Court File and Parties

Court File No.: D44389/08

Address: 47 Sheppard Ave. East, Toronto, ON. M2N 5X5

Ontario Court of Justice

Between:

Priscilla Mobin, Applicant

— And —

Stevie Stephens, Respondent

Before: Justice C.J. Jones

Heard on: October 11, 2012

Reasons for Judgment released on: February 6, 2013

Counsel:

• Ms. Pauline Malcolm, for the applicant(s)
• Mr. Michael K. Quigley, for the respondent(s)

C.J. JONES, J.:

Introduction

[1] This is a motion for a summary decision on a question of law, brought pursuant to Rule 16(12) of the Family Law Rules (referred to as the "FLR"). The motion has been made by the respondent father (referred to as "the father") in the context of a motion to change child support commenced by the applicant mother (referred to as "the mother"). In his claim for relief, the father has posed the legal issue to be determined by the court, as follows:

a) A determination of whether the sum of $175,000.00 USD in settlement funds paid to the father on account of the copyright infringement of one of his musical compositions, constitutes "income" to him for child support purposes pursuant to section 15 of the Child Support Guidelines (referred to as "the Guidelines");

[2] If such sum is held not to be income, the father seeks an order reducing his child support retroactive to December 1, 2011, from the amount set out in a temporary order of Curtis, J. dated December 15, 2011.

[3] By way of her cross-motion, the mother has joined issue with the father regarding the legal question set out above. In addition, in the event that the court makes the finding that the aforesaid funds are not "income" to the father pursuant to sections 16 to 18 inclusive of the Guidelines, the mother claims in the alternative, for the following relief:

b) …. a finding that income should be imputed to the father pursuant to section 19(1) of the Guidelines, in the sum of $175,000.00 USD, representing the amount received by the respondent father on account of the copyright infringement of one of his musical compositions.

[4] The parties agreed that the identified legal issues should be determined by way of this motion.

Background Facts

[5] The background facts to this case are not in dispute. The parties were in a common-law relationship for seven years, ending in October 2009. They have two children, Michaela, born April 24, 2005 and Naomi, born June 17, 2009. The mother has custody of the two children pursuant to a consent order dated August 4, 2010, which granted reasonable access to the father on reasonable notice. On the same date, the parties consented to an order requiring the father to pay child support to the mother in the sum of $320.00 per month, commencing retrospectively to December 1, 2009, based upon the father's stated 2009 income of $20,988.76 (referred to as "the original child support order").

[6] The mother is a student at York University. She deposes that her only source of income is her student loans.

[7] The father attests that, up until February 2009, he was employed on a full-time basis in the house services division of a major hotel. He deposes that, due to certain adverse events that occurred in 2009, he was unable to continue this work on a full-time basis. He maintains that the negative effects arising from these events continued to affect his employability throughout the year 2010, continuing until late 2011 or early 2012, when he obtained part-time employment in the retail sector as a sales person in a sports store. For 2010, the father's reported income on his Canadian income tax return was minimal.

[8] The evidence demonstrates that the father is also an artistically talented composer. In his affidavit, the father describes himself as a songwriter and performer who has been writing songs from a very young age. He states that for many years he has had a dream of one day making a career in the music business as a performer and artist.

[9] The father indicates that, for several years prior to the date the child support order was granted, and continuing to the present, he has also performed his musical compositions in public. Some of his work has been recorded, including one of his compositions on a digital download album entitled "Mash It Up", that has gone gold in Canada through Universal Music Canada, having sold more than 20,000 units.

[10] The father maintains that, although his musical endeavours are clearly his passion, for the most part this work has not been remunerative.

[11] In late 2010 the mother learned that the father was engaged in a legal battle with a high-profile musical artist and several prominent music production companies (referred to collectively as "the production companies") in the United States relating to one of the father's original musical compositions that had been appropriated by the production companies.

[12] The mother had obtained an unsigned copy of a settlement agreement that detailed the payment to the father of the sum of $175,000.00 in U.S. funds paid on account of his claim against the production companies for copyright infringement. The settlement agreement was dated November 2010, some three months after the original child support order was made.

