trial affidavits the precise order they were seeking, including the income they wanted imputed to the other. Both parties included a number of claims not included in their original material. Many of the mother's requests were beyond the jurisdiction of the court. I will briefly deal with these requests later in this decision.

[12] On the core support issues, the mother asked the court in her affidavit sworn on August 7, 2013 to fix the father's child support arrears at $55,000 and to impute income to him at $120,000 per annum and to herself at $40,000 per annum. She also asked that the father pay his proportionate share of special expenses as defined in section 7 of the guidelines. In his affidavit, sworn on September 11, 2013, the father proposed fixing his income at $80,000 per annum and the mother's income at $40,000 per annum, for the purpose of calculating ongoing support only. He proposed that ongoing child support be fixed at $500 per month. He asked that special expenses, as defined by section 7 of the guidelines, be paid in proportion to the incomes of the parties. He was agreeable to rescinding the mother's child support arrears and to paying the mother $10,000 for all child support obligations prior to the trial date.

[13] These positions changed again during the trial. The mother asked that the father's support arrears be fixed at $63,800 and that the court fix his income at $150,000 per annum and her income at $20,000 per annum for the purpose of the support calculation. The father, at trial, indicated that he was agreeable that the court fix his income at $120,000 per annum.

[14] The parties agreed that direct evidence would be provided through affidavits and financial statements and be subject to cross-examination. The parties testified, as did the mother's mother and brother.

[15] The court set timelines for the filing of trial affidavits, updated financial statements and documentary disclosure. The mother met her timeline. The father didn't. He did not deliver his material to the mother until the day before trial. His financial disclosure was incomplete. He did not include his 2012 tax return and provided limited evidence about his 2013 income. He did not provide any backup documentation supporting the revenues and expenses contained in his corporation's 2012 financial statement.

[16] At the outset of the trial, the court offered the mother an adjournment due to the late and incomplete disclosure of the father and indicated it would be receptive to a costs argument. The mother was advised that she would have the opportunity to review the new material with counsel and have additional time to respond to it and prepare her examination. The matter was held down. When the case was recalled, the mother indicated her desire to proceed with the trial.

[17] The main issues to decide at this trial are:

a) What incomes should be attributed to the parties for support purposes?

b) Is the mother entitled to retroactive support?

c) If the mother is entitled to retroactive support, how much should be ordered?

d) If retroactive support is owed, how should it be repaid?

e) What is the father's ongoing support obligation, in light of the fact that the parents have an equal time sharing arrangement?

Part Two – Background Facts

[18] The father is 46 years old. The mother is 47 years old. They both live in Toronto.

[19] The parties resided together from 1993 to 1997. They are not married.

[20] The mother is single. She has worked in the past as a television producer. She returned to school in 2009 and completed a Digital Media course in September of 2010. She has started a business in Web Development. She has created an I-Pad/Phone application that has won awards. As part of one prize, she went to Silicon Valley, California for three months in 2012 to be mentored by a senior internet executive.

[21] The father has been married for eight years. He and his wife have two children, ages 7 and 5. They all live in a home jointly owned by the father and his wife.

[22] The father works as a consulting IT Architect. He has steadily worked (since 2005) for companies that design, build and test computing systems for the Ontario Government. In November of 2011, the father incorporated a company (the corporation) and has provided his services to the Ontario Government through the corporation. The corporation has had 6-month contracts renewed with the Ontario Government since November of 2011. The father and his wife are equal shareholders of the corporation.

[23] The father's wife is a real estate agent. The father deposed that she grosses about $90,000 per annum. He did not provide disclosure of what her net income is for tax purposes.

[24] The parties began their litigation in this court in 2002. They reached a final joint custody agreement that was incorporated into the final order of Justice Harvey Brownstone on April 2, 2003.

[25] In 2005, the mother moved to change the 2003 court order, seeking permission to take the child with her to British Columbia. This change motion resulted in the orders described in paragraphs 1 and 2 above.

[26] The mother did not provide the annual financial disclosure required in the existing support order. In 2008, the father brought an application to increase child support pursuant to the Interjurisdictional Support Orders Act. The father testified that nothing ever came of the application and he did not know why.

