Court Information
Ontario Court of Justice
Date: 14 February 2017
Court File No.: Toronto DFO 11 10695 B3
Parties
Between:
Bozana Markovic Applicant
— AND —
Slavisa Vujnovic Respondent
Before the Court
Before: Justice E. B. Murray
Heard on: February 7, 2017
Reasons for Judgment released on: February 14, 2017
Representation:
- Bozana Markovic – Applicant, on her own behalf
- Slavisa Vujnovic – Respondent, on his own behalf
Judgment
MURRAY, E. B. J.:
[1] On November 27, 2013, the Respondent Father, Slavisa Vujnovic, and the Applicant Mother, Bozana Markovic, consented to an order that the Respondent pay child support for their then two-year old daughter Lana in an amount of $1,037 monthly based on imputed annual income of $120,000, commencing March 1, 2011.
[2] The order was made as the case was about to go to trial, and ended two years of litigation in which the Respondent's income was a highly contested issue. The consent also, in effect, retroactively modified a temporary order made March 30, 2012, which obligated the Respondent to pay child support of $2,255 monthly based on imputed annual income of $284,013 commencing March 1, 2011. That order was not appealed. The Respondent sought to vary that order on March 6, 2013; his motion was dismissed.
[3] The Respondent now moves to change the order of November 27, 2013, retroactive to January 1, 2014. He asks for an order reflecting his income as shown on line 150 of his tax return for the years 2014 ($43,813) and 2015 ($48,533), with ongoing support to be based on an income of $48,533. He says that the "confusion" about his income prior to the November 27, 2013 order was due to "bad accounting", but that he now has better accountants. He says that his tax returns are now reliable evidence of his Guideline income. The Respondent acknowledges that his motion, if successful, would result in the Applicant owing him substantial funds. He says that he would be content to have a credit with the Family Responsibility office, to give him a needed respite from paying high child support.
[4] The Applicant opposes the Respondent's motion to lower the support payments. She says that they both spent substantial sums on lawyers and accountants before agreeing to base support on imputed income of $120,000. She questions why they have to go through the same exercise again. She points out that he continues in the same business he was operating in 2013.
[5] The parties are self-represented on the motion to change.
[6] This is my decision on the threshold issue of whether the Respondent has established that there has been a material change in his Guideline income since the date of the consent judgment of November 27, 2013. To address the issue I held a Rule 1 hearing in which I considered documentary evidence as well as brief viva voce evidence. When scheduling the hearing, I advised the parties of the special issues that arise in determining whether there has been a material change in a payor's income when that income has been imputed. I directed their attention to the decision of Justice Alex Pazaratz in Trang v. Trang, 2013 ONSC 1980.
[7] At the Rule 1 hearing I considered the documents filed on the motion to change—the affidavits of the parties, the Respondent's financial statement, the financial statements for the Respondent's two corporations, Great Car Inc. and 2144724 Ontario Ltd., and notices of assessment for the Respondent for 2014 and 2015.
[8] In order to establish what facts with respect to the Respondent's income were before the court prior to the November 27, 2013 order, I considered the financial statements and affidavits then filed by the Respondent, and other documents filed by him with the court, including personal tax returns, corporate financial statements, and reports from an accountant and a forensic accountant. I also considered the facts found by the case management judge, Justice Scully, in his decision of May 15, 2013, in which he dismissed a motion by the Respondent to change the temporary support order of March 30, 2012.
The Law
[9] Section 37(2.1) of the Family Law Act provides that a court may vary a child support order 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 original order is presumed to have been correct. The change alleged must be one which, if known at the time, would have resulted in a different order.
[10] In Trang v. Trang, Justice Pazaratz observed that although determination of whether there has been a material change in a payor's income is often a straightforward process of comparing line 150 income at the time of the original order to current declared income, it is not that simple when dealing with an order based on imputed income. Justice Pazaratz said:
46 "But if the original support order was based upon "imputed" income, a more comprehensive analysis is required on a motion to change. The court must consider:
a. Why did income have to be imputed in the first instance? Have those circumstances changed? Is it still appropriate or necessary to impute income, to achieve a fair result?
b. How exactly did the court quantify the imputed income? What were the calculations, and are they still applicable?.....
52 A party who argues that an imputed income level is no longer appropriate must go beyond establishing their subsequent "declared" income. They must address why income had to be imputed in the first place. They must present evidence of changed circumstances which establish that either:
a. It is no longer necessary or appropriate to impute income. The payor's representations as to income should now be accepted, even if they weren't accepted before.
Or,
b. Even if income should still be imputed, changed circumstances suggest a different amount is more appropriate.