[13] This discovery, made by the mother, triggered her motion to change child support. In her proceeding, commenced in June 2011, she sought an increase in child support to reflect the additional monies received by the father under the terms of the settlement agreement.

[14] The mother states that, at the time the consent child support order was granted, the father did not reveal that he had a claim pending against the production companies, the outcome of which might cause a change in his income.

[15] The father admits that he settled a claim for copyright infringement in late 2010. He contends that he first learned of the breach of his copyright when he heard one of his songs and lyrics being played over the radio airwaves in a recording by a major U.S. performer. He retained a law firm in New York City to pursue a claim on his behalf. His affidavit evidence did not specify when he first heard the misappropriated song being played on the radio or when he first retained his American lawyers. In any case, his claim against the production companies was ultimately resolved on the terms set out in the settlement agreement dated November 2010, an unsigned copy of which had been obtained by the mother.

[16] The father states that the sum of $175,000.00 USD, referred to in the settlement agreement, represents the gross amount of a damages award for copyright infringement, negotiated on his behalf from the production companies.

[17] Paragraph 1.1 of the Settlement Agreement reads that the settlement funds were paid "in exchange for the release of all claims [the father] may have against [the production companies] related to the Disputed Composition [the U.S. artist's recording of the song]." The paragraph goes on to state that:

"Following payment of the Settlement Proceeds, [the father] shall not be entitled to any further monies or other consideration of any kind from [the production companies] ….. in respect of the Disputed Composition or any future exploitation of the Disputed Composition …. including, without limitation, royalties, advances or the like, writer or publishing credit, copyright interest or attribution of authorship, or any other consideration to which [the father] claims he may have otherwise been or may otherwise be entitled in respect of the Disputed Composition …" (emphasis added)

[18] Paragraphs 2.1 and 2.2 of the settlement agreement were mutual releases, whereby the father released the production companies from any claim arising from the creation, recording, distribution, licensing or other exploitation of the disputed composition performed by the U.S. artist, and the production companies released the father from any claim arising from the creation, recording, distribution, licensing or other exploitation of the father's original musical work. It is clear from these paragraphs that the father retained his interest in his own original musical composition. He released any further claims to the U.S. artist's composition of his song.

[19] Initially, the father was not represented by counsel in this proceeding. In reply to the mother's materials, the father filed a response disputing the mother's claim for an increase in child support. The father's responding documents included his sworn Financial Statement. The father also produced both his 2010 Canadian Income Tax Return and a draft United States Non-Resident Alien Tax Return (referred to as the "U.S. ITR") that had been partially completed on his behalf.

[20] On his 2010 Canadian Income Tax Return, the father reported an income of only $2,262.00 for the year. The draft U.S. ITR produced by the father listed a net income of $79,125.00 USD arising from the settlement funds, listed on the U.S. ITR as "Business income".

[21] The father's U.S. ITR also included a "Schedule C – Profit or Loss from Business – Sole Proprietorship". On the schedule, the father's "Principal Business" was listed as "Music Publishing" and his "Business Name" was listed as "Show Stephens Publishing LLC". "Show Stephens" is a stage name used by the father.

[22] On the Schedule C, the sums shown on the lines for "Gross receipts or sales", "Gross Profit" and "Gross income" were all in the amount of $105,000.00. Under "Expenses" the sum of $25,875.00 was shown for "Legal and professional services", resulting in "Total expenses" of the same amount. The "Total expenses" were deducted from "Business income" to show a "Net Profit" on Schedule C in the amount of $79,125.00. This sum was transferred to the "Business income" line on the U.S. ITR.

[23] At a case conference held on December 15, 2011, the mother was requesting an order for an increase in child support based upon the father's financial disclosure. After taking into account the father's financial statement and income tax documentation, the court imputed an annual income to the father in the amount of $81,387.00, and granted an order requiring the father to pay child support of $1,175.00 per month, retroactive to January 1, 2010. This amount represents the Guidelines amount for two children at the specified income level. The income figure represents the total of the income shown on the father's 2010 Canadian income tax return, and the amount shown on the draft U.S. ITR for 2010.