[27] When the mother returned to Ontario in April of 2009, she asked the father to agree to an equal time sharing arrangement with the child. The father did not agree. He explained that he was unsure if the mother would remain in the province and didn't want to disappoint the child again.

[28] The parties eventually agreed to the equal time sharing agreement in March of 2010. The mother asked the father to notify the Family Responsibility Office about this new arrangement and cancel her support obligation. The father refused to do so and told her to take the matter to court.

[29] The mother asked the father a number of times to cancel her child support and he refused. She stopped paying the father child support in April of 2012. According to the records of the Family Responsibility Office, the mother owes the father $3,165.89 pursuant to the terms of the existing support order.

[30] The mother did not ask the father to pay her child support until she issued this motion to change in March of 2013.

[31] The father has not paid the mother any child support since she brought this motion to change, despite their significant difference in incomes.

[32] The child has just started grade 11. She was described as a bright child who will most likely attend university. She is very skilled athletically.

Part Three – Legal Considerations

3.1 Test to Change an Order

[33] The motion to change support is 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.

3.2 Retroactive Support

[34] The Supreme Court in D.B.S. v. S.R.G.; Laura Jean W. v. Tracy Alfred R.; Henry v. Henry; Hiemstra v. Hiemstra, 2006 SCC 37 outlined the factors that a court should take into account in dealing with retroactive applications. Briefly, there are four points that the court raised:

1. Reasonable excuse for why support not considered earlier.

2. Conduct of the payor parent.

3. Circumstances of the child.

4. Hardship occasioned by the retroactive order.

[35] None of the above factors are decisive or take priority and all should be considered in a global analysis. In determining whether to make a retroactive award, a court will need to take a holistic look at all of the relevant circumstances in front of it. The payor's interest in certainty must be balanced with the need for fairness and flexibility (D.B.S. par. 133).

[36] Once a court decides to make a retroactive award, it must then determine the amount. There are two elements to this decision: first, the court must decide when the order should be retroactive to and second, the court must decide the amount of support that would adequately quantify the payor's deficient obligations during that time (D.B.S., par. 117).

[37] Where ordered, an award should generally be retroactive to the date when the recipient gave the payor effective notice of his or her intention to seek an increase in support payments; this date represents a fair balance between certainty and flexibility (D.B.S., par. 5). The exception is where there is blameworthy conduct.

[38] Effective notice is defined as any indication by the recipient parent that child support should be paid, or if it already is, that the current amount needs to be renegotiated. All that is required is for the subject to be broached. Once that has been done the payor can no longer assume that the status quo is fair (D.B.S., par. 121).

[39] Once the issue is raised, the recipient must still be responsible in moving the discussion forward. If he or she does not, legal action should be contemplated. A prolonged period of inactivity after effective notice may indicate that the payor's reasonable interest in certainty has returned. Thus, even if effective notice has already been given, it will usually be inappropriate to delve too far into the past. (D.B.S., par. 123).

[40] A court order is presumptively valid when assessing conduct. However the larger the difference between the order and what should be paid, the less reasonable it becomes to rely upon it. (D.B.S., par. 65)

[41] Retroactive awards are not exceptional. They can always be avoided by proper payment. (D.B.S., par. 97)

3.3 Shared Custody – Section 9 of the Guidelines

[42] This is a shared custody case. This means that ongoing child support is calculated pursuant to section 9 and not subsection 3 (1) of the guidelines. Section 9 of the guidelines reads as follows:

Shared custody

9. Where a parent or spouse exercises a right of access to, or has physical custody of, a child for not less than 40 per cent of the time over the course of a year, the amount of the order for the support of a child must be determined by taking into account,

(a) the amounts set out in the applicable tables for each of the parents or spouses;

(b) the increased costs of shared custody arrangements; and

(c) the condition, means, needs and other circumstances of each parent or spouse and of any child for whom support is sought.

