ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: FS-11-0302-00
DATE: 2012-12-20
B E T W E E N:
PATRICIA DIANE MATSON
Michael Cupello , for the Applicant
Applicant
- and -
KEVIN DANIEL JOHN MATSON
Mary Ann Currie , for the Respondent
Respondent
HEARD: November 1 and December 20, 2012, at Thunder Bay, Ontario
Mr. Justice D.C. Shaw
Decision on Motion
[ 1 ] This is a motion for child and spousal support.
BACKGROUND
[ 2 ] There are four children of the marriage:
Mitchell Leonard Matson – born November 29, 1999
Robb Charles Matson – born June 19, 2001
Joshua Eric Matson – born April 8, 2003; and
Celine Natasha Violet Matson – born October 2, 2006.
[ 3 ] The parties separated on April 24, 2009.
[ 4 ] In November 2009 the parties attended mediation. Pursuant to the mediation, the parties entered into an arrangement whereby they were to share custody of the three boys, and Celine was to reside primarily with Ms. Matson. They also orally agreed that pending further mediation with another mediator with expertise in financial matters, Mr. Matson would pay Ms. Matson a net salary of $1,550 bi-weekly from the parties’ jointly owned Tim Horton’s franchise. Mr. Matson further agreed that he would pay for all utilities and mortgage payments for the matrimonial home, in which Ms. Matson would reside, and pay her vehicle lease of $900 per month. This agreement was not reduced to writing and signed by the parties and witnessed, and therefore was not an enforceable domestic contract pursuant to s. 55 of the Family Law Act . Nevertheless, with some exceptions that are not material to this decision, Mr. Matson has paid the following monthly payments since the mediation:
• Wages - $3,383.65 (net)
• Mortgage - $2,004.57
• Utilities - $949.50
• Insurance - $259.29
• Vehicle Lease – $900.00
• Total $7,497.01
[ 5 ] Ms. Matson has no income, other than these monies. Mr. Matson operates and is in effective control of the jointly owned Tim Horton’s franchise.
[ 6 ] On November 1, 2012 the parties consented to an order whereby they have joint custody of the children. The three youngest children are to reside with Ms. Matson. The oldest child, Mitchell, is to reside with Mr. Matson. Each party has rights of access.
[ 7 ] The issue to be determined is how much child and spousal support should be paid by Mr. Matson. The parties agree that Mr. Matson will continue paying the above described monies totalling $7,497.01 until the end of December 2012, and that the support order shall take effect on January 1, 2013. The parties also agree that this support order shall be interim, interim only so that early in 2013 it can be reviewed once the actual financial numbers for the Tim Horton’s franchise for 2012 are known. It is also agreed that for the purpose of this motion, Ms. Matson’s income will be taken as nil and that the present arrangement whereby she is paid a salary from the business and Mr. Matson makes third party payments will end and be replaced by an order requiring him to pay her, directly, child and spousal support. Ms. Matson will have interim, interim exclusive possession of the matrimonial home and will be responsible for the mortgage, taxes, insurance and utilities for the home.
[ 8 ] The issue of interim, interim child and spousal support turns on what income should be imputed to Mr. Matson.
[ 9 ] Ms. Matson asks for interim, interim support in the same total amount of $7497.01 that Mr. Matson has been paying during the past three years under the mediated arrangement. In the alternative, Ms. Matson asks me to impute income of $169,000, which is the income, made up of the salary and dividends, which Mr. Matson shows on his most recent sworn financial statement filed in these proceedings, dated November 8, 2011.
[ 10 ] Mr. Matson submits that I should impute income to him of $120,000 which he arrives at by referencing an “available cash projection” for the business, prepared by his accountants, based on Mr. Matson’s information and assumptions provided by him to the accountants.
DISCUSSION
[ 11 ] The determination of a fair amount of income to impute to Mr. Matson is made difficult because of the dated nature of the evidence before me, the uncertainty of what has happened in the business over the past years and the uncertainty of looking forward into 2013, plus the fact that actual financial statements for the business are not before me on this motion.