[24] As this order was granted at the case conference based upon the information obtained from the face of the father's initial financial disclosure, the parties have treated this order as a temporary, without prejudice order.

[25] The father, who is now represented by counsel, advises that he never filed the draft U.S. ITR with the U.S. Internal Revenue Service (I.R.S.), and that the information set out in the draft document is inaccurate. The father takes the position that the settlement proceeds are not taxable by virtue of the fact that they represent an award of damages, and it is his view that damage awards are not taxable. The father therefore argues that the settlement proceeds are not "income" for the purposes of the Guidelines.

[26] The father takes the position that his settlement funds should never have been included on the draft U.S. ITR as income, set out under the heading "Business income". He denies that he is in the music business. He maintains that even though he has been writing songs from a very early age, "that does not mean I was in the music business." He goes on to state that although he had been performing his songs in public forums for several years prior 2010, "that did not transform songs I had written into business assets."

[27] Further, the father denies that he ever operated a business in the United States. He maintains that he is a Canadian resident and that he did not work in the U.S.A. at any time in 2010 or prior thereto. He states that his song, which was appropriated by the production companies, was written in Canada, where he has lived all of his life.

[28] The father indicates that, from his gross settlement of $175,000.00 USD, a number of deductions were taken from the funds. He maintains that he was charged the sum of $70,000.00 USD, or 40% of the gross settlement, by the New York City (NYC) law firm that negotiated the settlement on his behalf. He now takes issue with this fee, which he is apparently challenging. He indicates that the law firm's work on his case was essentially limited to sending a demand letter to the production companies, which resulted in the negotiated settlement without the necessity of instituting an action. He does not indicate in his evidence whether his retainer with the NYC law firm was on a contingency basis, wherein he agreed to pay a fixed percentage of any recovery as legal fees. In any case, he has not provided a copy of his account for his legal fees, in order to prove this deduction.

[29] The father indicates in his evidence that, once the settlement was concluded, the NYC law firm did not immediately forward the remaining balance of the settlement funds to him. Instead, the funds were forwarded to a separate financial institution in the United States to manage the funds for him. It was this financial institution that apparently prepared the draft 2010 U.S. ITR on his behalf, which he is also now challenging. The father maintains that the financial institution charged him the sum of $9,885.00 USD for various fees including management fees and professional fees to set up a company in the United States in his name (presumably "Show Stephens Publishing LLC"), and that they held back an additional $25,000.00 USD as withholding tax on account of income taxes that they had calculated as being payable by him to the United States I.R.S. pursuant to the draft U.S. ITR. The father states that this reported tax liability was inaccurate. He maintains he was not liable for any such taxes.

[30] As a result of his dispute with the financial institution, the father discontinued his relationship with them. Although not entirely clear from his evidence, in submissions the father appeared to be indicating that the withholding tax did not get paid to the I.R.S. on his behalf, and that the sum was ultimately remitted back to him.

[31] The father points out that the draft U.S. ITR does not have an Individual Taxpayer Identification Number, required by every non-resident filing a non-resident tax return. He points to this fact to corroborate his evidence that the draft U.S. ITR was never actually filed with the I.R.S. on his behalf.

[32] The father states in his evidence and repeats in submissions that the "damages" awarded to him should not have been reported on the U.S. ITR because according to him "damages are not considered business income connected with a U.S. trade or business". He maintains that the damages paid to him were paid to obtain his release of any further claims against the production companies for the misappropriation of his song. He asserts that he "did not report the awarded damages because [he] had understood that damages awarded from a settlement are not considered taxable income in Canada, no matter the origin of the funds". This statement, made by the father in his affidavit evidence, is an incorrect statement of the law in Canada, as discussed below.

[33] The father's position is that his income for 2010 was limited to the sum of $2,262.00, based on the income figure shown on his Canadian tax return. As this latter income figure is below the minimum threshold of the Guidelines, the father's position is that there should be no child support payable by him for the two children for 2010.

[34] The mother takes the position that the settlement proceeds of $175,000.00 USD represent income to the father for income tax and therefore Guidelines purposes for the year 2010. She accepts that there may be reasonable and appropriate business deductions from this income, however it is her position that it is the obligation of the father to prove these deductions, and that documentary proof has not been provided (although it was requested by way of the mother's disclosure requests).

