SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: FC-12-1197-00

DATE: 20151009

RE: ALLISON SMITH, Applicant

AND:

RYAN RICHARDSON, Respondent

BEFORE: THE HONOURABLE MADAM JUSTICE L.M. OLAH

COUNSEL:
D.S. Zeldin, for the Applicant
T.C. Dart, for the Respondent

HEARD: June 17, 2015

ENDORSEMENT

I. Introduction:

[1] The Respondent seeks a variation of a Final Order by reducing the amount of child support which he is required to pay to the Applicant for the support of 1 child, Sloane born Oct 11, 2011.

[2] In response, the Applicant seeks a variation of the child support as a result of an recent assessment of the Respondent’s income which would suggest an increase in income and presumably an increase in child support.

[3] The issues for determination are:

1. Should an Expert’s report prepared on behalf of the Applicant regarding Respondent’s income be admitted into evidence?;

2. Should para. 72 of the Applicant’s affidavit be struck?;

3. What is the effect of para 12 of the March 5, 2013 Order reference to “without prejudice differential?”;

4. What is the Respondent’s income for 2013 and 2014?;

5. Should income be imputed to the Applicant; and,

6. What approach should be taken to the payment of child support obligations as a result of the shared parenting regime?

II. Background

[4] The parties lived in a common law relationship from December 2009 until July 11, 2011 – a brief relationship. Their only child was born Oct 11 2011.

[5] The parties resolved their issues by way of a Minutes of Settlement which were incorporated into an Order dated March 5, 2013. The parenting plan was modified by a Consent Final order dated August 26, 2014. By these orders the child spent equal time with both parents.

[6] As his income was not known, the Respondent agreed to pay differential support based on the Respondent’s income of $56,000 and based on the Applicant’s income of $8363, on a without prejudice basis, in the amount of $500 per month.

[7] As a sole shareholder of a property management corporation, the Respondent suggests that his company experienced a significant drop in revenues between 2012 and 2013.The Respondent also generates income from 2 rental properties, one of which is his residence.

III. Issue Number 1

[8] In August 2014, the Respondent promptly produced an expert’s report as to his income stream. The Applicant did not produce her expert’s report until June 09, 2015, leaving the Respondent’s counsel to object to its admission. There was significant argument as to the application of Rule 23 and the timeliness of the Applicant’s production of her 2 reports and the fact that the Respondent’s counsel did not have 60 days in which to respond. Respondent’s counsel requests that the court analogize Rule 23’s application at trial, to this motion. Such analogy would result in the elimination of the Applicant’s expert reports which would be significantly prejudicial to the Applicant. In addition, Respondent’s counsel, with his usual efficiency and despite the short notice, produced a rebutting report.

[9] Despite the objection, the Respondent was able to have his expert critique the Applicant’s report, such that, other than the delay nuisance, there was minimal prejudice to the Respondent for the admission of the Applicant’s reports.

[10] Since these experts’ reports are critical to the analysis of income, and the Rules are guides to avoid a motion by ambush, the rules for full and timely disclosure must be obeyed. I ruled that the Applicant’s experts’ reports were to be tendered and that I would address the timeliness of their disclosure when addressing the costs of this motion.

IV. Issue Number 2

[11] Since paragraph 72 of the Applicant’s affidavit, @ Volume 3, Tab 26 omitted the source of information and belief, this paragraph is struck and the Respondent need not rebut the allegations contained therein.

V. Issue Number 3

[12] It is clear from the wording and the circumstance of the Order, that, it being without prejudice differential, either party could provide the proper documentation to establish their respective incomes for the purposes of determining the differential child support payable. It should be noted that the Respondent’s corporation’s year end is June 30 th, such that the 2013 child support payable would be based on the Respondent’s 2012 income. At the time of the execution of the Minutes of Settlement the Respondent's income was speculative.

[13] It is clear from the wording of the order ( March 5, 13) that the parties were to revisit the quantum of the parties incomes and the 2013 child support.

VI. Issue Number 4 - the Respondent's 2013 and 2014 Incomes.

[14] At the time of the order, the Respondent’s financial statement dated February 26, 2013, the Respondent believed his income to be $56,000. As a result of his expenses, he was operating at a deficit. He had a debt of $448,925.10 at the time. Currently, the Respondent sets out his income to be $48,121.68. His debt load has increased by $100,000 in 2 years to $578,000 or $50,000 per year.