[ 12 ] There are four evidentiary areas to look at:
payments actually made since November 2009 under the mediated arrangement;
Mr. Matson’s sworn financial statement;
Mr. Matson’s income tax returns for 2008, 2009 and 2010; and
the projected statement of available cash from the Tim Horton’s franchise.
[ 13 ] For the past two years, Mr. Matson has made payments to Ms. Matson for support of approximately $7500 per month. All of these monies came from the business.
[ 14 ] Working backwards from the Child Support Guidelines for four children and the mid-point of the Spousal Support Advisory Guidelines , it would take an income of approximately $240,000 to generate a support payment of $7500, under these Guidelines , made up of approximately $4700 for child support and $2800 for spousal support.
[ 15 ] Mr. Matson’s sworn financial statement of November 8, 2011, which is now a year old, shows income of approximately $169,000, made up of $29,335.20 of employment income, $138,500 of dividends (adjusted for dividend income), $1850 of rental income and $50 of capital gains.
[ 16 ] In addition to this $169,000, which Mr. Matson would have drawn from the business, he also paid Ms. Matson, who was not working in the business, wages, net of all taxes and deductions of, $1,550 bi-weekly, or $40,300 (net). These wages came from the business.
[ 17 ] In looking at note 4 of the available cash flow projection prepared by Mr. Matson’s accountants, the gross wages paid to Ms. Matson were $50,425. This is the gross amount necessary to generate an amount of $40,300, net of taxes and other statutory deductions.
[ 18 ] One would conclude, based on Mr. Matson’s financial statement and the payments made to Ms. Matson, that about $219,000 was taken out of the business in 2011 for both Mr. and Ms. Matson.
[ 19 ] Mr. Matson’s income tax returns for 2008 to 2010 (he has not produced his 2011 income tax return on this motion), show the following line 150 amounts:
2010 - $204,336.20 (includes $29,335.20 in employment income and $173, 125 in taxable dividends)
2009 - $91,006.80 (includes $35,556.80 in employment income and $55,000 in taxable dividends)
2008 $52,530.90 (includes $43,600 in employment income and $6,875 in taxable dividends).
[ 20 ] The available cash projection for the business was prepared by Mr. Matson’s accountants. The affidavit of Shelley Macaulay, the accountant who prepared the projection, contains the following statement:
The Statement of Projected Available Cash as presented in Exhibit A, discloses management’s assumptions regarding projected revenues, cost of sales and expenses, shareholder wages, amortization, shareholder withdrawals, projected loan payments, estimated debt service, corporate and HST balances. Since this available cash projection is based on assumptions regarding future events, actual results will vary from the information presented even is the hypothesis occurs, and the variations may be material.
[ 21 ] The projection also contains this notice to reader:
A compilation is limited to presenting, in the form of available cash projection, information provided by management and does not include evaluating the support for the assumptions, including the hypothesis, or other information underlying the projection. Accordingly, we do not express an opinion or any other form of assurance on the available cash projection or assumptions, including the hypothesis. Further, since this available cash projection is based on assumptions regarding future events, actual results will vary from the information presented even if the hypothesis occurs, and the variations may be material. We have no responsibility to update this communication for events and circumstances occurring after the date of this communication.
[ 22 ] As noted, the actual financial statements for the business have not been filed on this motion. However, one column of the projection shows what are described as “actual” figures for the year ended December 31, 2011.
[ 23 ] This projection, using the “actual” figure for 2011, after backing out shareholder wages, shows that there were shareholder withdrawals by way of dividends of $135,015, with additional net cash available of $90,874. This would total $225,889 in 2011.