[43] I recently reviewed the legal considerations when applying section 9 of the guidelines in paragraphs 24-28 of Smith v. Tomlinson, 2013 ONCJ 218 as follows:

[24] In Contino v. Leonelli-Contino, 2005 SCC 63, the Supreme Court of Canada set out the following principles when dealing with cases under section 9 of the guidelines that are applicable to this case:

a) Once the payor surpasses the 40% threshold, section 9 creates a different method of determining child support in shared custody cases. There is no onus on the payor to convince the court to order a different amount than the table amount.

b) There is no presumption of a reduction in the table amount for child support in section 9 cases. A court may still order the full table amount after conducting the section 9 analysis.

c) There should be no mathematical formula or multipliers applied to section 9 cases. In particular, the simple set-off only serves as a starting point under subsection 9 (a) of the guidelines, but it has no presumptive value.

d) The court should consider all three factors in section 9. None should necessarily prevail over the others.

e) Section 9 of the guidelines is broad enough to incorporate section 7 guideline expenses directly in the examination of child-related expenses, and expenses can be considered that might not fit within section 7.

[25] In Flick v. Flick, 2011 BCSC 264, the court, citing Contino, identified these additional factors for consideration in a section 9 analysis:

a) The language of section 9 warrants an emphasis on flexibility, fairness and consideration of the overall situation of the parents and the needs of the child.

b) The weight of each factor under section 9 will vary with the particulars of the case.

c) The court retains the discretion to modify the set-off amount where, considering the financial realities of the parents, it would lead to a significant variation in the standard of living experienced by the child as they move from one household to the other.

d) The analysis should be contextual and remain focused on the particular facts of each case.

e) The court has full discretion under subsection 9 (c) to consider "other circumstances".

[26] Once the 40% time threshold is met under section 9, courts aren't required to quantify the time, or award support in accordance with the percentage of time. It might cost the parent with the lower percentage of time just as much to raise the children. See: Stewart v. Stewart, 2007 MBCA 66.

[27] In his article, The TLC of Shared Parenting: Time, Language and Cash, Professor Rollie Thompson summarizes how the Supreme Court in Contino has directed courts to conduct a section 9 analysis as follows:

a) Determine the simple set-off amount – The starting point under subsection 9 (a) is the straight set-off of each parent's table amount for the number of children involved in the shared custody arrangement.

b) Review the child expense budgets - A court must look at the parents' actual spending patterns, based upon child expense budgets, and not just make assumptions about spending. Under subsection 9 (b), a court has two concerns: the over-all increased total costs of child-rearing for both parents, especially duplicated costs; and any disproportionate assumption of spending by one parent or the other. The child-related expenses should be apportioned between the parents based upon their incomes, to verify the set-off and to determine the need for significant adjustments to the set-off amount.

c) Consider the ability of each parent to bear the increased costs of shared custody and the standard of living for the children in each household - In assessing each parent's ability to bear the increased costs of shared custody, a court should look at the incomes of the parents, the disparity in incomes, and their assets and liabilities. Children should not experience a significant variation in the standard of living as they move from one household to another.

3.4 Imputing Income

[44] Section 19 of the guidelines reads as follows:

Imputing income

19. (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).

[45] 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.

[46] The court in Drygala sets out a three-part test to determine if income should be imputed. The first part of the test is to ask if the payor is intentionally under-employed or unemployed. The court stated that there is no need to find a specific intent to evade child support obligations before income is imputed; the payor is intentionally under-employed if he or she chooses to earn less than they are capable of earning. The court must look at whether the act is voluntary and reasonable.

[47] The onus is on the applicant to establish that the respondent is intentionally unemployed or under-employed. The person requesting an imputation of income must establish an evidentiary basis upon which this finding can be made. See: Homsi v. Zaya, 2009 ONCA 322.

[48] Separated parents have an obligation to financially support their children and they cannot avoid that obligation by a self-induced reduction of income. See: Thompson v. Gilchrist, 2012 ONSC 4137; DePace v. Michienzi.

[49] When an employment decision results in a significant reduction of child support, it needs to be justified in a compelling way: See: Riel v. Holland, at paragraph 23. It must be reasoned, thoughtful and highly practical: See: Hagner v. Hawkins at paragraph 19.

