CITATION: Soares v. Machado, 2017 ONSC 743
COURT FILE NO.: FS-14-398586
DATE: 20170207
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOAO LUIS FERRIERA SOARES
Applicant
– and –
ROSE MARIA DA COSTA MACHADO
Respondent
Howard E. Warren for the Applicant
Darlene Rites for the Respondent
HEARD: January 23, 24, and 25, 2017
REASONS FOR DECISION
DIAMOND J.:
Overview
[1] The applicant and the respondent were married on May 17, 1986 in Portugal. They immigrated to Canada in 1988. The parties have two children: Jessica Soares (“Jessica”) born March 6, 1991 and Kevin Soares (“Kevin”) born April 5, 2000.
[2] The parties separated in or around March 2014. The applicant left the matrimonial home shortly thereafter. The matrimonial home was sold in August 2015, but Kevin continues to reside with the respondent.
[3] Through the course of this proceeding, the parties were able to resolve several originally contentious issues including custody, equalization and all net family property matters. The trial of this action proceeded before me over the course of 2.5 days, and focused upon the respondent’s claims to child support, spousal support and section 7 expenses. However, the truly contentious “jump off” issue between the parties was their respective claims that the other earned more annual income than reported. Both parties sought to have me impute additional income to each other. As such, the trial was focused upon evidence relating to the parties’ income.
The Applicant’s Income
[4] The applicant has worked in the construction industry for over 20 years. He was originally employed as a drywaller, but was eventually promoted to the position of site supervisor. Since 2013, he has been employed as a site supervisor by Rea Investments Limited operating as Rea Construction (“Rea”), which is a business that primarily constructs and renovates hospitals.
[5] The applicant testified that he is paid an hourly wage and does earn overtime pay as required to ensure that the hospital construction and renovation projects are completed.
[6] Several years ago (i.e. before the separation), the applicant registered a sole proprietorship known as JS Construction, and invoiced Rea for his time spent working at the hospital projects.
[7] The applicant has produced his personal income tax returns and notices of assessment, along with financial statements for JS Construction, for the 2012-2015 years. During a regular 40 hour weekly shift, the applicant invoices Rea $1,360.00 plus HST.
[8] According to the financial statements of JS Construction, the applicant earned the following gross income from Rea during the 2012-2015 years:
Year Gross Income (excluding HST)
2012 $75,038.66
2013 $73,411.50
2014 $74,755.26
2015 $65,008.37
[9] With respect to the 2015 year, the respondent relies upon a T5018 Statement produced by Rea confirming JS Construction’s total 2015 remuneration to be $80,506.72. Exclusive of HST, the applicant’s 2015 gross income would be $71,244.88.
[10] It is clear that the applicant’s employment income from Rea has remained essentially consistent over the last several years. Indeed, in cross-examinations the applicant testified that he anticipates his 2016 income to be in the exact same range as the previous few years.
[11] In each of the JS Contraction financial statements, the applicant has reduced his gross income by numerous expenses (including rent, motor vehicle charges, telephone, insurance and wages). These deductions render his purported net taxable income to be as follows:
Year Net Income
2012 $41,197.46
2013 $32,093.73
2014 $15,794.31
2015 $11,361.15
[12] The respondent takes significant issue with these figures, and submits that JS Construction’s alleged expenses more than doubled after the date of separation. For his part, the applicant properly conceded that most of the expenses he deducted in the JS Construction financial statements, while arguably valid for income tax purposes, are not appropriate for the determination of income in a family law dispute. As such, the applicant agreed that most of those expense figures ought to be added back to increase his net income accordingly.
[13] Despite these concessions, the parties were still at odds over three significant expenses claimed by JS Construction in the 2014 and 2015 years. Those expenses (for the 2015 year) were as follows:
Purchases $8,507.28
Direct Wage Costs $11,095.01
Sub-Contracts $11,426.91
[14] I shall address each of these items in turn.
Purchases
[15] The applicant testified that the purchases of $8,507.28 related to various items he required for the renovation and construction projects. In cross-examination, the applicant was taken to all of the deposit entries in his bank account for the 2014 and 2015 years. When he was shown any deposit from Rea which did not correspond to a payment of his invoices, the applicant testified that the deposit related to Rea “reimbursing him for his expenses”.
[16] On the copies of the electronic bank statements produced by the applicant, there are several handwritten notations stating “materials” next to certain deposits.
[17] While the applicant did call his bookkeeper/accountant Andre Marques (“Marques”) as a witness, Marques could not shed much light on the decision to deduct these business expenses in the face of the applicant’s testimony and electronic bank statements. In my view, I do not find the $8,507.28 to be proper expenses for the purpose of calculating the applicant’s income for family law purposes.