[ 24 ] However, it appears from the projection that corporate taxes and HST payments were allowed to go into arrears. Note 10 to the projection indicates that as of September 26, 2012, the balance of corporate taxes for the years ending prior to December 31, 2011 was $44,787 plus interest. Note 10 also states that pursuant to an agreement between the company and Canada Revenue Agency, the company agreed to pay $4,900 per month on these arrears, starting in May 2012 and that Mr. Matson has estimated that 6 payments will be required for the 2013 year end. The company and Canada Revenue Agency also entered into an agreement regarding HST arrears. Note 11 to the projection indicates that as of September 26, 2012 the balance of HST was $34,970 plus interest and that payments of $3,790 per month, starting in May 2012, were negotiated and that Mr. Matson has estimated that 6 payments will be required for 2013 year end.
[ 25 ] Mr. Matson deposes that he has been required by Tim Horton’s Head Office to put in a double drive-through and make extensive renovations to the building. He estimates the cost to be $700,000 which the company must borrow.
[ 26 ] The projection contains a 10 year repayment of this capital expenditure, at a sum of $89,095 per month. For 2013, taking into account this $89,095 payment, plus payments of $29,400 on the corporate tax arrears and $22,740 on the HST arrears, the projection shows cash available from the business in 2013 of $119,366. It is this number, rounded to $120,000, that Mr. Matson submits should be his imputed income for 2013, on which child and spousal support should be based.
[ 27 ] I have concerns that the projection of the available cash in 2013 is stated with more precision than is warranted. The 2013 projection of $119,366 is based on assumptions that revenue, costs of sales and expenses remain the same as in 2011. No monthly statements for 2012 have been put into evidence to help confirm the likelihood of those assumptions. I note the caveats of the accountant to which I previously referred, regarding the hypothetical nature of the projection. Although revenue may remain flat from 2011, the fact that Tim Horton’s Head Office is requiring a double drive through would lead one to conclude that the business is doing well enough to at least require greater capacity to serve its customers.
[ 28 ] I accept that the business went into arrears on its corporate taxes and HST payments. By not paying HST, Mr. Matson was able to draw monies out of the business in past years. The repayment agreements reduce his ability to withdraw monies for the first six months of 2013 by a total of $52,140.
[ 29 ] I also accept for the purposes of this motion that renovations of $700,000 are required, although there is no evidence before me that that money has in fact been borrowed as of the date the motion was heard.
[ 30 ] I have difficulty in understanding, however, how Mr. Matson was able to pay Ms. Matson $7500 per month throughout 2012, for a total of $90,000, plus take out enough monies for him to live on, when his projection for 2012 shows shareholder withdrawals of $70,163, plus net projected cash available of $3,794, for a total of $73,957. This projection takes into account the estimated debt service of $89,095 for the $700,000 in renovations, the corporate arrears payment of $39,200 and the HST arrears payment of $30,320. Perhaps the explanation, in part, may be that the renovation loan was not taken out in 2012 and repayments on the $700,000 renovation debt had not commenced.
[ 31 ] I note that the “actual” 2011 expenses do not include any details of those expenses. In a closely held corporation, expenses often warrant close scrutiny in imputing the income of a controlling shareholder.
[ 32 ] I also have concerns that although Mr. Matson is asking that I impute income to him of $120,000, he has not filed, as he is required to do by Rule 13, an updated sworn financial statement. The only sworn financial statement that I can turn to is Mr. Matson’s financial statement of November 8, 2011, showing income of $169,000.
[ 33 ] Mr. Matson also has not filed year-to-date financial records from the business, to substantiate his projections nor has he filed a 2011 Income Tax Return.
[ 34 ] This lack of current information, which is the responsibility of Mr. Matson to file, makes it difficult to arrive at a reasonably accurate estimate of what Mr. Matson’s income will be in the near future.
[ 35 ] Counsel have left me to choose among three options for a support order. Mr. Matson submits support continue at $7500 per month, or, in the alternative, that I base support on imputed income of $169,000. Mr. Matson submits that I impute income at $120,000. I have no evidentiary basis to impute an amount of income other than one of these three options – it would be pure speculation to do so.
[ 36 ] I am not satisfied that Mr. Matson has sufficient income to continue to pay support of $7500. It is apparent that corporate taxes and HST amounts were not paid as required by the business in recent years, thereby increasing the cash available for support payments during that period. Because of the arrangements with Canada Revenue Agency, there has been a reduction of the cash available for support since May 2012.
