N. (R.J.) v. F. (P.M.)
Ontario Superior Court of Justice
Faieta J.
July 23, 2018
Counsel: Maxine M. Kerr, for applicant. Dani Z. Frodis and Arin Tint, for respondent.
DIRECTIONS on a calculation of arrears of support.
Introduction
[1] On October 7, 2002, the parties agreed to the terms of an order that, amongst other things, provides that commencing January 1, 2004, and each year thereafter, the respondent father shall pay child support to the applicant mother based on his income for the previous year in accordance with the Child Support Guidelines [O. Reg. 391/97] along with an additional amount for spousal support so as to provide the applicant with 60 per cent of the family's net disposable income in the previous year. The parties also agreed that the applicant would be responsible for the children's s. 7 expenses but that they would share their children's post-secondary education expenses according to their incomes.
[2] In March 2014, the respondent filed a motion to change the 2002 order to, amongst other things, reduce spousal support to $2,000 per month effective July 1, 2014 and to terminate child support for the oldest child, T., effective June 30, 2014. In June 2014, the applicant filed a response asking that arrears of support (given that the respondent had not contributed towards the children's costs of attending post-secondary school) be paid before the respondent's motion was considered.
[3] These reasons supplement my reasons for decision dated February 12, 2018 [N. (R.J.) v. F. (P.M.), 2018 ONSC 959] in relation to the hearing of these motions. I ordered that the parties provide their submissions regarding the amount of arrears for support owed given my decisions regarding the amounts of child and spousal support that should have been paid if they were not able to agree on the amount owed.
[4] The applicant submits that the sum of $102,944 is owed to her by the respondent for the period from 2009 through December 2017 comprised of a $52,484 overpayment of child support and a $155,428 underpayment in spousal support.
[5] The parties' submissions raise various issues regarding the calculation of arrears.
Imputation of Income
[6] At para. 192 of my reasons, I ordered that $10,000 per year in income be imputed to the respondent commencing September 1, 2016 given that $675,000 was diverted from his mother's estate to the respondent's current spouse in September 2016.
[7] The applicant submits that $10,000 in income should be imputed for 2016. The sum of $10,000 represents the return on $675,000 in a conservative investment over the course of one full year. Accordingly, for 2016, the amount of income to be imputed to the respondent is reduced by two-thirds to $3,333. For 2016, the respondent shall also include in his income for purposes of calculating support the sum of $1,796 that he received from his mother's estate.
2017 Income
[8] The applicant submits that the respondent's income used to calculate support in 2017 only includes his T4 income and fails to include his income from all sources which would have resulted in a further $692.02 of T5 income. I order that the T5 income be included in the respondent's income.
Methodology for Calculating Spousal Support
[9] The 2002 order provides as follows:
Paragraph 14 -- On or before June 1 of each year commencing in 2004, the parties shall determine their respective total incomes for the previous calendar year in accordance with the Child Support Guidelines and adjust (1) the amount of child support accordingly; (2) the amount of spousal support so as to provide [R.J.N.] with 60% of the family's net disposable income for that period; the new figures shall continue until the next determination on or before July 1 of the following year and shall be made retroactive to January 1 of the year immediately preceding the year in which such determination is made;
Paragraph 17 -- The cost of each child's post-secondary education (including tuition, books, residence and other related expense) shall be shared by [R.J.N.] and [P.M.F.] in proportion to their respective incomes at the time the cost is incurred after deducting the contribution, if any, that can be reasonably expected from that child after taking into account the reasonableness of the expenses in relation to the means of the spouses and those of the child and to the family's spending pattern prior to the separation, as provided in section 7 of the Child Support Guidelines;
Paragraph 18 -- Except as provided in paragraph 17, and so long as [R.J.N.] continues to receive child and spousal support calculated at the rate of 60% in accordance with the terms of the 2002 Order, [R.J.N.] shall be solely responsible for all of the children's special or extraordinary expenses provided for in section 7 of the Child Support Guidelines;
Paragraph 19 -- [P.M.F.] shall continue to pay child support in accordance with this Order as long as each child continues to be a "child of the marriage";
Paragraph 20 -- The amounts and proportions payable for child and spousal support under the Order may be varied by a Court in the event of a material change in the condition, means, needs or other circumstance of either party or one or more of the children.
(Emphasis added)
[10] The 2002 order provided that the respondent was to pay child support for each of the three children so long as they remained a "child of the marriage". In addition, the respondent was to pay the applicant spousal support such that the applicant would receive 60 per cent of the parties' net disposable income.
[11] Given that (1) T. was no longer a child of the marriage effective June 30, 2014; (2) C. was no longer a child of the marriage effective June 30, 2017; (3) that J. was no longer a child of the marriage effective June 30, 2018, the applicant submits that the amount of spousal support should be reduced to reflect those changed circumstances.
