Court File and Parties
COURT FILE NO.: 07-40629-01
DATE: 2014-01-02
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: INDRA KANHAI APPU, Applicant
AND:
PONEN APPU, Respondent
BEFORE: The Honourable D.A. Broad
COUNSEL: H. Geertsma - Counsel, for the Applicant
J. Opolko - Counsel, for the Respondent
HEARD: November 25, 2013
ENDORSEMENT
Nature of the Motion
[1] The Applicant has brought a Motion to Change the Order of The Honourable Mr. Justice Reilly dated December 17, 2009. The Order provided for child support for the child of the marriage, Adrian Appu, born July 1, 1993, until the child “becomes 18 years of age and ceases to be in full-time attendance at an education institution" or has "completed an undergraduate degree or diploma at community college.” The Motion raises issues related to whether the said child was in full-time attendance at an educational institution while taking on-line courses on a part-time basis and the extent to which the Respondent may deduct expenses from rental income for the purpose of determining his income for child support purposes.
Background
[2] Adrian was in full-time attendance in high school until June 2012. From September 2012 to July 2013 he was enrolled in e-learning courses offered by the Waterloo Region District School Board in order to complete his high school diploma, as he was short a few credits. The online courses were not full-time, but did require the completion of homework. During the time that he was taking the online courses, Adrian worked on a part-time basis in retail earning approximately $3,500 in 2012. He remained financially dependent upon the Applicant during this time.
[3] In September 2013 Adrian enrolled in full-time studies at Conestoga College in a program designed to bridge into the accounting program at Wilfrid Laurier University. His goal is to become an accountant.
[4] The Respondent discontinued making support payments to the Applicant in June 2011 when he states he began paying support directly to Adrian with the agreement of the Applicant. He says that he paid the sum of $4,391.18 to Adrian over the period June 2011 to August 2012. The Respondent produced bank statements indicating bank transfers in the sum of $1,200, however the institution to which the transfers were made is not shown. The Respondent also produced a document dated September 7, 2012, signed by Adrian, acknowledging having received $4,391.18 as child support from June 2011 to August 2012.
[5] Adrian provided an affidavit in which he stated that the Respondent purchased some gifts for him and provided him with some money by way of bank transfer, but he did not know that the payments were for child support. Based upon a review of his available bank statements, only as far back as July 2012, Adrian expressed his belief that the Respondent transferred around $500 to his account. He stated that the Respondent told him to sign the acknowledgment document, however he did not read it as the Respondent simply put it in front of him and told him to sign it.
[6] On September 25, 2013, the Honourable Justice Taylor made a without prejudice order, on consent, providing for the payment of child support by the Respondent in the sum of $411 per month commencing September 1, 2013.
[7] The parties are agreed that Adrian is enrolled in full-time attendance at an educational institution as at September 1, 2013, and accordingly, child support is payable by the Respondent from and after that time. The parties are further agreed that Adrian should be responsible for 30% of his educational costs, with the remaining 70% to be divided between the Applicant and the Respondent in a ratio to be determined.
[8] The Respondent had employment income in 2010 of $21,710, $48,403.57 in 2011 and $45,577.79 in 2012. He owns three triplex rental properties, and lives in one of the units in one of the properties. In 2012 he had rental revenue of $63,105 and declared deductions for tax purposes of $65,431, resulting in a loss of $2,326 for the year.
[9] The Applicant acknowledges that the Respondent made a voluntary payment of child- support after the Applicant launched the Motion to Change in the sum of $3,052.82, and also acknowledges that the Respondent paid either $500 (according to the evidence of Adrian) or $1,200 (according to the information of the Respondent) in respect of direct child-support payments to Adrian by means of bank transfers during the period July 2011 to August 2012.
Issues
[10] The remaining issues on the motion are as follows:
(a) Should any portion of the amount deducted by the Respondent against the rental revenue be added back to his income for child-support purposes?
(b) Is child support payable by the Respondent during the period from July 2012 to July 2013 when Adrian was completing credits online on a part-time basis?
(c) What amount, if any, should the Respondent be credited for in respect of direct payments by him to Adrian from June 2011 to August 2012 and what arrears of child support, if any, are owing?
(d) In what proportion should the section 7 expenses, in excess of 30% of the expenses to be assumed by Adrian himself, be paid as between the Applicant and the Respondent?
Analysis
(a) Expenses Against Rental Income
[11] The Applicant states that the deductions claimed by the Respondent for expenditures relating to the rental properties are not reasonable, and for child-support purposes, such deductions should be limited to "hard costs" consisting of mortgage interest, property taxes and insurance. The Applicant states that this would result in approximately 40% of the rental income on the properties being added back to the Respondent's income.