[ 37 ] That leaves me to choose between an income of $169,000, as set out in Mr. Matson’s sworn financial statement, and an income of $120,000, as set out in his projection of available cash.
[ 38 ] Because of the concerns I have expressed about the projection and the failure of Mr. Matson to provide an updated sworn financial statement or corporate year-to-date records to substantiate his assumptions, I am not satisfied that for the purposes of this motion I should fix his income at $120,000.
[ 39 ] That leaves me with no alternative but to impute income to Mr. Matson of $169,000 as set out in his sworn financial statement. The Financial Statement expressly states at page 2 that Mr. Matson’s “…gross income from all sources was $169,735.20 (adjusted for dividend and capital gain income as per Schedule III)”. Schedule III of the Child Support Guidelines, “Adjustments to Income”, provides at s. 5 that in adjusting income:
[ 40 ] “5. Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.”
The grossed up amount of dividends received by Mr. Matson in 2010 was $173,125, as shown in his 2010 tax return. The actual dividends received were $138,500. The sum of $138,500 grossed up by 1.25 for income tax purposes is $173,125 shown on Mr. Matson’s 2010 tax return.
[ 41 ] The sum of $169,735 set out in Mr. Matson’s Financial Statemetn is approximately $70,000 less than the income which would be necessary to generate child and spousal support of $7500 per month under the Child Support Guidelines and the mid-point of the Spousal Support Advisory Guidelines , as noted above. If I impute of $169,000 to Mr. Matson, comprised of $29,335.20 in employment income and $138,500 in dividends (adjusted for dividend income as per Schedule III), the Child Support Guidelines , on a split custody basis pursuant to s. 8 of the Guidelines , call for child support of $2,895 per month for the three children in the primary care of Ms. Matson. The range suggested by the Spousal Support Advisory Guidelines is a low of $2,658, a mid-point of $3,295 and a high of $3,877.00
[ 42 ] In view of the fact that Ms. Matson and the three children will continue to reside in the matrimonial home, with expenses for mortgage, taxes, house insurance, heat, water and electricity costs of about $3,150, and in view of the fact that the business, which is generating the income for support, is owned jointly by Ms. Matson, the support recipient, I fix spousal support at $3,600 per month, which is between the mid-point and the high end of the range.
[ 43 ] An interim, interim order shall therefor issue that;
a) commencing January 1, 2013, Mr. Matson shall pay to Ms. Matson child support for Robb Charles Matson, Joshua Eric Matson and Celine Natasha Violet Matson of $2,895 and spousal support of $3,600 based on income imputed to Mr. Matson of $169,000;
b) Ms. Matson shall have exclusive possession of the matrimonial home and shall be solely responsible for payment of the mortgage, property taxes, home insurance and utilities for the matrimonial home, all without prejudice to the position to be taken by either party;
c) Ms. Matson shall not receive employment income or dividends from the Tim Horton’s business and Mr. Matson shall be solely responsible for operating the Time Horton’s business, for so long as the child support and spousal support payments referred to in paragraph (a) of this order are being made.
[ 44 ] All other claims for relief set out in the motion brought by Ms. Matson, originally returnable August 30, 2012, are adjourned to the settlement conference scheduled for February 1, 2013, to be spoken to.
[ 45 ] A Support Deduction Order shall issue. *
[ 46 ] If the parties are unable to agree on costs of this motion, the Trial Coordinator shall be contacted, jointly, by counsel to schedule a date to speak to this matter.
The Hon. Mr. Justice D.C. Shaw
Released: December 20, 2012
- The parties may wish to agree to withdraw from enforcement by the Family Responsibility Office to permit support payments to continue to be made directly to Ms. Matson.
COURT FILE NO.: FS-11-0302-00
DATE: 2012-12-20
ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: PATRICIA DIANE MATSON Applicant - and – KEVIN DANIEL JOHN MATSON Respondent DECISION ON MOTION Shaw J.
Released: December 20, 2012
/mls