[12] It is disingenuous for the applicant to suggest that the 2002 order required that she was entitled to receive 60 per cent of the family's net disposable income even after the obligation to pay child support for one or more children ended. To do so would result in a windfall increase in spousal support for the applicant. In any event, such result was not intended by my earlier decision. Spousal support for the period after June 30, 2014 shall be calculated by deducting the amount of table child support that the respondent would have had to pay during that period as if one or more of the children (as the case may be at the relevant time) was still a child of the marriage, from 60 per cent of the family's net disposable income for that period.
Post-Secondary School Expenses
[13] The respondent submits that the children's post-secondary school expenses should be included in his calculation of the spousal support payable by him to the applicant. I have already decided this point. The language of the 2002 order is clear in this regard. Such expenses are in addition to the payment of support to the applicant.
Tax Considerations of a Spousal Support Order
[14] The respondent submits that the gross amount of spousal support payable by the applicant during the period 2009-2017 should be "netted down" to account for the different tax treatment of a lump sum of spousal support as compared to an order for periodic spousal support.
[15] The case law on the tax treatment for retroactive awards of spousal support was reviewed by Glustein J. in [Gonsalves v. Scrymgeour, 2017 ONSC 1034]. The general rule is that an award of retroactive spousal support should be reduced to take into account the benefit of the income tax deduction that the payor would have been able to claim using the mid-point of the parties' respective marginal tax rates when such evidence is available. In this case, any lump sum award of spousal support in this case does not represent a retroactive award but rather the payment of spousal support under an existing order.
[16] The applicant submits that there is no need to "net down" the amount of spousal support as the policy of the Canada Revenue Agency permits such a non-retroactive lump sum spousal support payment to be deducted by the payor. The Canada Revenue Agency's Income Tax Folio S1-F3-C3, updated November 23, 2015, states:
3.2 Generally speaking, spousal support payments are taxable to the recipient and deductible by the payer. The tax treatment of child support payments is more complicated because the rules changed in 1997. If a child support obligation commenced with a court order or written agreement made after April 1997, the payer is not entitled to a deduction for the maintenance of children of the recipient. . . .
3.10 The tax treatment of a support payment depends partly on whether the amount qualifies as a support amount. The term is defined in subsection 56.1(4), which provides that an amount is a support amount if:
- it is payable or receivable as an allowance on a periodic basis;
- it is paid for the maintenance of the recipient, the children of the recipient, or both;
- the recipient has discretion as to the use of the amount; and
- where the recipient of the amount is the spouse or common-law partner or former spouse or common-law partner of the payer, the parties are living separate and apart because of a breakdown of their relationship and the amount is receivable under an order of a competent tribunal or under a written agreement; or
- where the recipient is the parent of a child of whom the payer is a legal parent, the amount is receivable under an order of a competent tribunal in accordance with the laws of a province or territory.
3.12 Support payments made pursuant to a court order or written agreement which are solely for the maintenance of a spouse or common-law partner or former spouse or common-law partner are generally referred to as spousal support payments. . . .
3.44 An amount paid as a single lump sum will generally not qualify as being payable on a periodic basis. However, there may be circumstances where a lump-sum amount paid in a tax year will be regarded as qualifying as a periodic payment where it can be identified that:
- the lump-sum payment represents amounts payable periodically that were due after the date of the order or written agreement that had fallen into arrears, or
- the lump-sum amount is paid pursuant to a court order and in conjunction with an existing obligation for periodic maintenance, whereby the payment represents the acceleration, or advance, of future support payable on a periodic basis, for the sole purpose of securing the funds to the recipient, or
- the lump-sum amount is paid pursuant to a court order that establishes a clear obligation to pay retroactive periodic maintenance for a specified period prior to the date of the court order.
In any of the above situations, the lump-sum payment will not, in and of itself, change the nature of the underlying legal obligation of periodic maintenance payments.
However, a lump-sum amount paid pursuant to a written agreement in respect of a period prior to the date of the written agreement would not be considered a qualifying support amount for purposes of subsection 56.1(4).
3.45 Where all the requirements of a support amount are otherwise met, the amount is deductible by the payer and included in the recipient's income. Where the amounts paid are attributable to amounts owing in prior years, the amount may be a qualifying retroactive lump-sum payment and a special tax calculation may be available. For more information and to request the special tax calculation for years in which an arrears amount was received, taxpayers should refer to Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment.
(Emphasis added)
[17] I agree with the applicant's submission that it is unnecessary to "net down" the arrears of spousal support, if any, owed by the respondent to the applicant as any such lump sum payment in this case "represents the amount of spousal support payable periodically that were due after the date of the order or written agreement that had fallen into arrears".
Conclusion
[18] I direct that the parties calculate the amount of child and spousal support owed (or overpaid as the case may be) in accordance with the directions provided and provide me with a draft order reflecting that amount along with a statement showing how that amount was calculated.
[19] If, despite their divided success in this matter, either party chooses to seek their costs, then costs submissions shall be filed within two weeks and any responding submissions within three weeks. Each costs submission shall be no more than six pages long exclusive of the outline of costs.
Order accordingly.
End of Document