Court Information

Ontario Court of Justice

Date: July 20, 2017

Court File No.: DFO 08 10953 B1

Parties

Between:

KAREN CASTANEDA FLORES Applicant

— AND —

CARLOS JUNIOR BURGOS Respondent

Judicial Officer and Counsel

Before: Justice E.B. Murray

Heard on: July 10, 2017

Reasons for Judgment released on: July 20, 2017

Counsel:

Natalia Crowe — counsel for the applicant
Robert Watt — counsel for the respondent

Judgment

MURRAY, E.B. J.:

Background

[1] The Applicant mother, Karen Flores, and the Respondent father, Carlos Burgos, have one child, S., born July 7, 2008. On December 2, 2008 they consented to an order providing that Carlos pay support of $311 monthly, based on an annual income of $33,600.

[2] This case originally began when Carlos brought a motion in March 2015 asking for a decrease in his child support obligation. Carlos is self-employed, doing home renovations. Karen cross-claimed, asking for an increase. She alleged that Carlos earned far more than what is shown at line 150 of his tax returns. Carlos withdrew his motion to change, but Karen continued her motion.

[3] At the hearing Karen asked that I impute annual income of $71,300 to Carlos, resulting in support payments of $650 monthly commencing March 1, 2015. She submits that Carlos' lifestyle is inconsistent with his reported income, and that he earns significant cash income that does not show up on his books. She argues that the fact that Carlos paid support of $650 monthly for two years [1] (in order to pay arrears that had accumulated on the 2008 order) demonstrates that he has sufficient income to continue to pay that amount.

[4] Carlos' lawyer says that his income is accurately shown on his tax returns, and that no change in the order prior to this month is justified. He submits that the court should base ongoing payments on an annual income of $60,000, what Carlos thinks he will earn this year, with no increase in his support obligation for the period March 2015-July 2017.

Evidence

[5] Carlos is 31 years of age and lives with his parents in Toronto. He conducts business as a sole proprietor under the name CNB Contracting Group. His sole income comes from his work through CNB.

[6] Carlos filed three sworn financial statements in the case.

The statement of February 2, 2015 shows annual income of $15,061 and annual expenses of $15,638. Expenses reported do not show payment towards any debt. The statement shows assets of $300 (bank account balance) and debts of $32,900 (credit card debts of $29,500 and $3,400 in support arrears owing to Karen).
The statement of October 19, 2016 shows annual income of $15,061 and annual expenses of $15,638. Expenses reported do not show payment towards any debt. The statement shows assets of $300 (bank account balance) and no debt.
The statement of March 13, 2017 shows annual income of $30,000 and annual expenses of $15,638. The statement shows assets of $300 (bank account balance) and credit card debts of $3,373.

[7] Although Carlos does not report in his financial statements that he owns any vehicles, he acknowledged that he owns a truck, and that 100% of his vehicle expenses are written off as business expense.

[8] Carlos' tax returns show the following gross and net business income.

Year	Gross	Net
2011	61,668	12,202
2012	33,765	8,615
2013	85,471	15,062
2014	48,877	13,397
2015	38,551	12,279

[9] Carlos provided his business bank records for 2013-2014, which show the following total deposits. He provided no explanation of the difference between the total deposits and the gross income reported for those years.

2013: $135,977
2014: $87,663

[10] With respect to evidence of lifestyle:

Karen produced a Facebook posting by Carlos from 2014 in which he said "Renovations finally done on our Florida home. Finally time to go home"; pictures were attached. Carlos says he owns no property, and that this home belongs to the mother of a former girlfriend.
Karen states that she has seen Carlos riding a motorcycle or driving a Mercedes Benz multiple times. Carlos says that these vehicles are not owned by him, but by a friend.

[11] Karen argues that Carlos' failure to provide credit card records as she requested indicates a concern that those records will reveal lifestyle inconsistent with reported income.

Analysis

[12] A child support order may be changed if there is a material change in circumstances. The parties agree that the order should be changed and the support amount increased prospectively. They do not agree on what the new amount should be or on the start date.

[13] Section 19 of the Guidelines allows a court to impute income to a payor for a number of reasons in circumstances in which the payor's presumptive income set out at line 150 of his return does not fairly reflect his ability to pay child support. The non-exhaustive list of reasons set out includes circumstances in which a payor "has failed to provide income information when under a legal obligation to do so" (19(1)(h)) and in which a payor "unreasonably deducts expenses from income" (19(1)(g)).