[12] The Respondent argues that all, or the major portion, of the expenditures on the rental properties were necessary in order to generate the rental revenue, and that no amount should be added back to his income of for child-support purposes.
[13] Section 19(1) of the Federal Child Support Guidelines provides that the Court may impute such amount of income to a spouse as it considers appropriate in the circumstances. These circumstances include, under paragraph (g), if the spouse unreasonably deducts expenses from income. Pursuant to subsection 19(2), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act.
[14] The applicant points to a line of cases commencing with Eager v. Graves (2002), 2002 45104 (ON CA), 29 R.F.L. (5th) 313 (Ont. C.A.) in support of the proposition that, with respect to rental property, only “hard costs” consisting of mortgage interest, property taxes and insurance are appropriate to deduct for child-support purposes. Eager was cited with approval in Wilkinson v. Wilkinson, 2008 ONCJ 96 (O.C.J.) and in Crabtree v. Crabtree 2009 16296 (Ont. S.C.J.)
[15] I am not satisfied that that there is binding authority that, in all cases involving rental property, proper deductions for child-support purposes are necessarily limited to mortgage interest, property taxes and insurance.
[16] It is noted that in Eager the trial judge had attributed 70% of the rental income to the appellant, as payor, but gave no reasons for doing so. The appellant took the position that 40% was the more appropriate figure to use, taking into account mortgage interest, property taxes and insurance - so-called “hard costs”. The appellant did not claim deduction of any expenses beyond such "hard costs" and accordingly, the Court of Appeal was not called upon to consider whether any additional expenses, such as for repairs and maintenance, were properly deductible.
[17] In Wilkinson, McSorley, J. applied Eager in holding that deductions for "hard costs" of mortgage interest, property taxes and insurance were appropriate, without carrying out any analysis as to why expenses beyond those categories should not be deductible.
[18] In Crabtree, Blishen J., similarly applied Wilkinson and Eager without giving any express consideration to the deductibility of any expenses beyond mortgage interest, property taxes and insurance.
[19] In the case of Murphy v. Bert (2007) 2007 NSSC 376, CarswellNS 611 (N.S.S.C.) at para. 34 (which was not cited by either counsel in argument on the present case), it was held that, in addition to mortgage interest, property taxes, water and insurance, expenses for ongoing repairs which were “necessary to maintain the rental properties” were properly deductible.
[20] In my view, a determination must be made on the facts of each case as to whether a claimed expense was necessary in order to maintain the stream of rental income, or whether it was made to either acquire the property or to increase its value. An expenditure which, although necessary, is of a capital nature and may be said to increase the value of the property, such as a furnace or roof replacement, would not ordinarily be deductible in determining income for child-support purposes. The provision of support for a child should not be sacrificed for the purpose of acquiring property or building equity.
[21] In 2012 the revenues of the three properties after deducting "hard costs” consisting of interest, property taxes insurance and utilities, were as follows:
| Property | Revenue | Hard Costs | Percentage Excess of Revenue over Hard Costs |
|---|---|---|---|
| Mausser Ave. | $16,620.00 | $12,771.15 | 23.16% |
| Chandler Dr. | $20,200.00 | $18,807.82 | 6.89% |
| Frederick St. | $26,285.00 | $19,666.11 | 25.18% |
| Total | $63,105.00 | $51,245.08 | 18.94% |
[22] I would not allow the expenses for professional fees, office expenses and motor vehicle expenses as not directly necessary to earn rental income.
[23] In respect of repairs and maintenance expenses listed by the Respondent, I would exclude the cost of the furnace replacement at the Chandler property, the replacement of a floor and installation of a fire-rated door at Frederick Street, and the washroom renovation and water softener at the Mausser Ave. property. The balance of the expenses I would regard as ongoing operational expenditures necessary to maintain the flow of revenue.
[24] The following are rental revenues on the three properties in excess of “hard costs” and allowable expenses for repairs and maintenance for 2012:
| Property | Revenue | Hard Costs and Allowable Maintenance and Repair Costs | Percentage Excess of Revenue over Properly Deductible Expenses |
|---|---|---|---|
| Mausser Ave. | $16,620.00 | $15,867.62 | 4.5% |
| Chandler Dr. | $20,200.00 | $26,285.00 | (30%) |
| Frederick St. | $26,285.00 | $22,737.05 | 13.49% |
| Total | $63,105.00 | 64,889.67 | (2.83%) |
[25] The onus is on the Respondent to show that the proposed deductions are reasonable within the meaning of the Child Support Guidelines. The Respondent did not provide summaries with respect to the maintenance and repair costs on the rental properties for the years prior to 2012, but rather provided copies of invoices for 2010, 2011 and 2012 (comprising many pages). It is therefore difficult to make a finding that the expenses incurred in 2012 (as summarized) are representative of what the annual maintenance and repair expenses will be on a recurring basis. Moreover, the expenses for 2012 on the Chandler Dr. property are not commensurate with those relating to the Mausser Ave. and Frederick St. properties.
