Court File and Parties
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Marie Fiorellino-Di Poce, Applicant
AND:
John Di Poce, Respondent
BEFORE: Kiteley J.
COUNSEL: Harold Niman and Meysa Maleki, for the Applicant
Heather Hansen and Jason Goodman, for the Respondent
HEARD: In writing
ENDORSEMENT
1In an endorsement released April 6, 20181 I made the following orders:
Commencing March 1, 2018 and on the first of each month until agreement or order otherwise, the Respondent shall pay to the Applicant temporary spousal support in the amount of $54,000 gross per month.
Commencing March 1, 2018 and monthly thereafter when the invoices are presented, the Respondent shall pay temporary spousal support to the Applicant (or to the caregiver) the expense of a personal care assistant for as much as 24 hours 7 days a week at a cost not to exceed $28,000 per month.
By April 12, 2018, the Respondent shall reimburse the Applicant for outstanding medical expenses estimated at $4,000.
The Respondent shall continue to pay the annual membership for the Applicant at the private medical clinic.
Neither party may bring any motion for any relief except with leave by me or by Team Leader Justice Stevenson or to whomever she may delegate for that purpose.
2In respect of the income tax consequences of the order, in the endorsement dated April 6, 2018 I held as follows:
- Once the Respondent pays spousal support pursuant to an order, it is tax deductible to the Respondent and tax payable by the Applicant. However, I do not reflect any amount for income taxes because the Applicant’s personal income tax situation is in flux. She will have significant medical expenses as well as significant legal expenses, some of which are deductible. In any event, in the first year of payment, she is not required to make any quarterly remittances. The tax will fall due in April 2019 by which time the parties will likely have progressed further in their analysis of expenditures and income tax. Furthermore, as indicated above, the Respondent has substantial carrying charges that may mean he does not want to deduct spousal support in which case the parties may negotiate an arrangement that does not provide for periodic spousal support in a way that attracts tax to the Applicant. That issue will be addressed by me no later than March 31, 2019.
3Counsel for the Applicant and then counsel for the Respondent did not agree as to the draft order. I settled the order when I signed it on August 23, 2018. The relevant terms of the order are as follows:
Commencing March 1, 2018, and on the first of each month thereafter, until agreement or court order, the Respondent shall pay to the Applicant temporary periodic spousal support in the amount of $54,000 gross per month.
Commencing March 1, 2018, and monthly thereafter when invoices are presented, the Respondent shall pay further temporary periodic spousal support to the Applicant (or to the caregiver as a taxable/deductible third party payment) for the expense of a personal care assistant for as much as 24 hours 7 days a week at a cost not to exceed $28,000 per month. . . .
By April 12, 2018, the Respondent shall reimburse the Applicant for outstanding medical expenses estimated at $4,000.
The Respondent shall continue to pay the annual membership for the Applicant at the private medical clinic.
Neither party may bring any motion for any relief except with leave by Justice Kiteley or by Team Leader Justice Stevenson or to whomever she may delegate for that purpose. . . .
Pursuant to paragraph 36 of the Endorsement of Justice Kiteley dated April 6, 2018, this Court shall address the amount of tax on support, if any, no later than March 31, 2019. Emphasis added
4Paragraph 1 is consistent with paragraph 48 of the endorsement. In paragraph 2 of the order, the bolded words were added in the draft presented to me. I understood that that was on consent. Paragraph 5 is consistent with paragraph 53 of the endorsement. The language of paragraphs 5 and 53 does not indicate that the payment of the annual membership is temporary spousal support. Paragraph 9 differs from paragraph 36 of the endorsement in two respects: substituting “this Court” instead of me and inserting “if any”. The substitution is of no consequence. As I understood at the time of signing the order, and as reflected in paragraph 19(c) of the Applicant’s affidavit sworn April 11, 2019, the issue upon which counsel disagreed in the draft order was the bolded words “if any”. I agreed with the draft and signed it.
5In an endorsement dated August 15, 20182 I made an order directing the Respondent to pay to the Applicant costs of the motion in the amount of $21,000 inclusive of fees, disbursements and HST. In that endorsement I indicated as follows:
While she obtained an order, it was, on the face of it, for far less than the $200,000 per month she had requested. Given the circumstances in which the motion was prepared and the need for additional disclosure by the Respondent, at paragraph 36 I indicated that the order was at this point tax neutral and that I would address the taxation issue by the end of March 2019. At this point, I cannot determine the relationship between the order I made and the amount requested in the notice of motion. . . .
I have not set out the content of the offers because the parties, understandably, expected that there would be an income tax component in the amount ordered to be paid.
6The Respondent sought leave to appeal from the order as to costs. In an endorsement dated January 18, 2019, the Divisional Court dismissed the motion for leave to appeal and ordered the Respondent to pay costs of $5000.