[14] Although a failure to report income to the Canada Revenue Agency (CRA) is not a listed circumstance for income imputation set out in Section 19, courts have had no difficulty in recognizing that a payor who receives income not reported to CRA and thus not shown on his tax return should have income imputed to him. Courts have found that such income should be grossed up to reflect the amount of taxable income that would have to be earned to yield after-tax income in a specific amount [2].

[15] Karen submits that income should be imputed to Carlos on all three grounds.

[16] The onus is on the party asking that income be imputed to a payor [3]. A self-employed payor has the onus of justifying any amounts deducted from gross business income as business expenses through adequate documentary evidence. [4]

Failure to Disclose

[17] I do not agree that Carlos' failure to provide credit card receipts when asked to by Karen provides a reason to impute income. Disclosure of credit card records is not mandated by the Guidelines or the Rules. It is sometimes ordered when there are questions about income of a person other than a T4 employee, but Karen did not ask for this order.

Unreasonably Deducts Expenses

[18] I agree that some income could be imputed to Carlos because he writes off personal transportation expenses as business expenses. The total amount deduced each year ranged from $3,600 to $9,600. It is difficult to determine the amount that might be added back to income, because Carlos was not asked and did not provide evidence as to mileage devoted to personal versus business use.

Unreported Income

[19] The lifestyle evidence raises questions about whether Carlos has income that is not reported. Carlos provides answers to those questions that could be accurate. Two points persuade me, however, that Carlos is receiving significant income that does not appear in his business records and is not declared in this action.

Bank records establish that Carlos had income for 2013 and 2014 almost $90,000 in excess of the gross he reported.
No bank records were produced for 2015 and 2016. However, between February 2015 (1st financial statement) and October 2016 (2nd financial statement), Carlos paid off debt totaling $32,900 without drawing on the $15,000 per year he claims he earned in those years [5]. He shows no significant savings at any time that would have been used to pay off debt.

[20] Carlos provided no explanation of these inconsistencies, despite having the opportunity to do so.

[21] I find that income should be imputed to Carlos.

[22] What is the appropriate amount to impute? The Ontario Court of Appeal has cautioned that "Section 19 of the Guidelines is not an invitation to the court to arbitrarily select an amount as imputed income." [6] The amount that should be imputed must be established by evidence, and not speculation. [7]

[23] I do not find, as suggested by Karen, that the fact that Carlos paid support of $650 [8] for two years in an effort to discharge arrears provides an evidentiary basis from which I can infer that he earns $71,300 annually. Having said that, it is interesting to see that income in the amount which I have determined fairly reflects Carlos' ability to pay support is very close to $71,300.

[24] In determining the Guideline income to be imputed to Carlos, I have considered his last sworn statement as to annual income contained in his March 2017 financial statement ($30,000), the fact that some automobile expenses were unreasonably deducted from income, and the evidence of undeclared income earned over the past four years.

[25] I calculated the amount of undeclared income as follows:

Deduct from bank deposits for 2013 and 2014 gross income reported to CRA (Total deposits of $223,640 - declared gross income of $134,348 = undeclared income of $89,292.)
Add $32,900, amounts paid in 2015 and 2016 from undeclared income to discharge debts.
4-year total of undeclared income is $122,192.
Approximate annual undeclared income is $30,000 [9]; this amount is $41,114 after the gross-up as calculated by Divorcemate [10].

[26] Adding the gross-up amount of undeclared income to the income admitted by Carlos in his financial statement, I conclude that the sum of $71,114 ($41,114 + $30,000) represents a fair and probably conservative estimate of his actual income and income-earning ability. A payor of that income should pay table support of $648 monthly.

[27] Carlos' lawyer argued that the commencement date for any award should be now, arguing that the test for retroactive awards set out in the Supreme Court case of S. (D.B.) v. G. (S.R.) [11] is not met. The case has no application here, as the award sought is not retroactive. A retroactive award is one that provides support commencing at a date before the commencement of the action. Karen seeks an award commencing in March 2015; she began her claim in March 2015. The usual rule is that a final order of support begins the month after the application is filed. I see no reason to depart from that practice. The delay in dealing with the case was caused primarily by Carlos' own delay in making disclosure or filing responding material.

Order

[28] My order is that commencing April 1, 2015, Carlos shall pay support in an amount of $648 monthly based on an imputed annual income of $71,114, with credit for amounts paid to date. The arrears created by this order shall be paid at a rate of $100 monthly, commencing August 1, 2017.

[29] If costs are sought by Karen, then counsel shall make written submissions of no more than 10 pages by July 31, 2017, with any offers submitted attached. Carlos' reply of no more than 10 pages shall be submitted by August 21, 2017, with any offers submitted attached.

Released: July 20, 2017

Signed: Justice E.B. Murray