[26] On an ongoing basis, I would allow expenses equal to 90% of total rental revenue, being the average of the Mausser and Frederick properties for 2012 (excluding the Chandler property as being anomalous), based on total revenue of $42,905 and $38,605 in deductible expenses. This would result in 10% of the rental revenue being added back to the Respondent’s income for the purpose of calculating his child support obligation, for a total imputed income to the Respondent for 2012 in the sum of $51,888.29 generating a monthly child support payment of $468 under the Federal Child Support Guidelines.
(b) Child support payable by the Respondent during the period from July 2012 to July 2013
[27] With respect to the question of whether child support was payable by the Respondent during the period from July 2012 to July 2013, it is noted that the case-law has indicated that the Court should follow a flexible approach on the question of what constitutes a full-time program of education. Heeney, J. in Wilson v. Wilson (2002) 2002 2824 (ON SC), O.J. No. 4308 (S.C.J.) held, at paras. 18 and19, that enrolment in a full program of courses is not a necessary precondition to a child’s entitlement to support and that a child may be found to be enrolled in a full program of education while taking less than a full course load, so long as his or her participation was meaningful and consistent with the program’s purposes and objectives.
[28] Although the information in the material respecting the nature and extent of the online program of study followed by Adrian during the 2012-13 academic year is far from optimal, it is evident that the purpose of the program was to permit him to complete his outstanding high school credits in order to gain acceptance to university or college. In his affidavit, Adrian deposed that his enrolment in online courses to complete his high school credits was recommended to him and he took one or two courses per term, each of which required online school work, some in class school work and an exam. He stated that he is committed to his academics.
[29] In my view, the online courses represented a continuum in Adrian’s program of study towards college and ultimately to university, with a view to attaining the necessary credits to become qualified as an accountant. The Applicant, in her Affidavit of November 8, 2013, stated that Adrian completed two courses per term which were necessary for him to enroll in his post-secondary program.
[30] In the case of Williamson v. Williamson (2005) 32210 (Ont. S.C.J.) McIsaac, J. stated, at paras. 2 and 3, that the road to academic success is not always a straight line.
[31] The Respondent asserted in his Affidavit of November 16, 2013 that Adrian has taken three years to complete Grade 12 credits and that “this is the result of his lack of general motivation” and his preference “to be with his friends and to work and make money than to apply himself to his studies.”
[32] No basis was offered by the Respondent for his conclusion that the time that Adrian took to obtain the high school credits required for entry into post-secondary studies was due to his “lack of general motivation”. For his part, Adrian deposed in his Affidavit that his having witnessed the Respondent being verbally and physically abusive to the Applicant had a negative effect on him, causing him to seek counselling through his school and to experience difficulty keeping up with his high school grades.
[33] In my view, the Applicant has satisfied the onus on her to demonstrate continued entitlement of Adrian to child support from the Respondent during the period that he engaged in his online course of studies from July 2012 to July 2013 (see Rebenchuk v. Rebenchuk 2007 MBCA 22 (Man C.A.), at para. 64, for a discussion of the onus upon a parent to demonstrate that an adult child requires educational support).
(c) What amount, if any, should the Respondent be credited for in respect of direct payments by him to Adrian from June 2011 to August 2012 and what arrears of child support, if any, are owing by the Respondent?
[34] The onus is on the Respondent to demonstrate that he made child support payments. He asserts that he paid the sum of $4,391.18 directly to Adrian in the period June 2011 to August 2012 and this was done pursuant to a verbal agreement with the Applicant. Quite apart from the difficulty in finding this alleged agreement to be enforceable as a separation agreement, required by s. 55 of the Family Law Act R.S.O. 1990, c. F.3 to be in writing, signed by the parties and witnessed, the Respondent was not able to substantiate any payments in excess of $1,200.00 in bank transfers to Adrian in the 2011-12 period, as well as a voluntary payment of $3,052.82 after the Motion to Change was brought. Moreover, included in the $4,391.18 claimed to have been paid by the Respondent in 2011 to 2012 are the costs of various gifts to Adrian and a vacation trip to the Dominican Republic, which are not properly considered to be payments on account of child support.