53 If "declared income" automatically prevailed on a motion to change support, it would defeat the purpose of imputing income in the first place. It might even be a disincentive for payors to participate in the initial court process. They could simply ignore support Applications - as they often do. They could wait to see if the court imputes income, and how much. If dissatisfied with the amount, the payor could later return to court waving their tax returns, to suggest that the original judge got it wrong.
54 Support claimants should not be forced to go through this two-step process. Our family court system certainly can't afford it.
55 Similarly, the onus should not fall on the support recipient to establish why income should still be imputed on a motion to change. That determination has already been made. The onus is on the support payor to establish that there should be a change in the way their income is to be calculated.
56 If for example the original support order imputed income because the court concluded an unemployed payor should have been working, it would be illogical to allow the payor to extinguish that determination by returning on a motion to change, with proof that he wasn't working. That wouldn't constitute a change in circumstances.
57 If a trial judge imputed income to a self-employed person on the basis that their tax return didn't reflect cash sales and excessive write-offs, there should be a presumption that so long as the payor maintains the same business activities and accounting practices, subsequent tax returns will be equally unreliable."
[11] Justice Pazaratz dealt with the evidence which should be considered by a court in determining the relevant facts which led to the original order imputing income:
50 In most variation proceedings, it should be possible to establish why (and how) income was imputed in the original order. Those factual findings and calculations are usually set out in affidavits or transcripts (in uncontested proceedings) and written endorsements or judgments (in contested proceedings). This is relevant information which should be presented to the court on a motion to change. It is essential to an understanding of what factors the court considered when the previous order was made - and whether those factors have changed.
[12] In the instant case, the order sought to be changed was made on consent and no reasons were given by a court. It is presumed that the court, following s. 33(11) of the Act was satisfied that the order sought was in accordance with the Guidelines. The facts before the court with respect to the Respondent's income at that time and the judicial finding with respect to his income on the temporary motion and the motion to change the temporary order offer the best evidence available as to the factual basis for the November 27, 2013 order.
The Facts
[13] The Respondent is the sole shareholder of Great Car Inc. and 2144724 Ontario Ltd. Great Car buys and sells cars, and provides repair services for cars. 2144724 owns the building in Toronto in which Great Car operates; that building contains other rental space. The Applicant and the Respondent were joint owners of the property prior to their separation; he bought out her interest in June 2011.
[14] Lana was born February 20, 2011. The parties separated in March 2011. The Applicant commenced her application for child support in August 2011.
[15] Both before and after the November 27, 2013 order the Respondent's evidence is that his sole source of income is from the two corporations, received through management salary and some personal expenses he acknowledges as paid through the business.
Facts Prior to the November 27, 2013 Order
[16] The Respondent presented financial statements for the companies prepared by two accounting firms, Voyan Financial and Shailendra Jain, C.A.. He also offered evidence analyzing his income from Paul Bailey, a retired accountant, and John Douglas, a forensic accountant. All information given to these accountants was supplied by the Respondent.
[17] The Respondent's evidence about his income was as follows:
In his February 6, 2012 financial statement, the Respondent swore that his annual income was $36,686.83, made up of salary of $29,886.85 and benefits (personal expenses paid through the companies) of $6,800.
The Respondent filed financial statements for three years from his companies showing little corporate income (An average of approximately $10,000/year for Great Car and a loss of about $6,000/year for 2144724).
[18] At the March 2012 motion, the court noted the Respondent's failure to provide all the financial disclosure previously ordered. The Applicant's solicitor, through an analysis of bank and credit card records, persuaded Justice Scully that the Respondent's income was substantially higher than declared by him on his tax returns or on his sworn financial statements. Justice Scully found that the Respondent's Guideline income was $284,013.
[19] The Respondent then retained a solicitor, Mr. Wallace.
The Respondent swore a fresh financial statement June 9, 2012 stating that his annual income was $38,540, made up of salary of $31,740 and benefits (personal expenses paid through the companies) of $6,800.
He obtained a report from Mr. Douglas on June 7, 2012 stating that in his opinion his Guideline income was $45,838.
He obtained a report from Mr. Bailey in the form of an affidavit sworn November 6, 2012 stating that in his opinion his Guideline income was $83,867 ($73,867 plus an additional amount for further personal expenses paid through the business).
[20] The Respondent brought a motion to change the March 30, 2012 order. At the motion, his lawyer conceded that income should be imputed to him, but argued that the amount to be imputed should be $87,866 annually.
[21] Justice Scully found that the Respondent had not established that his circumstances were substantially different than those at the time of the March 2012 order. He noted the Respondent's continuing failure to provide complete financial disclosure, and his "lack of candour" with respect to his income. He noted that the reports and statements from the accountants submitted by the Respondent were based solely on information provided by the Respondent. Except for a slight decrease in support agreed to by the Applicant, he dismissed the Respondent's motion to change.