[35] As an alternative claim, the mother argues that income should be imputed to the father for the year 2010 in the amount of $175,000.00 USD pursuant to s. 19(1)(b) and (h) of the Guidelines.

Analysis

[36] In order to determine whether settlement funds are "income" to the father for child support purposes, the Court must turn to the provisions of the Child Support Guidelines.

[37] Section 1 recites the objectives of the Guidelines. Section 2 of the Guidelines sets out the definition for "income", with reference to sections 15 to 20. For the purposes of this case, the relevant provisions are 15(1), 16, and 19(1)(h). These sections, along with subsections 1(a) and (d) are reproduced below.

Child Support Guidelines

O. Reg. 391/97

Objectives

1. The objectives of this Regulation are,

(a) to establish a fair standard of support for children that ensures that they benefit from the financial means of their parents and, in the case of divorce, from the financial means of both spouses after separation; .......

and

(d) to ensure consistent treatment of parents or spouses and their children who are in similar circumstances.

Definitions

2. (1) In this Regulation, ....

"income" means the annual income determined under sections 15 to 20; ...

Determination of annual income

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

Calculation of annual income

16. Subject to sections 17 to 20, a parent's or spouse's annual income is determined using the sources of income set out under the heading "Total income" in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.

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, ......

(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; ….

[38] Pursuant to section 16 of the Guidelines, the starting point for the calculation of a parent's annual income is the parent's T1 General income tax return (Canada) for the year in question. However, in this case, the father did not include the damages award in his income for 2010 for tax purposes. The amount was not mentioned on his Canadian T1 return. The father did not file the draft U.S. ITR with the I.R.S.

[39] A Canadian resident is taxed in Canada on his or her worldwide income. This is a reference to his or her income earned during the year, both within and outside Canada. If funds received by a parent constitute income for tax purposes, such income should be included in the sources of income set out under the heading "Total income" in the T1 general income tax return of the parent. Among such various sources of income are income from a business and income from property.

[40] The settlement funds in this case were paid to the father as damages for copyright infringement. What is the tax treatment of these funds? If the funds are not taxable to the father, does the inquiry end here, or should the funds nevertheless be considered to be "income" to the father for Guidelines purposes on an imputed basis? In order to answer the questions posed, it would be helpful to examine the nature of the father's copyright interest.

[41] An individual who composes, performs or records an original musical work has a copyright in such work. "Copyright" is created by statute. Thus, a reference to "copyright" refers to the rights conferred by the legislation. A copyright is an incorporeal form of property. It has a conceptual, non-physical existence, and is comprised of the bundle of statutory rights that accrue to the creator of an original work.

[42] "Copyright" in relation to a musical work, refers to the sole right to produce or reproduce the work, to perform the work in public, to publish the work or communicate the work to the public, and to make any sound recording of the work. As well, it includes the right to authorize anyone else to do such things. These rights are economic rights, in the sense that they are rights that have an economic value. In addition to copyright, the author of the work has other non-pecuniary or moral rights. Moral rights to a musical work include the right to claim ownership of the work and the right to the integrity of the work. Moral rights cannot be assigned, however they can be waived.

[43] When a musical composition has been recorded, royalties are the equitable remuneration paid to a performer or the maker of the recording for the playing of the recording in public or its communication to the public by way of telecommunication.

[44] Where copyright has been breached, the owner of the copyright is entitled to claim any remedy conferred by law for an infringement of a right, including an injunction, damages, and an accounting of profits. Similarly, in relation to the moral rights to a musical work, the performer or composer may also claim any available civil remedies for an infringement.

[45] Damages for copyright infringement are compensatory in nature. They are paid to compensate the owner for his or her loss arising from the infringement of a right. As well, where a defendant has profited from the infringement, the copyright owner may claim for such profits.

[46] In the case before the court, the settlement funds have been paid to the father as damages for copyright infringement of his original musical composition, in settlement of any claim for the royalties he would have earned had the U.S. artist legitimately obtained a licence from the father, permitting the U.S. artist to record and perform the father's song. As well, the damages are paid in exchange for a release by the father of any entitlement to the profits earned by the U.S. artist arising from his recording or performance of the father's original musical composition.