[35] With respect to the “acknowledgement” signed by Adrian to receipt of the sum of $4,391.18 in child support from June 2011 to August 2012, the only evidence of the circumstances of the execution of this document is from Adrian himself who deposed that the Respondent put it in front of him and told him to sign it and he did not read it. This evidence was not disputed by the Respondent.
[36] In my view, the Respondent should be credited with the sum of $1,200.00 paid in 2011-2012.
[37] The arrears of child support owing by the Respondent to the Applicant is therefore calculated as follows:
| Tax Year | Income | Child Support Year | FCSG Amount | Total Amount | Total Paid | Arrears |
|---|---|---|---|---|---|---|
| 2009 | Employment: 52,002.16 Rental Net: 822 (10%) Total: 52,824.16 |
Dec 1, 2009 to June 30, 2010 ( 7 months) | 477/mo | 3,339 | 1,316 | 2,023 |
| 2010 | Employment: 21,710 Rental Net: 2,442 (10%) Total: 24,152 |
July 1, 2010 to June 30, 2011 | 193/mo | 2,316 | 2,068 | 248 |
| 2011 | Employment: 48,403.57 Rental Net: 5,378.10 (10%) Total: 53,781.67 |
July 1, 2011 to June 30, 2012 | 486/mo | 5,832 | 1,200.00 | 4,632 |
| 2012 | Employment: 45,577.79 Rental Net: 6,310.50 (10%) Total: 51,888.29 |
July 1, 2012 to June 30, 2013 | 468/mo | 5,616 | 0 | 5,616 |
| 2013 | Total: 51,888.29(est. based on 2012) | July 1 to Nov 30, 2013 | 468/mo | 2,340 | 1,233 | 1,107 |
| Total to Nov 30, 2013 | 13,626 | |||||
| Credit for payment after Motion | 3,052.82 | |||||
| Net Arrears Nov 30, 2013 | 10,573.18 |
(a) In what proportion should the remaining section 7 expenses be allocated?
[38] The Applicant’s line 150 income for 2010 was $20,866, was $15,726 in 2011 and fell to $3,323 in 2012. She attributed the drop in her income in 2012 to health issues preventing her from carrying on her self-employment as a cleaner. She indicates on her Affidavit material that her present income is not her usual income and she hopes to return to her historical income of between $15,000 to $21,000 per annum. She proposes that for the purposes of s. 7 of the Federal Child Support Guidelines her income be considered to be the average of her 2010, 2011 and 2012 line 150 incomes or $13,304.33.
[39] The Respondent argues that the Applicant’s income should be considered to be $44,916.00 which would include her current income from renting rooms in her home at $1,200.00 per month and “income being received from her mother” (being financial assistance provided by her to the Applicant). On this basis he maintains that section 7 expenses in excess of the 30% to be contributed by Adrian should be split equally between himself and the Applicant.
[40] S. 17 of the Federal Child Support Guidelines provides that, where the Court is of the opinion that the determination of a spouse’s annual income based on his or her reported income for tax purposes would not be the fairest determination, the Court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.
[41] In my view, based upon the Applicant’s evidence, her 2012 income is not representative of her ongoing income capacity and that $18,000 per annum, being the mid-point between $15,000 and $21,000 would represent a fair and reasonable determination of the Applicant’s income.
[42] Section 7 expenses of Adrian for post-secondary education in excess of 30% to be borne by Adrian himself shall therefore be allocated 74% to the Respondent and 26% to the Applicant.
Disposition
[43] On the basis of the foregoing, it is therefore ordered that:
(a) The Respondent shall pay arrears of child support to the Applicant in the sum of $10,573.18 to November 30, 2013;
(b) The Respondent shall pay child support in the sum of $468/mo. commencing December 1, 2013 based upon an annual income of $51,888.29;
(c) The Applicant and Respondent shall contribute 70% of the section 7 expenses of the child of the marriage Adrian Appu born July 1, 1993 comprising tuition, ancillary fees, books and transportation expenses, 26% by the Applicant and 74% by the Respondent;
(d) The Respondent shall have a right to all third party information for Adrian Appu born July 1, 1993, including educational records.
[44] If the parties cannot agree on costs, the Applicant may make brief written submissions as to costs within 21 days of the release of this Endorsement. The Respondent has 10 days after receipt of the Applicant’s submissions to deliver brief responding submissions. The submissions of each party shall not exceed three (3) double-spaced typed pages, exclusive of Offers to Settle and Bills of Costs. All such written submissions are to be forwarded to me at my chambers at Judge’s Chambers, 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7, Fax: 519-741-3213. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.
D. A. Broad J.
Date: January 2, 2014