Court File and Parties
Court File No.: D 82212/15 Date: March 7, 2017
Ontario Court of Justice
Re: Linda Mah – Applicant And: Yair Colin Lewis – Respondent
Before: Justice Roselyn Zisman
Counsel: Karen Ballantyne - for the Applicant as agent only Respondent - self-represented
Heard On: March 1, 2017
Endorsement
Introduction
[1] This is a temporary motion by the Applicant ("mother") seeking child support for the child Dylan Lewis Kar-Ho born November 24, 2004 in the amount of $758 per month based on an imputed income of $84,466 ($65,000 US), retroactive to January 1, 2016 when this proceeding commenced.
[2] It is the Respondent's ("father") position that his income is only $18,000 US and he is prepared to pay child support of $300 per month.
Background
[3] The parties were married on December 27, 2004 and separated on December 8, 2005 and were divorced on July 8, 2008. At the time the corollary issue of child support was to continue as a corollary relief proceeding and the father was ordered to provide financial disclosure. The mother did not pursue child support formally until the commencement of this proceeding as she deposes that she did not wish to antagonize the father and attempted to resolve the issue through mediation and informal offers to settle.
[4] The mother and child reside in Toronto. The mother is a clinician scientist and assistant professor of psychiatry and is also employed by Baycrest Hospital. Her total income is about $200,000.
[5] The father resides in New York with his common law spouse and child. He is self-employed. His tax return indicates that he has a carpentry and construction business.
[6] Since the separation the father has paid child support in an inconsistent manner. At times he paid a modest $200 per month and at other times he paid no child support. The last time he voluntarily paid child support was October 2015.
[7] The parties attended before me on a case conference on September 28, 2016 at which various procedural and consent orders were made namely:
The mother was ordered to discontinue the court proceeding in Superior Court of Justice. The mother subsequently filed a Notice of Withdrawal.
An order was made for financial disclosure by the father, as requested in the Form 20 Request for Information served on the father, from 2013 onwards to be made within 30 days.
A temporary without prejudice order for child support of $300 per month based on the father's admitted income.
Telephone access
Leave for the father to serve and file his amended Answer within 30 days to include the issues of custody and access. This was never done.
[8] A further case conference was held on December 15, 2016. The father did not attend or file any materials. He advised by email the previous day that he was ill and could not attend. In the father's absence I reviewed and narrowed the disclosure request and fixed service and filing dates for a motion for temporary child support to be heard on March 1, 2017. The endorsement was sent by the court to the father and he was advised that he could participate by telephone conference call.
[9] The father was to serve his disclosure on the mother by January 20, 2017. The mother was to serve her motion and supporting affidavit on the father by February 3, 2017, the father to serve his responding affidavit by February 13, 2017 and any reply by the mother to be served by February 27, 2017. All materials to be filed in court by February 27, 2017.
[10] The father served some financial disclosure on January 27, after the deadline and did not produce any meaningful disclosure about his business, such as a full tax return or the equivalent of a Notice of Assessment. He did not provide any details or supporting documentation for his claimed cost of goods or expenses despite it being made clear that the onus was on him to provide proof of any such deductions. When the mother filed her reply affidavit sworn February 22, 2017 the father had still not served his responding affidavit that was due February 13th. The mother therefore relied on the limited disclosure served by the father on January 27th and further requested the court draw an adverse inference from the father's failure to comply with the court orders for disclosure.
[11] The father did serve the mother and mail to the court an affidavit sworn January 25, 2017.[1] The mother provided the court with a copy of the affidavit and it was filed with the court on the consent of the mother as it contained most of the information she had already received.
[12] The father participated on the motion by teleconference call and was quite incensed that the court did not provide him with legal assistance. He offered to provide the information that counsel for the mother alleged he had not provided but as was explained to the father, he had been given several opportunities to provide disclosure and he was warned that this motion would be proceeding and no adjournments would be granted.
The Father's Income
[13] The mother deposes that the father worked as a self-employed production designer and surveyor while they were married and following the separation. His gross income would range from $65,000 to $180,000 depending on the year. However, after the mother commenced her divorce proceedings in 2007 his reported income dropped drastically. It is the mother's position that the father's stated expenses far exceed his declared income and that he has not provided any proof as to how he is able to meet his expenses. It is submitted that he may be paying his spouse a salary and or paying many personal expenses through his business or that he has other business income that is not disclosed. This information such as a salary break-down, proof of his business expenses, corporate and business documents, credit card statements was requested and not provided.
[14] The father does not dispute that his common law spouse is a yoga instructor who earns minimal income. No information is provided as to her income or contribution to the household expenses.