[47] In general, damages represent a sum of money paid to an aggrieved party to restore him or her to the financial position he or she would have been in, had the wrongful act not occurred.

[48] The Supreme Court of Canada has stated that in determining whether an award of damages is taxable, one must look to the nature and purpose of the payment to determine what it is intended to replace. This approach is referred to as the surrogatum principle. The tax consequences of the damages payment will be determined according to this characterization.

[49] Thus, the Honourable Mr. Justice Charron, writing for the majority of the court in Tsiaprailis v. Canada, stated:

"The determinative questions are: (1) what was the payment intended to replace? And, if the answer to that question is sufficiently clear, (2) would the replaced amount have been taxable in the recipient's hands?"

[50] In this case, the payment of damages to the father under the settlement agreement was for infringement of his copyright. He is being compensated for his claim for his loss suffered due to the infringing acts, including any loss of profits or royalties. The royalties that would have been payable from the performance or publication of the song represent the "yield" or the income arising from his property interest, namely his copyright.

[51] The characterization of the damages as income is not dependent upon whether the father was in the music business or not. The father maintains that he was not carrying on the business of music publishing or otherwise operating a business related to the music industry in 2010. He maintains that he therefore should have no business income in 2010, disavowing the draft U.S. ITR prepared on his behalf by his business advisors. Further, it is his position that, as the settlement funds do not constitute business income, they are not reportable by him as income for tax purposes.

[52] A determination as to whether or not the father was operating a business would not end the inquiry into the nature of the settlement funds. If the funds are not business income, the question arises as to whether the damages paid to the father should be characterized as income from property, representing compensation for his loss of profits or royalties arising from the infringement of his copyright. Royalties arising from copyright are just as much income from property, for tax purposes, as rental income from a rented duplex.

[53] In the Tsiaprailis case, the taxpayer tried to assert that certain funds, paid to her in settlement of a dispute arising from the termination of her benefits under a disability insurance plan, were paid for a release of her claims, rather than being paid for her past entitlement to disability benefits pursuant to the plan. Payments made pursuant to a disability insurance plan are taxable. The attempt, by the taxpayer, to characterize that portion of her settlement funds, relating to the prior payments due under the plan, as a payment for the release of her claims, was advanced in an attempt to argue that the payment should not be considered "income" for tax purposes. The majority of the court rejected this argument, holding that this interpretation would render the surrogatum principle meaningless.

[54] In this case, the father attempted to put forward a similar position. He argues that the payment to him of the settlement funds represented damages paid to him for his release of his claims. The Supreme Court of Canada has directed that the court must consider the essence of the damages payment.

[55] It certainly may be argued, as the mother does in this case, that the damages paid to the father for infringement of his copyright were paid as compensation for, among other things, his loss of profits or royalties, and therefore his income. In a case decided by the Tax Court of Canada, a similar result was held in respect of damages paid for infringement of a patent, another form of intellectual property. The Tax Court ruled that the damages were income to the patent holder. The father takes issue with this characterization of his damages settlement.

[56] For the determination of the issue before this court, it is not necessary to make a finding as to whether the damages received by the father represent income to him for tax purposes. That decision is better left to another forum. What is relevant to this court is whether the damages recovered by the father represent "income" to him for the purposes of the Child Support Guidelines.

[57] There have been a number of cases that have taken the view that the receipt of certain types of funds, although not characterized as "income" to the recipient for tax purposes, should nevertheless be included in the income of the recipient for the purposes of the Guidelines. The inclusion of these funds in the income of the support payor has been made pursuant to s. 19 of the Guidelines.