Direct Wage Costs
[18] The applicant testified that the direct wage costs of $11,095.01 relate to his decision to hire the services of Kevin Silva (“Silva”) to assist him with job site supervision. The applicant stated that in 2015 he was responsible for overseeing the supervision of several hospital construction projects, and some of the sites were located very far away from each other (i.e. downtown Toronto and. Newmarket). With a view to ensuring that each site is properly supervised at all material times, the applicant stated that Silva was retained and paid to “supplement” the applicant’s supervision duties.
[19] There was little evidence led with respect to (a) Silva’s qualifications as an assistant site supervisor, and (b) whether Rea was content with or approved Silva performing this function for Rea. As the applicant himself testified, he was ultimately promoted to the position of site supervisor; this infers that Rea needed to be satisfied that an individual can perform those specific duties, obligations and responsibilities before he/she is given the job.
[20] If Rea is paying the applicant an hourly wage to perform site supervision services, is it reasonable for the applicant to incur a direct expense of hiring his own assistant for the same sites? While the applicant does conduct his business like that of an independent contractor, none of these wage costs were incurred before separation, and his gross income remained practically the same at all material times.
[21] The applicant produced a set of unorganized, miscellaneous documents “to support his income deduction for tax purposes in 2015”. The applicant did not identify any specific documents originating from Silva which would support the disputed wage costs (i.e. invoices from Silva). The applicant paid Silva in cash. Such transactions are apparently common in the construction industry.
[22] I am thus left to make the relevant funding(s) of fact in a proverbial vacuum. While the presence of supporting documentation would have obviously been helpful, it is not unreasonable to assume that, given the distance between the various hospital sites, the applicant would require some assistance in ensuring that those sites are properly supervised, especially in his absence. On a balance of probabilities, I find that direct wage costs are valid expenses but I am only prepared to allow $5,000.00 for those expenses.
Sub-Contracts
[23] The applicant testified that sub-contract work is required when he is found responsible for an error committed on the job site. In other words, if the applicant was the proximate cause of a mistake (which resulted in delay or additional expense to Rea), he is financially responsible for correcting that mistake and any resulting damage.
[24] The applicant testified that in 2015, he misread a plan that required a certain floor opening on a construction site, and once the error was discovered by the structural engineer, the project was stopped so that additional reinforcement work could be carried out or else the floor would have cracked.
[25] There are no documents from Rea or a structural engineer confirming the existence of this alleged error, let alone any documents demanding that it be rectified. The only document produced by the applicant is an invoice dated “for the year 2015” from 2480666 Ontario Corporation (“248”) to JS Construction in the amount of $11,426.00.
[26] This invoice does not charge any HST, and the pre-printed form actually provides “GST not included” even though GST has been part of the harmonized HST for several years.
[27] The description of the work is “to provide general work”.
[28] As admitted by the applicant in cross-examination, 248 is a company which was only incorporated on August 26, 2015 and whose officer and director is the applicant’s brother.
[29] There is no supporting documentation from Rea evidencing any discovery of an error or direction to rectify such error. The relationship between JS Construction and 248 is non-arm’s length. As 248 was only created in late August 2015, there is no evidence to support that the alleged rectification work occurred after that date, and the invoice purporting to cover that rectification work provides no particulars whatsoever.
[30] Accordingly, I find that the sub-contract charges of $11,426.91 are not proper expenses for the purpose of calculating the applicant’s income for family law purposes.
Additional Arguments Raised by the Respondent
[31] The respondent also submitted that the applicant’s income ought to be increased due to several other reasons.
[32] First, the respondent argued that in 2015 and previous years, the applicant earned an additional $2,000.00 bonus which was paid by separate cheque and not explicitly referenced by Rea in the applicant’s overall 2015 compensation. The applicant confirmed that he had received the $2,000.00 bonus payment in previous years. Given his testimony that he anticipates his 2016 annual salary to be nearly identical to previous years, I find that the additional $2,000.00 bonus payment should be included in his income for the purpose of calculating support.
[33] The respondent further argued that the applicant typically brought extra sheet metal home from job sites to their matrimonial home, and sold that sheet metal privately earning approximately $1,000.00 - $2,000.00 in the process. I did not hear any evidence suggesting that the applicant continues to bring sheet metal home to his new residence, which is a rented basement apartment. I decline to impute any additional income to the applicant for the alleged continuing sale of sheet metal.
[34] Finally, the respondent points to the applicant’s post-separation lifestyle and specifically two to three trips per year to Portugal and Brazil to visit his new girlfriend. While I agree with the respondent that the associated travel expenses are over and above the expenses he incurred during the marriage, there is also no dispute that the respondent has received funds from the sale of property in Portugal as well as his share of the sale proceeds from the matrimonial home, which collectively total more than enough to fund those travel expenses. Accordingly, I decline to impute any additional income to the applicant due to his alleged new lifestyle.