7On February 6, 2019, Ms. Hansen’s firm filed a Notice of Change of Representation. Counsel were unable to resolve the issue referenced in paragraph 36 of the endorsement and paragraph 9 of the order.
8Counsel arranged a case conference to be held on April 8, 2019. I had not been consulted about my availability and was unable to conduct the case conference that day. I directed counsel to participate in a telephone conference call on April 8. Counsel participated and the Applicant was listening but did not participate.
9In anticipation of holding a case conference, the Applicant had delivered a form 13.1 financial statement sworn April 1, 2019. The Respondent had not delivered a form 13.1 and instead, his counsel had served a form 14B motion for leave to proceed with the case conference without an updated form 13.1 because his expert report was not concluded.
10The focus of the telephone conference call was the income tax issue. As a result I did not need to address the form 14B motion. Counsel agreed on a timetable for the delivery of written submissions which I incorporated into the following endorsement:
By April 11/19 the applicant shall make whatever written submissions she wishes not to exceed 20 pages including affidavit(s), financial statements, draft tax returns, SSAG calculations and memorandum of law. This 20 pages includes reply, if any.
By April 16/19 the respondent shall make whatever written submissions he wishes not to exceed 20 pages including such items as are listed in paragraph 1 above.
If the applicant has not consumed the allocated 20 pages she may use the remainder in reply submissions by April 18/19.
11During that telephone conference call on April 8, I indicated to counsel that, given the schedule for exchange of submissions, it was unlikely that I would release this endorsement prior to the tax filing deadline.
12From the Applicant I received an affidavit sworn April 11 with 5 exhibits that included correspondence between counsel as to the income tax issue and a DivorceMate calculation to which I will refer below in paragraph 21. The Applicant’s form 13.1 financial statement was in the continuing record.
13From the Respondent I received an affidavit sworn April 16, 2019, well within the page limits I imposed.3
14In reply I received the affidavit of the Applicant sworn April 18, 2019 with two exhibits which brought the total of her written submissions to 23 pages.
15Contrary to rule 1.09 of the Rules of Civil Procedure, Ms. Hansen sent a letter to me through my assistant in which she pointed out that the Applicant had exceeded the page maximum. I mention that for two reasons. First, the Applicant had no compunctions about exceeding the limit and second, the Respondent insisted on pointing that out. All of that demonstrates the unfortunate level of persisting conflict between the parties.
The Income Tax Issue
16At the hearing of the motion on March 22, 2018, the Applicant asked for an order for spousal support in the amount of $200,000 per month, approximately 50% of which was on account of income tax. On the record before me I was not satisfied that the usual order incorporating the income tax component of the spousal support order should be made at that time because (a) my finding as to the Applicant’s budget in the amount of $84,000 per month in her recovery stage did not support that amount of tax; (b) the income tax amount in the DivorceMate calculation she then provided did not account for her individual circumstances including having what appeared to be significant medical expenses and legal expenses that would affect the amount of her tax liability; and (c) based on his 2015 and 2016 income tax returns, the Respondent had minimal income as a result of which he would likely not be interested in a deduction for spousal support.
17In paragraph 27 of the endorsement dated April 6, 2018, I summarized the Respondent’s circumstances including his evidence that his line 150 income is not necessarily the appropriate income figure for purposes of calculating his support obligation and that his financial affairs are extremely complex; and referred to his confirmation that he has sufficient income to pay the Applicant a level of support that is consistent with the financial support that he had been providing to her during the marriage.
18In their affidavits, the parties indicate that each has an understanding or an expectation as to what was meant by paragraph 36 of the endorsement and paragraph 9 of the order. There is some evidence (through lawyers’ letters attached as exhibits) that there has been an attempt to resolve the issue, as I had contemplated in paragraph 36 of the endorsement.
19In his affidavit, the Respondent accepts that the Applicant will have a tax liability but he asserts the following. First, that he is not required by the order made April 6, 2018 to pay her income tax. Second, that there is “no material tax efficiency achieved by [him] taking the spousal support payments back into [his] income”. Third, that his expert has not completed the business valuation report and, as a result, he cannot provide a “reliable conclusion regarding” his 2018 income. However, his accountants tell him that he will not have substantial carrying charges to claim against his income in 2018, and [he] will instead have a significant tax liability”.
20Fourth, the Respondent says that he is willing to pay the Applicant’s tax liability on payments totalling $846,0004 in 2018 but insists that it be “uncharacterized” and left to the trial judge to decide how to account for it. He emphasized that his proposal was “on an entirely interim and without prejudice basis such that the issue of who is responsible for tax on spousal support in 2018, on a final basis, would be deferred to future determination by the court or on consent”. In his affidavit, he also stated that:
- If this Honourable Court is not prepared to Order that Marie claim the spousal support she received under court order in 2018, then respectfully, it is my position there needs to be a complete re-hearing of the interim support issue.