[58] Workers' compensation benefits, although not treated as income for tax purposes, have been held to constitute income for the purposes of the calculation of child support. In the case of Dahlgren v. Hodgson, the Alberta Court of Appeal stated as follows:

"The definition of 'income' in the Child Support Guidelines is very broad and clearly encompasses these benefits. That definition reflects Parliament's intention that in dealing with a parent's obligation to support a child, it is fair and appropriate to take into account many forms of income, or benefits, or compensation, or attributed income, benefits or compensation, etc. that would not otherwise be treated as taxable income under the Income Tax Act." (emphasis added)

[59] A similar finding was made by the Honourable Justice Murray in the case of Rivard v. Hankiewicz. The case involved monthly annuity payments received by a support payor, arising from a motor vehicle damages settlement.

[60] In the Rivard case, the support payor's annuity had been purchased with settlement funds as a structured settlement. The annuity payments were not taxable to the support payor as income. In considering the issue as to whether the annuity payments were "income" under the Guidelines, notwithstanding that they were clearly non-taxable receipts for tax purposes, the court drew a comparison to tax-free periodic payments received through workers' compensation benefits, which as noted above, have been held to be "income" for Guidelines purposes.

[61] The court reasoned that:

"The fact that the guidelines allow a court to use discretion in imputing income to those who receive money from tax-exempt sources indicates that the framers of the Guidelines anticipated that some, but not all, of the tax-free funds received by individuals should be considered 'income' under the guidelines."

[62] In the Rivard case, the court held that the more the tax-exempt funds resemble taxable income, the more compelling the argument becomes that the funds should be found to be "income" under the Guidelines for the purpose of determining child support.

[63] Further, the court pointed out that, in relation to these tax-free receipts, courts rely on clause 19(1)(h) of the Guidelines to "gross up" these amounts to make them the equivalent of a taxable income. The scheme of the Guidelines is that a parent should provide support for his or her child in a basic table amount that reflects his or her gross, before tax, income.

[64] Accordingly, this court is of the view that, even if the damages settlement received by the father for copyright infringement is not taxable, these funds would nevertheless be "income" of the father for Guidelines purposes. The payment resembles royalties or profits that would have been paid for the performance or publication of the father's original musical work or the licencing to another performer of the right to perform or publish the work. As previously noted, royalties or profits represent the yield or the income from the copyright. When determining income for child support purposes, damages paid in compensation for these royalties or profits are analogous to the royalties or profits themselves.

[65] Thus, even if the damages paid to the father for copyright infringement are not taxable to the father, the court would impute income to the father for the year 2010 in a sum equivalent to the damages received by him.

[66] The father would argue that he incurred expenses, in the nature of legal or accounting fees, in order to recover the damages. Are these expenses proper and appropriate deductions, to be subtracted from the settlement funds, in calculating the father's income for child support purposes? If the settlement funds are income to the father for tax purposes, this would be the case. Expenses incurred for the purpose of gaining or producing income from a business or property are deductible from profit for tax purposes. However, in this case, the father vociferously resists the suggestion that the damages settlement represents income from a business or property for tax purposes. If the damages settlement amount is not income for tax purposes, the father surely would not be permitted a tax deduction for such expenses.

[67] Having held that the damages are "income" for child support purposes, fairness would dictate that the father be permitted a deduction, only in relation to his reasonable expenses incurred directly for the purpose of recovering such damages. The onus of proving the amount, the reasonableness and the actual payment of these expenses falls on the father.

[68] Further, if the father does not report the damages as income for tax purposes or if Canada Revenue Agency determines that the damages received by the father are not taxable to him, the amount of the damages settlement (less appropriate expenses) should be grossed up for tax, to reflect the equivalent of a taxable income.

[69] The amount received by the father for the damages settlement is a non-recurring amount. The funds accrued due to the father in the year the settlement agreement with the production companies was signed. This would appear to be 2010. Therefore, the funds should be included in the father's income for 2010 for child support purposes.

[70] The funds received by the father should be converted from U.S. funds into Canadian dollars. Under the terms of the settlement agreement, the settlement proceeds were to be paid to the father's solicitors no later than 10 business days following the receipt, by the production companies, of a fully executed copy of the settlement agreement together with a completed and executed U.S. tax form, a W-9. The evidence provided by the father as to the date the settlement agreement was actually signed is unsatisfactory. The settlement agreement is dated November 2010. Absent agreement between the parties on the rate of exchange to be used, the court would impose the exchange rate that prevailed on November 30, 2010, when the Canadian dollar was trading for 1.0264 U.S. The sum of $175,000.00 USD would thus be converted into $179,620.00 CDN.