The Respondent’s Income
[35] Since immigrating to Canada, the respondent has been self-employed as a cleaning lady. She testified that she currently works a regular five day week earning a total of $490.00 in cash per week, although there are some weeks during the year when she is asked not to attend one or more of her clients’ homes due to illness, unavailability, vacation, etc.
[36] In her most recent 2015 income tax return, the respondent declared a gross business income of $18,800.00 with various expenses deducted therefrom, including $1,891.57 for motor vehicle expenses, $1,116.66 for telephone and utilities, and $6,000.00 for “management and administration fees”.
[37] It became apparent during the respondent’s cross-examination that she had no personal knowledge of any of these expenses, as they were inserted into her income tax return by her accountant (who did not testify). As well, she did not keep any records of monies paid to her by her clients for the 2015 year, and thus her declared gross business income was more of a “guesstimate” than anything else.
[38] The respondent does not provide receipts. She does not record her “sales”, and did not produce banking records which could illustrate or match up her sales to her deposits.
[39] The applicant relied heavily upon an unsigned TD Canada Trust application for credit in the respondent’s name which, on its face, listed the respondent’s gross annual income as $35,000.00. That application is dated February 23, 2015, nearly a year after the parties separated.
[40] The respondent’s most recent financial statements sworn in this proceeding list her 2015 gross income as $22,000.00. She testified that the $35,000.00 figure was likely used because the parties’ income split during their marriage, something which the applicant confirmed they did in his cross-examination.
[41] I find that most, if not all, of the respondent’s alleged expenses are unsubstantiated. I do not believe that her gross sales totaled $35,000.00 annually; even if the respondent worked five days a week for the entire year, based upon her daily rate charged to clients, her gross income would only total approximately $26,000.00.
Imputation of Income – Legal Principles
[42] As held by the Court of Appeal of Ontario in Homsi v. Zaya 2009 ONCA 322, there is an onus upon a person requesting an imputation of income to establish an evidentiary basis for such a finding. In the case before me, both the applicant and the respondent are insisting that additional income be imputed to one another for the purpose of determining child and spousal support.
[43] As recently held by my colleague, Justice Glustein in Gonsalves v. Scrymgeour 2016 ONSC 6659, the test for imputation of income is based upon the following principles:
a) Section 19(1)(a) of the Regulations Establishing Federal Child Support Guidelines, SOR/97-175 provide that the court may impute income to a spouse as it considers appropriate in the circumstances, which include when a parent or spouse is intentionally under-employed or unemployed except where 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 parent or spouse;
b) There is no need to find a specific intent to evade child support obligations before income can be imputed;
c) A parent is intentionally under-employed if that parent chooses to earn less than he or she is capable of earning. It does not apply to situations in which, through no fault or act of their own, spouses are laid off, terminated or given reduced hours of work;
d) Spouses have a joint financial obligation to maintain the children of the marriage in accordance with their relative abilities to contribute to the performance of that obligation; and
e) A parent must earn what he or she is capable of earning.
Conclusion re: Applicant’s Income
[44] When asked to impute income, the Court is always mandated to consider what is reasonable in the circumstances. Dealing first with the applicant’s income, I do not find this to be a case where the applicant has intentionally under-employed himself. Rather, for the reasons expressed above, I believe that his stated net income is not accurate given the expenses which ought not to have been deducted.
[45] In my view, it is somewhat conspicuous that the applicant’s business expenses only increased once he separated from the respondent. Apart from inadmissible evidence relating to Rea apparently changing its company vehicle policy, there was no other evidence led from Rea at all in this proceeding, and I am left to conclude that the applicant’s scope of employment, and corresponding duties of obligations, have remained consistent since before the separation.
[46] As held in Saunders v. Gough 2007 NNSC 64, imputing income is never an exact science. On the facts of this case, I certainly agree with that conclusion. On the record before me, I find the applicant’s net income for the purposes of determining support to be $70,000.00.
Conclusions re: Respondent’s Income
[47] With respect to the respondent’s income, the respondent paid little to no income tax on her cash income, reducing her reported “sales” through expenses which were either incorrect or non-existent. A slight gross up of her income would also be appropriate in the circumstances.
[48] The respondent produced virtually no documentation to support her income claims, and admitted in cross-examination that the amount given at the end of each year to her accountant for income tax purposes was, essentially, an approximation at best.
[49] In the circumstances, I find that the respondent’s income for the purpose of determining support to be $22,500.00.
Child Support
[50] In light of my findings above, and pursuant to the Child Support Guidelines, the applicant shall pay child support for Kevin to the respondent in the monthly amount of $639.00 on a go forward basis commencing on March 1, 2017. A new Support Deduction Order shall issue. The applicant shall be allowed to make the dependent credit for income tax purposes going forward.