21Mr. Di Poce has consistently taken the position that there is no issue of his ability to pay spousal support and for that reason he refuses to provide an income report. Therefore, I have no basis upon which to consider his circumstances and the impact on him of deducting spousal support in the amount of $82,000 per month. The sharing of the NDI, which is a key feature of the DivorceMate calculation, is not relevant in this case. While I have a DivorceMate calculation on behalf of the Applicant, I need not refer to it.
22Paragraph 36 was an invitation to the parties to arrive at a written agreement to resolve the income tax implications of the temporary order for spousal support. They failed to do so. In the absence of such an agreement, the issue is therefore straightforward. As indicated in paragraph 36: once the Applicant received periodic spousal support pursuant to an order, she was obliged to report it to the Canada Revenue Agency and to pay income tax on it. For the reasons indicated in the April 6 endorsement, I did not at that time incorporate an amount that both parties knew the Respondent would be required to pay on account of that tax liability. Whether either party had a particular understanding of the implications of the order, whether there is any “tax efficiency” to the Respondent taking the spousal support payments back into income, and whether he made a proposal as to an uncharacterized payment are all irrelevant. Notwithstanding paragraph 39 of the Respondent’s affidavit quoted above, the issue is not that the court should order the Applicant to claim the spousal support in her income tax return. The Income Tax Act requires her to do so. The issue for the court is dealing with the income tax implications of that order.
Personal Care Assistant Expenses
23There are two components to the temporary spousal support order: the monthly payment of $54,000 and the monthly payment for a personal care assistant to a maximum of $28,000 per month. In the endorsement dated April 6, 2018, I held as follows:
I accept that the status quo [at the time of the hearing of the motion] was . . . [that] . . . (d) the Respondent paid for supplementary medical expenses and for some months, a personal care assistant who worked 24/7 at an hourly rate that equated to over $28,000 per month. About 1/3 of that was covered by health insurance [provided by the Respondent]. . . .
The Respondent takes the position that . . . he would pay the costs of the Applicant’s medical expenses including a full-time nurse/personal care assistant to a maximum of $17,500 per month. . . . the full time nurse/personal care assistant has been costing $28,000 per month. Counsel could not provide an explanation for the reduction to $17,500 per month except that the Applicant had not provided any medical confirmation that it was needed on an ongoing 24/7 basis. . . .
I approach this from the unique circumstances of the Applicant. . . before and after her life-saving surgery, the Applicant had engaged a full-time personal care assistant at a cost of $28,000 per month that the Respondent paid, although somewhat under protest. . . .
As indicated above, the Respondent has been paying the invoices of the personal care assistant. As the Applicant improves, I expect that the 24/7 care will be reduced. I do not impose any time limit on her to do so. However, I consider it unfair to include in the global amount a fixed allocation for the PCA when reduction is likely. For that reason, the amount of the order for temporary spousal support will separate the personal care assistant but the Respondent shall be required to pay the invoices promptly.
24The Applicant had had a double lung transplant on December 11, 2017, and had left hospital in late February or early March 2018. At the hearing of the motion on March 22, 2018, the Respondent conceded that it was reasonable for the Applicant to have a PCA. I accepted the evidence that the cost of a PCA was reasonable and necessary but I expected that it would reduce as the medical needs reduced. I also expected that approximately 1/3 of those costs would be covered by insurance. While I did not expressly indicate, I inferred that some of the remaining balance of the PCA would be a tax deductible expense. Because of the insurance (paid by the Respondent) and the income tax issues, I created the opportunity for the payment to be to the Applicant or to the caregiver. The amendment that the parties made to paragraph 2 of the order (as a taxable/deductible third party payment) appears to reflect that possibility.
25Based on the affidavits of the parties in relation to the order with respect to the PCA, I conclude the following:
(a) the Applicant has continued to have a PCA 24/7. While I did not impose a deadline for a reduction in care, she has not reduced the level of care although the surgery was 18 months ago;
(b) the Applicant’s lawyers informed Ms. Hansen by letter dated March 5, 2019 that she could claim approximately $129,000 in legal fees and a negligible amount in terms of medical expenses and that most of the [PCA] expenses incurred are not tax deductible but some are eligible for a tax credit. On that basis, the expenses with respect to the PCA are not such as to have a material impact on the amount of tax that the Applicant will be required to pay for 2018;
(c) as indicated in paragraph 25 of her April 11th affidavit, in that same letter counsel for the Applicant advised Ms. Hansen that, based on their opinion about the legal expenses and medical expenses, the accountants anticipated that the Applicant would have a tax liability of approximately $200,000 on the periodic spousal support of $54,000 per month only. I have no reliable evidence as to the tax she will incur as a result of the payment of periodic spousal support of $28,000 per month in addition to the monthly payment of $54,000;
(d) There has been considerable conflict between the Respondent and the service provider over the level of detail of the invoices that is required. The service provider signed a letter dated April 5, 2019 recounting the details of the conflict in which the physician who signed the letter wrote “it is evident at this point that Mr. Di Poce simply does not want to pay for Marie’s expenses”. I consider that an unprofessional and inappropriate conclusion for a service provider to make in a letter to the Applicant’s lawyer that was attached as an exhibit to an affidavit.