[50] In assessing how much income to impute the court must have regard to the payor's capacity to earn income in light of such factors as employment history, age, education, skills, health, available employment opportunities and the standard of living earned during the parties' relationship. The court looks at the amount of income the party could earn if he or she worked to capacity. See: Lawson v. Lawson.

[51] 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. They 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. See: Meade v. Meade. These principles also apply where the person's employment income is derived from a corporation that he or she fully controls. See: MacKenzie v. Flynn, 2010 ONCJ 184.

[52] 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:

13 Section s. 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;

14 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.

15 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.

16 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, [2001] M.J. No. 291 (C.A.), paras. 19 & 21; Hausmann v. Klukas, 2009 BCCA 32, [2009] B.C.J. No. 121 (C.A.) 32, paras 51-61. 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.

[53] The court will usually draw an adverse inference against a party for his or her failure to comply with their disclosure obligations as provided for in section 21 of the guidelines and impute income. See: Smith v. Pellegrini, 2008 CarswellOnt 5475 (Ont. S.C.); Maimone v. Maimone, 2009 CarswellOnt 2909 (Ont. S.C.).

Part Four – Change in Circumstances

[54] There have been many changes in circumstances that dictate that the existing child support order should be changed both retroactively and prospectively. The incomes of the parties have changed and most importantly, the parties have had an equal time sharing arrangement since March of 2010.

Part Five – The Mother's Income

[55] The mother has reported the following line 150 income to Revenue Canada in her income tax returns since 2007:

• 2007 - $60,411
• 2008 - $47,520
• 2009 - $25,883
• 2010 - $21,936
• 2011 - $32,591
• 2012 - $2,504

[56] The mother testified that she has earned gross revenue of about $25,000 this year. Most of this revenue has come from one customer, between the months of June and September.

[57] The mother testified that she believes that she is capable of earning over $60,000 per annum, but it might take a couple of years to get there.

[58] The father asks the court to impute income to the mother. His position is that the mother has not earned what she is capable of earning. The court agrees.

[59] The mother is an educated, intelligent and articulate person. She did an excellent job, particularly for a self-represented litigant, in presenting her case. She has historically earned more income than she has earned since 2009.

[60] The mother made a career choice of returning to school in 2009 and training in a new field as opposed to continuing in her profession. The mother claimed that this was because television is a dying industry. However, she provided no independent evidence to the court that her income would have decreased if she had continued in her field. The mother is entitled to change her occupation, but she cannot expect the court to significantly reduce her child support obligations when she makes this choice. The obligation to support children comes first. The court finds that the mother is and has been intentionally under-employed, without reasonable excuse.

[61] There is also an issue as to what the mother actually earned in 2012. The financial information she provided did not make a lot of sense. She claims a significant monthly expense deficit, but failed to reasonably explain how she met this deficit and supported herself and the child with nominal income. She claimed to be supported by neighbours and family, but only produced oral evidence from her brother that he has given her "a couple of thousand dollars". The mother produced business statements that did not correlate to her claimed income. The court finds that the mother has been generating more income than stated since the start of 2012.

[62] In her affidavit sworn on August 7, 2013, the mother indicated that she was prepared to have her annual income imputed at $40,000. To her credit, she recognizes that she can earn more than in her stated line 150 income.

[63] The court will impute income of $50,000 per annum to the mother for the purpose of this support calculation. This is based on her education, intelligence, skills, earning history, work experience and the revenue she testified that she has received since June of this year.

Part Six – The Father's Income

[64] Until November of 2011, the father was a T4 employee. The court accepts that he earned $133,702 in 2010 and $137,249 in 2011.

[65] The father was not transparent about his income starting in 2012. In his response to motion to change and sworn financial statement sworn on June 19, 2013, the father represented that he only earned $80,000 per annum. He disclosed no interest in any business. He did not attach complete income tax returns, corporate financial statements or give any indication to the mother (or the court) that he was employed through his corporation.

[66] It was clear from the father's material that he hoped to convince the mother and the court to have this case resolved based on an income to him of $80,000 per annum.

[67] On July 7, 2013, the father was ordered to produce financial disclosure, together with an updated financial statement.