Retroactive Child Support
[51] As held by the Supreme Court of Canada in D.B.S. v. S.R.G. 2006 SCC 37, the Court is to take a holistic approach to retroactive child support claims based upon the facts of each case.
[52] In the case before me, the applicant does not dispute his obligation to pay retroactive child support, but submits that no such retroactive child support is owing due to a combination of (a) the payments he has made to date since June 1, 2015 pursuant to the consent order dated May 27, 2015 of Justice Chapnik, and (b) a further credit owed to him for all of the payments he made on the respondent’s account during the time when she lived alone in the matrimonial home post- separation until the date it was sold.
[53] For her part, the respondent does not disagree with the applicant’s position. However, the respondent takes the position that the credit sought by the applicant for the payments he made on the respondent’s behalf is overstated.
[54] During the applicant’s cross-examination, counsel for the respondent produced a summary of the expenses which the respondent believes the applicant paid on her behalf from the date of separation to the date she moved out of the matrimonial home. For the most part, the applicant agreed with the amounts set out in that summary save for the applicant disagreeing with how long he had made certain payments on the respondent’s behalf.
[55] In reviewing the respondent’s summary which was essentially adopted by the applicant, I find that the applicant is due a credit of $23,000.00 on account of the payments he made on the respondent’s behalf.
[56] Accordingly, there shall be an order for payment by the applicant to the respondent of retroactive child support commencing April 1, 2014 in the monthly amount of $639.00 until the date of Judgment, net of a credit owing to the applicant consisting of all child support payments made to date plus the sum of $23,000.00.
[57] In addition, I find that there are no child support arrears owing under Justice Chapnik’s order. Further, I decline to order any security for the applicant’s child support obligations as I find there are no grounds to support such a request.
Section 7 Expenses
[58] During closing arguments the parties agreed that the applicant pay the respondent the sum of $534.00 for the outstanding section 7 expense arising from Kevin’s soccer tournament. I so make that order.
[59] On a go forward basis, I order that all section 7 expenses be allocated between the applicant and the respondent on a 70% / 30% basis respectively.
Spousal Support
[60] In Bracklow v. Bracklow 1999 CanLII 715 (SCC), the Supreme Court of Canada recognized three bases for an award of spousal support:
a) compensatory based on the economic circumstances of each spouse’s role during the marriage;
b) non-compensatory based on need in circumstances where a spouse cannot become self-sufficient; and,
c) contractual based on an agreement between the parties.
[61] The respondent did not advance a claim for compensatory spousal support in her pleadings. In any event, I do not find this to be a case where the applicant ought to compensate the respondent for foregone careers and missed opportunities during their marriage.
[62] I do however find that, based upon the respondent’s financial needs she has a need for spousal support. The applicant does not dispute that, given the traditional criteria, the respondent is generally entitled to an award of spousal support. On incomes of $70,000.00 and $23,000.00, and with Table child support of $639.00 per month, the range of spousal support is $176.00 (low), $416.00 (medium) and $660.00 (high).
[63] I have found the respondent’s compensatory claim to be weak. As held by Justice Nicholson in Christakos v De Caires, 2016 ONSC 702 a finding that an economic advantage or disadvantage to one of the spouses is limited in duration or effect may militate in favour of a lower amount of spousal support. I agree with that conclusion.
[64] Given the applicant’s ability to pay, the fact that equalization has already occurred, and with a view to fostering the respondent’s self-sufficiency obligations, I order the applicant to commence paying the respondent spousal support in the monthly amount of $250.00 commencing on March 1, 2017.
[65] I decline to order retroactive spousal support. I do so for the following reasons:
a) the respondent did not appear to seriously pursue a claim for spousal support in the period between the date of separation and the date of trial, and this delay in seeking support was not adequately explained to me;
b) there has been little, if any, change in the respondent’s standard of living post-separation;
c) the applicant had, for the most part, recognized his financial obligations to support the respondent and Kevin; and,
d) the impact of a retroactive award would create an unfair burden on the applicant, given the parties’ respective financial situations.
Costs
[66] I would strongly urge the parties to try and resolve the issue of costs in this proceeding. In the absence of such an agreement, I am prepared to receive and review written costs submissions for both parties.
[67] The applicant may serve and file his costs submissions within 14 business days within the release of these Reasons. Those submissions shall be no more than five pages including a Bill of Costs.
[68] The respondent shall thereafter have an additional 14 business days from the receipt of the applicant’s costs submissions to deliver her responding costs submissions, which shall also be no more than five pages including a Bill of Costs.
Diamond J.
Released: February 7, 2017
CITATION: Soares v. Machado, 2017 ONSC 743
COURT FILE NO.: FS-14-398586
DATE: 20170207
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOAO LUIS FERRIERA SOARES
Applicant
– and –
ROSE MARIA DA COSTA MACHADO
Respondent
REASONS FOR DECISION
Diamond J.
Released: February 7, 2017