Facts Since the November 27, 2013 Order and Currently
[22] What has changed since the November 27, 2013 order? The Respondent says he was "the victim of bad accounting" and that he now has better accountants, Jurovicki Inc., upon which he relies. He says that he did not have the "proper documents" before, but he now has "properly analyzed and professionally verified accounting evidence". He offered no evidence as to any specific change in his business or accounting practices.
[23] The documents the Respondent produces are his personal tax returns and notices of assessment and financial statements for both companies for the years 2014 and 2015. The statements note that they are based on information supplied by the Respondent, and are not an audit. There is no further report or analysis provided. The reports show a management salary paid to the Respondent which forms the basis for his declaration of income on line 150 of his tax returns for 2014 and 2015.
[24] In 2014 his income was declared to be $43,813 and in 2015 his income was declared to be $48,533.
[25] The Respondent gave confused evidence about what he said was an audit by Canada Revenue Agency of his returns for 2009-2011. There was no evidence of an audit, but it is clear that the Respondent had his past returns questioned by CRA. He produced a notice of reassessment from 2015 of his personal return for 2009 which showed that previously assessed income of $219,000 was reduced to $35,000. He acknowledged that the assessment for 2009 had not been disclosed in the prior litigation. He said that the problem resulted from a mistake made by a prior accountant, who entered an incorrect amount for retained earnings for one of his companies. He said that this problem was corrected by Mr. Jurovicki, who prepared new financial statements for those years, statements which the Respondent did not produce.
Analysis
[26] The Respondent relies upon his income as declared to CRA in asserting that there has been a change.
[27] This case is similar to Ruffolo v. David, an appeal recently decided by the Ontario Divisional Court. In that case a judge ordered a father to pay support based on imputed income. The father was a self-employed real estate broker who had not supplied the court with complete financial information and who had provided piecemeal evidence of his income and expenses. The judge ordered support based on imputed income.
[28] The father appealed; the appeal was dismissed. He then brought a motion to change the order asking for two years of retroactive relief, essentially back to the date of the original order. In the motion to change, the father filed tax returns and a report from a chartered accountant about his income. The motions judge granted the father's motion, and made a retroactive order reducing support which resulted in the mother having an obligation to repay a substantial amount.
[29] The mother appealed. The Divisional Court, relying upon the reasons of Justice Pazaratz in Trang, granted the appeal. The Court observed as follows:
16 Notwithstanding the respondent's lack of success in appealing Healey J's support order, he was able to achieve the same result in that the motions judge's order was made retroactive to essentially the same date as Healy J's original order. This is not only a problem of optics. The respondent, unhappy with the income imputed to him by Healey J. following a trial, in effect, has been permitted to re-litigate that issue. Before the motion judge, the husband filed his tax returns for 2012-2014 supported by Notices of Assessment and an accountants' report. A review of the accountants' report also reveals that the report relies strictly on the income disclosed by the respondent. ….There was no information before the motion judge that did not depend entirely upon self-reporting by the husband. The motion judge accepted the husband's reported income for the years 2012 to 2014 to be his actual income simply on the basis that he had filed income tax returns without more. This ignores the adverse finding made by Justice Healy as to the husband's credibility….
23 In our view, there was no material change in circumstances established on this motion and the motion judge erroneously proceeded on the basis that the husband could rely on his line 150 reported income now that he had filed his income tax returns and received his Notices of Assessment, thereby obviating the need to impute income.
[30] The Respondent continues in the same business he operated prior to that order.
[31] He acknowledged through his solicitor in the prior case that his income declared to CRA could not be relied upon in determination of his Guideline income, and proposed varied amounts of income to be imputed.
[32] In agreeing to the November 2013 imputing income of $120,000 to him, he acknowledged that this figure was a reasonable amount for imputation. He acknowledged that he had ability to earn income at this level.
[33] The "change" to which the Respondent refers is his retaining of new accountants. Those accountants, however, still rely solely upon information provided to them by the Respondent in preparing his financial statements and tax returns.
[34] I do not find that the Respondent has established that there has been a material change in his income since November 27, 2013. The table amount of support payable by the Respondent will not be changed.
[35] If costs are sought by the Applicant with respect to this hearing and related preparation, the matter may be addressed on April 25, 2017 at 10 a.m.
[36] There are other issues raised by the Respondent in his motion to change – a variation of the amount contributed to Lana's daycare cost because of a change in that cost, and a request to change access arrangements. The Applicant agrees that there should be a change of the order of November 27, 2013 in these respects. These issues will be addressed on a return of the motion to change on April 25, 2017 at 10 a.m.
Released: February 14, 2017
Signed: Justice E. B. Murray