[68] As set out above, the father did not meet the court's filing deadline and delivered his material (with incomplete financial disclosure) to the mother on the day before the trial. The mother learned at this point, for the first time, about the father's corporation.

[69] The father produced a 2012 T4 statement from the corporation stating that he earned $80,000. In his affidavit sworn on September 11, 2013, he still asked the court to assess this figure as his income for support purposes.

[70] The father produced the corporation's 2012 tax return. The corporation's year-end financial statement was attached.

[71] The father testified that he and his wife are equal shareholders of the corporation. The corporation has contracted with the Ontario Government to provide computer support services. These contracts have been renewed every six months since November of 2011. This is really a continuation of the work that the father has done for the Ontario Government while employed with other employers for many years. The father testified that he is required to work 7.25 hours each day. He said that his work hours are usually 7 a.m. until about 3 p.m., Monday to Friday. He works at two government sites, close together, in downtown Toronto. He is the person providing these services on behalf of the corporation. The corporation has no other contracts.

[72] The father testified that his wife is responsible for administrative services for the corporation. He tried to convince the court that this was a more extensive responsibility than it actually is. On closer examination, this amounted to processing one invoice and one receipt for payment each month (the corporation is paid monthly) and providing the family's personal home expenses to the accountant, so that the accountant can allocate a portion of these expenses to the corporation. The corporation has very little in the way of independent expenses to process.

[73] It came out in examination of the father that the wife is paid over $70,000 for these services.

[74] It became crystal clear to the court that the father is the corporation and the father is using it as a vehicle for income-splitting and tax reduction.

[75] The corporation's financial statement sets out that it paid salaries and benefits of $150,607 in 2012. The court finds that the father has improperly diverted salary of $60,000 to a non-arm's length person (his wife) and this will be added back to his salary for a total of $140,000.

[76] It also appears that the corporation deducts close to 30% of the father's home expenses. This is excessive, taking into consideration that the overwhelming portion of the father's work is done at the government sites and there is little administration involved. Further, the government provides the father with his own office on site. The court accepts that the father does some work from home and some deduction is appropriate. The father was also unable to explain the reason why the corporation is deducting interest and bank charges of $1,882. The court finds that the father has unreasonably deducted expenses of $5,000 and this will be added back to his income, bringing it to $145,000.

[77] In determining income, the court must determine if the decision to retain earnings in a corporation, as opposed to paying additional salary, is reasonable. The father claims that his decision to treat about $11,985 earned by the corporation in 2012 as retained earnings is a reasonable one. He claims that there is no certainty that the corporation will have a contract after the current one expires in November of 2013. He said that the corporation might have to seek a less lucrative contract or he might have to seek personal employment, likely at a reduced income. He submitted that it was reasonable to provide himself with a financial cushion through the retained earnings.

[78] The father lost the benefit of the doubt when he tried to pass off to the mother and the court that he was earning only $80,000 per annum. The corporation has had its contracts renewed every six months since November of 2011 and the court assumes this will continue until it sees differently.

[79] There will be many cases where the decision to retain earnings is reasonable. This is more likely to be the case where the company has fixed obligations to employees and suppliers. The retained earnings protect a company from the vagaries of business cycles. The decision is also more likely to be found reasonable where there are multiple operators of the business and the payor does not have the unilateral ability to determine salaries and retained earnings.

[80] This is not the case here. The corporation has one client. It has no suppliers or employee commitments. If the contract with the Ontario Government ends, the father will either seek another client or, as he testified, leave the corporation inactive and find work. I find that the amount attributed to retained earnings is excessive and will add a further $8,000 to the father's income, bringing it to a total of $153,000.

[81] The father only provided the corporation's contract in support of his 2013 income. He provided no other disclosure. The corporation continues to be paid $725 per day, five days each week. There is no evidentiary basis to change the father's income for 2013.

[82] The income analysis does not end there. The court has discretion to gross-up the father's income, as he is declaring and paying tax on substantially less income than he is actually earning. This 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. See Sarafinchin v. Sarafinchin, O.J. No. 2855; Riel v. Holland.