[15] By the wording of the Minutes of Settlement was such that when the parties were able to determine their actual income it would be revisited upon proper evidence. Further, it was agreed that differential child support was to be based simply on the set off to the table amounts. As the Applicant’s income was significantly lower than that of the Respondent, despite the Respondent having the care of the child 50% of the time, he paid close to the full CSG amount based on the estimated income of $56,000.

[16] The Respondent hired David Holmes to prepare a report of the Respondent’s income for 2011, 2012 and 2013. David Holmes’ analysis, including adjustments to income, result in a conclusion that the Respondent’s income for 2012 was $45,000, and for 2013, $46,000.

[17] On the other hand, the Applicant’s expert, Mr. Krofchik, assessed the Respondent’s 2013 income at $68,000, attributing to the Respondent 100% of his company’s pre-tax income of approximately $22,000, and suggesting that if, additional employment income was paid to him, it would not materially affect the solvency of the company. In all other respects, Mr. Krofchik did not take issue with Mr. Holmes approach to the personal expenses added back to income and any income tax gross up for such additions. In fact, both experts agreed on 2011, 2012 income but not 2013 income.

[18] Having reviewed the 2 reports and the rebuttals, by way of limited critique reports by both Mr. Holmes and Mr. Krofchik, I agree with Mr. Holmes’ assertion that, in the case of the Respondent’s income, the company’s liabilities exceeded its assets; its pre-tax losses for each of the years of 2011, 2012, 2013 resulted in the company not retaining any pre-tax income. It would have to obtain loans to pay the pre-tax income to the Respondent and therefore, in these circumstances, I conclude the Respondent’s pre-tax income ought not be attributed to him.

[19] Accordingly, I find that the Respondent’s 2012 income to be $45,000 and his 2013 income to be $46,000.

[20] As the Respondent did not have to file his corporate tax return until June 30, 2014, I requested that the Respondent serve and file his Corporate Tax Return, financial statement, and make further submissions as to the Respondent’s 2014 income.

[21] Having filed the remaining income information, as before, I took the Respondent’s line 150 income for 2014 at $39,012 which included his T4 income from Waterside and his net rental income. To it, I added the “personal use” portion of all expenses as per the chart attached:

A. Line 150 Income

$ 39,012.00

B. Add back Capital cost allowance

$ 6,196.00

C. Total

$ 45,208.00

D. Personal use of vehicle

$ 728.00

E. Personal use of rental property

$ 3,052.00

G. Gross up factor for tax at 25% (.25 X F)

$ 945.00

H Total personal expenses including gross up

$ 4,725.00

I. Meals and entertainment

$ 941.00

J. Gross up for tax at 6.66%

$ 63.00

K. Total meals and entertainment

$ 1,004.00

Total income for support purposes = C + H + K

$ 50,937.00

[22] Although I agree with the approach to the calculation above, the treatment of the non-arms length transactions must be examined.

[23] With respect to the 2014 income, Mr. Holmes took into consideration various factors in addressing the Respondent’s income, including the fact that the Respondent’s partner was employed by his company. Ms. Sloan commenced employment with his management company as at Feb 1, 2014. She was paid $15 per hour to do general housekeeping, maintenance and reception.

[24] Although this is a non-arms length transaction, the hourly rate for her income is reasonable and does not appear to be an attempt to reduce the income available for child support purposes. Her T4 for 2014 indicates an income of $18,863.34. It is noteworthy, that the Respondent indicated that Ms. Sloan took over the Mother’s functions as a receptionist.

[25] The Respondent alleges in his first affidavit, that his Mother, Ms. Di Carli performed intermittent services to his corporation, on a limited basis; however, in 2013 or previously, she drew no salary. Moreover, the Mother had injected funds into the company, secured by a second mortgage on his property with a balance due and owing as at June 9, 2015 of $108,211.76. This transaction - the consulting fees paid, in the amount of $35,000 to Ms. Dicarli, the Respondent’s Mother, are problematic. This is a non-arm’s length transaction in a very large amount, especially where:

(a) there is evidence that the Respondent’s partner assumed the reception role previously held by the Respondent’s Mother;

(b) there is no specific identification of what services the Mother performed;

(c) there is no evidence of the time and effort expended in this consultation role; and,

(d) the Mother had loaned monies to the Respondent and was paid on this loan.

(e) Further, it is concerning given the increase in the 2014 gross income by approximately $100,000, that this purely discretionary expenditure was made when the Respondent faced a request for increased child support.

[26] Given that the Respondent’s Mother has some role in the operation of the business, her services have some monetary value. Accordingly, keeping in mind the partner’s income, I attribute ½ of the monies paid to his Mother, namely $17,500, back to the Respondent.