Conclusion

[71] The legal question posed to the court is therefore answered as follows:

1. The settlement funds paid to the father on account of the copyright infringement of one of his musical compositions, constitutes "income" to the father for the year 2010 for child support purposes pursuant to section 15 of the Child Support Guidelines;

2. The reasonable expenses directly incurred by the father in order to recover the settlement funds may be deducted from the gross settlement amount in order to calculate his income for child support purposes for 2010. The father has the onus of proof of the amount, reasonableness and actual payment of any such expenses. This disclosure should be furnished very promptly, as it has been outstanding for a number of months. If the parties cannot agree on the timeframe for the production of such disclosure, or the appropriateness of the expenses claimed, these issues may be determined by the Case Management Judge.

3. Any income tax paid by the father on the settlement funds, either in Canada or the U.S.A., is not an appropriate deduction from his "income" for Guidelines purposes. The scheme of the Guidelines is to base child support upon the payor parent's gross income, before tax.

4. If there is proof that the father has paid tax on the settlement funds (either to the I.R.S. in the United States or to Canada Revenue Agency in Canada), there is no need to gross-up the settlement funds for tax. However, if there is no proof that the father has paid tax on these funds, the settlement funds should be grossed up for tax, to reflect the equivalent of a taxable income.

5. The funds should be converted into Canadian funds using either the exchange rate agreed upon by the parties, or if they cannot agree, the exchange rate prevailing on November 30, 2010.

Costs

[72] There is a claim for costs of this motion. The parties may have direct discussions to address the issue of costs. If the parties are unable to agree, the applicant mother may serve and file her written submissions as to costs, limited to 3 pages in length plus any bill of costs, within 14 days of the date hereof. The respondent father may file his responding submissions, limited to 3 pages in length plus any bill of costs, within 10 days of receipt of respondent's costs submissions, and the applicant may file her reply, if any, to be limited to one page, within 4 days thereof. The costs submissions of each party, along with proof of service, are to be filed with the Trial Coordinator of this court, or may be forwarded to the Trial Coordinator's attention by facsimile, within the timelines set out above.

Released: February 6, 2013

Signed: "Justice C.J. Jones"

Footnotes

1. s. 2(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)

2. Copyright Act, R.S.C. 1985, c. C-42 in Canada and the U.S. Copyright Act, Title 17 of the United States Code

3. Sanderson, P., Musicians and the Law in Canada – 3rd Ed., Carswell, Toronto, 2000, p.3.

4. Copyright Act, R.S.C. 1985, s. 3(1)

5. Ibid, s. 14.1(1).

6. Ibid, s. 14.2.

7. Ibid, s. 19.

8. Ibid, s. 34(1).

9. Ibid, s. 34(2).

10. Ibid, s. 35(1).

11. Livingstone v. Rawyards Coal Co., (1880) 5 App. Cas. 25 at 39 (H.L.)

12. Tsiaprailis v. Canada, 2005 SCC 8, [2005] 1 S.C.R. 113, [2005] S.C.J. No. 9

13. Ibid, at para. 15.

14. Ibid, at para. 20.

15. Bourgault Industries Ltd. v. The Queen, 2006 TCC 449, 55 C.P.R. (4th) 369, 60 D.T.C. 3420; [2006] 5 C.T.C. 2383.

16. Dahlgren v. Hodgson, 1999 ABCA 23, 2228 A.R. 332, 43 R.F.L. (4th) 176, 85 A.C.W.S. (3d) 630; St. Croix v. Maxwell, 3 R.F.L. (5th) 161, 93 A.C.W.S. (3d) 704.

17. Dahlgren v. Hodgson, at para. 4.

18. Rivard v. Hankiewicz, 2007 ONCJ 180, 38 R.F.L. (6th) 189, 171 A.C.W.S. (3d) 907.

19. Ibid, at para. 37.

20. Ibid, at para. 40.

21. Ibid, at para. 30.

22. Income Tax Act, s. 18(1)(a)