[83] A software analysis shows that the father's income for support purposes with a full gross-up is $208,862 per annum. However, the court recognizes that the father's wife is paying increased taxes due to the income splitting, leaving less money available for the family unit. The precise amount of the increased tax payment can't be calculated because the court received no financial information about the wife, other than that she grosses $90,000 per annum. Clearly, she is reporting far less net income to Revenue Canada; otherwise the income splitting would not provide any benefit to the family. Accordingly there should only be a partial gross-up of the income that the father unreasonably diverted to his wife as the tax advantage to the father by income-splitting is partially offset by the tax disadvantage to the mother.

[84] It is appropriate to fully gross-up the business expenses unreasonably deducted and the revenues unreasonably diverted to retained earnings by the corporation.

[85] Considering all of these circumstances, the court will exercise its discretion and fix the father's income at $180,000 per annum for support purposes.

Part Seven – The Set-Off

[86] In a section 9 analysis, the first step is to calculate the set-off amount in the guidelines based on the incomes of the parties.

[87] The guideline table amount for the father, based on his imputed income of $180,000 per annum, is $1,485 per month. The guideline table amount for the mother, based on her imputed income of $50,000 per annum, is $450 per month.

[88] The set-off amount is $1,035 per month.

Part Eight – The Increased Costs of Shared Custody

[89] The second step in the section 9 analysis is to examine the increased costs of shared custody.

[90] The father produced a child expense budget, setting out that he spends $1,253 per month on the child. This did not include any expenses for extra-curricular activities.

[91] The mother did not produce a child expense budget. On cross-examination, her budget appears to be modest. This is understandable, given that the mother is struggling just to get by. She would like to have a better lifestyle for her and the child. The mother is living in a basement apartment and if she received adequate support, would be able to find better housing. I also accept the mother's evidence that she has had to reduce the child's activities due to lack of support.

[92] There are clearly significant increased costs arising out of the equal time sharing arrangement. There are two homes to maintain.

[93] In assessing the total child care costs, I considered that some of the father's expenses for the child should be less than the mother's (such as housing, food and household supplies) due to an economy of scale (there are more persons in his home). It would cost more for the mother to maintain the child in anything approaching a comparable lifestyle to the father's.

[94] It is reasonable, given the financial circumstances of the parties, to fix the child's monthly expenses at about $3,000 per month. This reflects the additional costs the mother would have for the child if appropriate support was paid (particularly better housing) and the child participating again in extra-curricular activities. The father's proportionate share of these expenses, based on the parties' imputed incomes, would be 77.7% ($2,333 per month). Deducting the $1,258 per month he says that he is paying, this would leave a balance of $1,050 per month. This is pretty close to the set-off amount.

Part Nine – The Condition, Means, Needs and Other Circumstances of Each Parent

[95] The final step in the section 9 analysis is to closely examine the condition, means, needs and other circumstances of each parent. The court was not presented with a software household standard of living analysis. Due to the complexities in preparing a standard of living software analysis in this case (and the potential for inputting errors), I was not prepared to embark on preparing the software analysis on my own.

[96] I have taken the following factors into consideration when determining the means, needs and other circumstances of the parents:

a) The child has significantly different standards of living in the two homes. The mother lives in a basement apartment. The father lives in a home that he values at $630,000.

b) The father earns significantly more income than the mother. He does have two other children to support, but has a spouse who he says earns gross income of $90,000 per annum.

c) The mother has nominal assets and an old car, the value of which is offset by her credit card debt. The father has an RRSP of $96,000. He also has a line of credit of $26,000 and credit card debt of about $3,000. He deposed that the equity in his home is about $250,000.

d) The father and his wife sold a second home in 2013 and cleared $96,000. He deposed that the initial RRSP contributions of both he and his wife had to be repaid from the proceeds. The court was not provided with an accounting of where these funds went. It very well may be reflected in the father's financial statement.

[97] The father is better able to absorb the increased costs of shared custody than the mother.

Part Ten – Analysis of Ongoing Support

[98] Taking into account the considerations under all three factors in section 9 of the guidelines, I find that the father should pay the mother child support in the sum of $1,050 per month.