[27] As a result, I fix the Respondent’s income for 2014 to be: ($50.937 + $17,500) $68,437.00.

[28] Given that the 2013 child support was based on 2012 income, I conclude that the Respondent’s income for CSG calculations was as follows:

2012 – $45,000
2013 – $46,000
2014 – $68,437

VII. Issue Number 5 - Should income be imputed to the Applicant?

[29] The Applicant’s income history, as per her Notices of Assessment, is reflected as follows:

2009 - $23,016
2010 - $28,991
2011 - $15,335
2012 - $ 9,196
2013 - $10, 693
2014 - $ 4,328.29

[30] The Applicant was variously employed as an x-ray technician, medical receptionist where she earned $20 per hour until August 2011, when she went on maternity leave. The Applicant is also the Mother of another child, 7 years old, whose father pays the Applicant child support in the amount of $367, per month, pursuant to an Order dated November 28, 2006.

[31] The Applicant also received $24,000 from the Respondent on Apil1 2013, in part, for a spousal support release. As she had a positive obligation to become employable and to apply part of these funds for retraining, she did so twice, but for unknown reasons terminated her attendance. Since April 2013, she has had some part time employment variously in the food service industry and as a hair stylist, although prior to the last pregnancy, she was employed as an x-ray technician and medical receptionist.

[32] Essentially, over the past 2 years, she has depleted the $24,000. She has once again engaged in training in hair styling, funding same through OSAP, and suggests that she will be qualified to be employed as at the end of September, 2015. She opines that her 2014 income from part time employment and tips approximates $4328.29 to which would be added the child support she receives for 2 children and CTC in the amount of $800.

[33] The Respondent asserts that the Applicant has been intentionally underemployed for the past 2 years. Whereas the Applicant’s counsel argues that the fact she didn’t follow through with her education ought not be considered as intentional underemployment as she took reasonable efforts to find employment when she was not in school.

[34] Given that the subject child is in the Mother’s care 2 weeks per month, the Respondent argues that I impute income to the Applicant based on a potential for earning of $20,800 ($20 per hour x 26 weeks).

[35] As no reasonable explanation was given for her termination of not one, but 2 educational courses, pursuant to the factors identified in Drygali v. Paul, (2002), 2002 41868 (ON CA), 29 R.F.L.. (5th) 293 (C.A.), I impute income to her for the years 2014 and 2015 at $20,800 or her actual earnings for 2015, for the purposes of calculating the child support payable for 1 child.

VIII. Issue Number 6 - What approach should be taken to the payment of child support obligations as a result of the shared parenting regime?

[36] As the Minutes of Settlement, reference “differential” child support, it is unnecessary to consider the Contino calculations [Continio v. Leonelli-Contino, 2005 SCC 63], including an analysis of the childcare budget and standard of living; this is especially so as the Minutes of Settlement require each parent to be responsible for the cost of daycare. Accordingly, given that the known incomes for the determination of child support in any given year are the incomes of the parties for the past year, the child support for 1 child shall be recalculated on a differential basis pursuant to the CSGs as follows:

(a) for 2013 child support – the incomes of the Applicant and Respondent for 2012, namely - $ 9,196 for the Applicant and $45,000 for the Respondent.

(b) for 2014 child support – the incomes of the Applicant and Respondent for 2013, namely - $10, 693 for the Applicant and $46,000 for the Respondent.

(c) for 2015 child support - the incomes of the Applicant and Respondent for 2014, namely - $20,800 for the Applicant and $68,437.00 for the Respondent.

[37] Accordingly, an Order to go that the respondent is to pay differential child support to the Applicant as follows:

2013 - $406 per month commencing May 1, 2013;

2014 - $415 per month commencing January 1, 2014; and,

2015 - $459 per month commencing January 1, 2015.

[38] Based on the above, the parties are to calculate, the child support payable by the Respondent to the Applicant and credit to be given for the monies already paid by the Respondent to the Applicant.

[39] On Consent, an Order to go that the time for income disclosure by the parties shall be July 5, of each year commencing 2015.

[40] Support Deduction Order to issue.

IX. Costs

[41] Should the parties not agree as to the issue of Costs, the parties will each submit electronically a 2 paged, typed submission, with attached Bill of Costs, to myself, attention TaraLynn.Mountney@ontario.ca in a Word document, within 30 days of the release of this decision.

L.M. Olah, J.

Date: October 9, 2015