[15] The mother requests that the court draw a negative inference and impute income to the father based on the following:
a) The father's financial statement sworn November 28, 2016 indicates expenses of $42,000. His 2015 tax return indicates income of $10,551 with gross sales of $35,000; his 2014 tax return indicates an income of $12,188 with gross sales of 36,385; his 2013 tax return indicates an income of $9,099 with gross sales of $32,348. There is no explanation of how he meets these expenses or proof of these expenses;
b) The expenses listed for rent alone are $2,000 month and there is no expense for transportation, telephone, household supplies, meals outside the home and only minimal personal expenses for clothing, food and other necessities;
c) The father's financial statement sworn November 28, 2016 lists 3 personal loans totaling $68,500 but he did not provide any proof of these loans. Two credit card debts totaling $3,700 are listed with monthly payments being made of $350 per month. There is no disclosure of the credit card statements;
d) The father did not dispute that he travelled to Israel and elsewhere on holidays in the last several years. No travel or vacation expenses are listed on his financial statement but his bank statements indicate withdrawals in July 2015 in Israel and a purchase from Vaciones EDreams in September 2015. The only explanation offered by the father was that his family paid for his travels but he did provide any proof of such payments;
e) The father's financial statement indicates he has an interest in West Harlem Vines valued at zero. Despite being ordered to provide financial statements and tax returns about this company that opened in 2014, he failed to do so. The mother produced a page from the company's web site describing the company as acquiring rare production releases form all across North America, South America, Africa, Europe and Asia. The father only provided one page from the company's tax return indicating that from August 2013 to July 2014 the company operated at a loss with total income of only $23,153 and expenses of $78,815. However, the grand opening of the company's store was only in June 2014;
f) In the father's disclosure provided January 27th, he did provide a partial copy of the 2015 corporate tax return for the year end July 2016, of West Harlem Vines indicating gross sales of $870,769, total income after cost of goods being deducted, is $388,651. The taxable income is stated as being only $44,636 but there are deductions for salaries of $111,461 and other expenses. The statements and schedules that were attached to the tax return are not produced. Proof of the expenses and a break-down of the salaries were subject to the disclosure order and not provided. The father is listed as a one third owner and that he receives no compensation as an officer. It is the father's position that he derives no income from this business at this time but as indicated provides no proof; and
g) The father did provide his bank statements for the years 2015 and 2016 although the complete statement is missing the month of June 2016. In 2015, there were deposits of $65,826 and in 2016 deposits of $66,000. The only explanation by the father was that there was double counting as there were transfers from his savings account. In 2016, there were only 2 transfers from the savings account of $3,000 each for a total of $6,000. There is of course no explanation as to where the money from the savings account came from, how long it had remained in the account and no copy of the June statement. Even if the transfers were eliminated, the deposits in 2016 would be $60,000 for 11 months.
Applicable Statutory Test and Law Regarding Imputing Income
[16] It is the mother's position that income should be imputed to the father. The statutory authority for imputing income is set out in Section 19 of the Child Support Guidelines that provides as follows:
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 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 spouse;
(b) the spouse is exempt from paying federal or provincial income tax;
(c) the 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 spouse's property is not reasonably utilized to generate income;
(f) the spouse has failed to provide income information when under a legal obligation to do so;
(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; and
(i) the 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 paragraph (1)(g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act.
[17] 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.
[18] The onus is on the party seeking to impute income to the other party to establish that the other party is intentionally unemployed or under-employed. See Homsi v. Zaya 2009 ONCA 322.
[19] A self-employed person has 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.
[20] The onus rests upon the parent seeking to deduct expenses from income to provide meaningful supporting documentation in respect to those deductions, failing which an adverse inference may be drawn. See: Orser v. Grant [2000] O.J. No. 1429 (S.C.J.).
[21] This principle also applies where the person's employment income is derived from a corporation that he or she fully controls. See MacKenzie v. Flynn, 2010 ONCJ 184.
[22] If income is derived from a corporation then it is appropriate in these circumstances to gross-up the payor's income, as the payor is declaring and paying tax on substantially less income than the payor is actually earning. This is done to ensure consistency of treatment where a party is found to have arranged his affairs to pay less tax on income. See Sarafinchin v. Sarafinchin.
[23] The court can also draw an adverse inference against a party for the failure to comply with their disclosure obligations. See Maimone v. Maimone.
Analysis
[24] Applying these principles to the facts of this case, I find that the mother has met the onus on her to establish that the court should impute income to the father. There has been a total failure on the father's part to explain the discrepancies between his declared income and his expenses and between his declared income and his bank deposits. The father's life style does not match his declared income and if in fact he has been able to obtain loans to support his life style then the onus was on him to provide proof of those loans which he neglected to do.
[25] In view of the father's lack of compliance with the outstanding disclosure orders the court is entitled to draw a negative inference. The inference to be drawn is that the father has more income than is declared on his personal tax return. It is not necessary for the mother to prove or for this court to determine whether that income is derived from his business or from his involvement in the wine company.
[26] The mother is entitled to request that the father's undisclosed income be grossed up or that any declared expenses be added back to his income. However, at this stage of the proceedings counsel for the mother simply requests that based on the evidence provided most specifically the father's bank deposits that it is reasonable to impute $65,000 US to the father.
[27] Section 20 (1) of the Child Support Guidelines provides that where a spouse is a non-resident of Canada, his annual income is determined as though he was a resident of Canada. Accordingly, the father imputed income of $65,000 is equivalent to $84,466 based on the current rate of conversion.
Order
The Respondent Yair Colin Lewis shall pay to the Applicant Linda Mah child support of $758.00 per month for Dylan Lewis Kar-Ho Mah born November 24, 2004 based on an imputed income of $84,466 as of January 1, 2016. The Respondent shall receive credit for any monies already paid pursuant to the order of September 29, 2016. For clarity all funds are in Canadian dollars.
Support Deduction Order to issue.
Ms Ballantyne shall prepare this order. The approval by the Respondent as to form and content is dispensed with.
[28] The Applicant as the successful party is presumed to be entitled to costs. If costs cannot be settled the Applicant shall serve and file brief cost submissions, not to exceed three pages, with any offer to settle and a bill of costs attached within 30 days. The Respondent shall serve and file his responding brief costs submissions, not to exceed three pages, with any offer to settle attached within 30 days of receipt of the Applicant's cost submissions. All filings are to be provided to the trial co-ordinator. The Respondent may file his submissions by mailing them to the attention of the trial co-ordinator.
Justice Roselyn Zisman
Date: March 7, 2017
[1] The mailed documents were received by the court on March 6, 2017 and were identical to the copy provided to the court by the mother.