[99] The father's ongoing support obligation is to be calculated as of March 1, 2013 (the month when the mother started her motion to change, as this is not retroactive support). He will be required to pay the mother child support of $1,050 per month.

[100] Section 7 guideline expenses are subsumed within a section 9 analysis (see the law set out in paragraph 43 above). The support level ordered here is sufficient at this time to include any expenses which would otherwise be ordered under section 7. This might change if and when the child attends university.

Part Eleven – Retroactive Support

[101] The parties agreed that there should be retroactive support and, based on the D.B.S. factors, a retroactive award is warranted. The parties disagreed on how much should be ordered.

[102] The father submitted that retroactive support be fixed at $10,000 (although this included his support obligations since March of 2013 - which isn't retroactive support) and that the mother's arrears under the existing order be rescinded. The mother asked to be credited with support paid from March of 2010 to April of 2012, that her arrears be rescinded and for retroactive support of $63,800.

[103] In determining the amount of retroactive support, I considered an array of factors, including the following:

a) The mother underpaid child support from 2007 until March of 2010. The father provided a chart based on the mother's actual income from 2007 to 2009 that shows that she underpaid support of $7,332 during this period.

b) The father made a good faith effort to seek increased support by bringing a variation application under the Interjurisdictional Support Orders Act. I don't fault him for it not being completed.

c) The mother did not comply with her obligation under the existing support order to provide the father with her financial disclosure from 2007 to 2009.

d) The mother did ask the father to cancel her support obligation once the shared parenting arrangement began. However, she did not ask the father to pay her child support until she started her motion to change in March of 2013.

e) The mother explained that she did not bring the court application until March of 2013 because she believed that she wasn't legally entitled to support if there was an equal time sharing arrangement. She testified that it was only when she came to court to cancel her support obligation that she was advised by duty counsel that the father should be paying her child support and she immediately brought this motion to change. The mother also explained her delay in coming to court in 2012 to cancel her support obligation, explaining that she was busy trying to set up her business, did not want to incur legal expenses and had already stopped paying support. The court accepts that the mother had legitimate explanations for part of her delay in seeking adjustments to the existing support order.

f) The father denied blameworthy behaviour, submitting that he has complied with the court order. He also testified that he was under the impression that an equal time sharing arrangement meant that he had no child support obligation to the mother. This evidence was credible since the mother (as do many litigants) held the same belief. Further, it is highly unlikely that the father would be telling the mother to take the issue of cancelling her child support obligation to court if he knew that he would have a child support obligation to her.

g) The father's refusal to have the Family Responsibility Office cancel the mother's child support obligation was unreasonable.

h) The court considered that the father directed the mother's support payments into an RESP for the child. This was child-focused.

i) The father's misrepresentation of his actual income, and failure to provide full and timely financial disclosure to the mother and the court was blameworthy behaviour.

j) The father has failed to pay any child support to the mother since she brought her change motion – even when it should have been obvious to him at this point that he had a child support obligation to her.

k) There was a considerable difference between the parents' incomes during the relevant periods.

l) The child has had a significantly disparate standard of living in the two households since April of 2010, in part due to the lack of support paid by the father.

m) The court accepts the mother's evidence that she could not economically sustain the child's participation in some extra-curricular activities. The circumstances of the child have been adversely affected by the father's failure to pay adequate support.

n) The mother argued that she paid a disproportionate share of section 7 expenses for the child. The evidence was unclear about this. In any event, these expenses are subsumed within the section 9 analysis.

o) A retroactive order will be uncomfortable for the father, but will not create an undue hardship. The father has sufficient equity in his home to refinance and pay the arrears.

p) After the equal time sharing arrangement began, the child exclusively spent three months with the father in 2012, due to the mother traveling to California to develop her business.

q) The mother paid child support of $5,063 to the father after the equal time sharing arrangement began.

r) If support was adjusted from April of 2010, the calculation would be as follows:

• 2010 – $1110 – $462 = $648 per month x 9 months = $5,832
• 2011 – $1133 – $462 = $671 per month x 12 months = $8,052
• 2012 – $1050 per month x 9 months = $9,450
• Less: mother's support obligation of $450 x 3 months (= $1,350)
• Balance in 2012: $8,100
• 2013 - $1050 per month for 2 months = $2,100
• Total since April 1, 2010: $24,084

[104] Taking a holistic view of all of the considerations set out above and balancing the child's right to a fair amount of support with the father's entitlement to certainty in his support obligations, there will be an order that the father pay the mother retroactive support in the sum of $20,000 calculated up until the end of February, 2013 (when the ongoing support obligation begins).

[105] In addition, the mother's support arrears as reflected in the records of the Family Responsibility Office are rescinded.

[106] This order will create immediate support arrears of $27,350 ($1,050 per month x 7 months = $7,350 plus $20,000 retroactive support). The father has the ability to pay these arrears by refinancing his property. He will be given 90 days to pay the arrears.

Part Twelve – Other Relief Sought

[107] The mother included many claims in her trial affidavit and in her submissions at trial that were not included in her change motion. Most would not have been granted in any event. I will briefly deal with them as follows:

a) Request for an order that the father obtain life insurance and designate the child as a beneficiary – The father does not have a life insurance policy. This court cannot order him to obtain one. See: Feinstat v. Feinstat, 2012 ONSC 5339. A support order binds an estate unless the court orders otherwise (subsection 34 (4) of the Family Law Act). This order will make it clear that the support order is binding on the father's estate.

b) Request for an order transferring the RESP into her name – This court has no jurisdiction to order this. The mother's overpayment of support after April of 2010 was a significant factor in the retroactive support calculation.

c) Request for an order requiring the Family Responsibility Office to delete any negative credit report for her with credit rating agencies – This court has no jurisdiction to order this, but a request will be made to the Family Responsibility Office to do this.

d) Request for an order that neither party be required to produce annual financial disclosure, but only be required to produce it if asked – The parties should annually provide financial disclosure.

e) Request for an order that the father pay a pre-determined amount of the child's post-secondary expenses – There are too many variables for the court to make such an order at this time.

f) Request for an order entitling the mother to solely claim tax deductions for the child – Revenue Canada would not be bound by any designation by this court. They will permit tax deductions to be claimed in accordance with the actual parenting order.

[108] Both parties made submissions about termination dates for support. The father wants to restrict his child support obligation to the child's first post-secondary degree or diploma. It is premature to make any order of this nature at this time.

Part Thirteen – Conclusion

[109] A final order shall go on the following terms:

a) The March 30, 2006 order of Justice Harvey Brownstone shall be changed as follows:

1. The parties shall continue to have joint custody of the child.

2. The child shall spend equal time at each parent's home.

3. The child shall spend equal holiday time with each parent at times to be agreed upon by her.

b) The terms of my support order dated August 14, 2006 shall be changed by terminating the existing terms and ordering as follows:

1. The father shall pay the mother child support of $1,050 per month on the first day of each month, starting on March 1, 2013.

2. The father shall pay the mother retroactive support in the sum of $20,000, calculated up until the end of February of 2013.

3. The mother's child support arrears, as set out in the records of the Family Responsibility Office, are rescinded.

4. The Family Responsibility Office shall amend their records to reflect that the father's support arrears, as created by this order, are $27,350.

5. The father shall repay the support arrears within 90 days.

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

7. The Family Responsibility Office is requested (not ordered) to delete any negative credit reference for the mother.

8. This support order is binding on the father's estate pursuant to subsection 34 (4) of the Family Law Act.

9. The parties are to exchange their complete income tax returns, notices of assessment, corporate tax returns and corporate and business financial statements by July 1st each year.

10. A support deduction order will issue.

c) The remaining claims made by the parties are dismissed.

[110] Either party may make written costs submissions by October 4, 2013. The other will then have until October 18, 2013 to make a written response. The written submissions are not to exceed three pages, not including any bill of costs, itemization of time spent on the case by the mother, legal bills paid by the mother or offer to settle. The submissions should be delivered to the trial coordinator's office on the second floor of the courthouse.

Justice S.B. Sherr

Released: September 23, 2013