(e) In her reply affidavit, the Applicant has provided a letter dated March 27, 2019 from a psychiatrist at UHN in which the author indicated that the Applicant “has had a complicated post-operative course and is still recovering. Ms. Fiorellino is still requiring ongoing 24 hour assistance to ensure her full recovery.” That three sentence letter does not refer to the nature of the 24 hour professional assistance required. I consider that that does not justify the continuation of the status quo which is a PCA on a 24/7 basis.
26In summary, with respect to the payment to a maximum of $28,000 per month I assumed the following: it would diminish over time; approximately 1/3 was covered by health insurance; and some part of it would be considered a deduction or a credit and in either case, would reduce the income of the Applicant and therefore reduce the amount of income tax she would be required to pay. On the record before me, none of those have transpired.
27As indicated above in paragraph 39 of his affidavit, the Respondent raised the prospect of re-opening the issue of temporary spousal support. If I allowed him to do so in an effort to reduce the amount ordered, then no doubt the Applicant would seek to increase the amount because the budget on which I based the order was a recovery budget. As indicated in paragraph 54 of the endorsement and paragraph 6 of the order, I did not permit either to bring any motions. However, I am concerned that my assumptions with respect to the PCA payments have not materialized and I address that below.
28Until his business valuation report is available, the parties are not likely to make any progress in planning for the trial or resuming settlement discussions. As indicated in paragraph 27 of the April 6, 2018 endorsement, the Respondent expected it could take 12 to 18 months and cost more than $500,000 due to the complexity of his financial affairs. The parties married in October 29, 2010 and separated either in January or December 2017. He was 75 years old at the date of marriage and 82 years old at the time of the motion in March 2018. Not surprisingly, he is claiming that a significant portion of his net worth at valuation date should reflect his substantial pre-marital assets. Indeed, he may take the position that his net family property is nil and the Applicant owes him an equalization payment. To substantiate that position, professional evidence is required.
29One would have thought that with their ages now of 83 and 61, they would have found a way to avoid a trial of these issues but that has not transpired to date. I infer from the evidence in the affidavits before me that the level of antagonism demonstrated in the affidavits in the motion in March 2018 has persisted. In that context the court is required to respect the primary objective in Family Law Rule 2(2), (3), (4) and (5) and issue directions designed to control the progress of the case so that the parties focus on the resolution of the net family property issues and not become distracted by temporary spousal support issues. In my view, permitting either party to seek a variation of a temporary support order where the Applicant’s entitlement and the Respondent’s ability to pay are not in issue, is contrary to the primary objective. Having said that, I must address the issue of the PCA payment.
Analysis
30There is no question that the Applicant will be required to pay a significant amount of income tax. Having not accepted the estimate of $200,000 because it takes into account only the periodic spousal support of $54,000 per month, I must establish a method by which to arrive at the amount that the Respondent is required to pay. Neither counsel made submissions as to whether the amount that I now order should be characterized as periodic spousal support (and therefore taxable in the hands of the Applicant) or lump sum spousal support (and therefore not taxable to her). Since I am making an order for a single payment for the 2018 income tax year, it must be a lump sum amount.
31In the end, I was not given any more assistance in establishing the amount of the income tax consequences to the Applicant than I had in March, 2018. I must make an order addressing the income tax liability on the record before me. The only avenue available is to require the Applicant to prepare her income tax return declaring the amount of periodic spousal support she has received (namely $54,000 and $28,000 each for 10 months) and the Respondent must provide the funds to enable her to pay the taxes.
Costs
32Neither party made submissions as to costs. I will not create an opportunity to do so. The evidentiary record before me in March 2018 was insufficient to justify an order for periodic spousal support that incorporated an income tax component. The evidentiary record before me now is not much better. I expect that if any formal offers to settle the issue were made, that they are reflected in the position each took in their submissions. The Applicant has been successful in having her income tax liability met but the threat in the letter dated March 5, 2019 not to include spousal support in her income was unnecessarily confrontational and inconsistent with her obligation under the Income Tax Act to report spousal support received pursuant to a court order. The cost of preparing the affidavits must be modest which I will discount as a result of that threat.
ORDER TO GO AS FOLLOWS:
Order
33The Applicant shall prepare her 2018 income tax return showing income of periodic spousal support in the amount of $54,000 per month and $28,000 per month for 10 months in 2018 and showing such deductions and credits to which she is entitled as her accountant advises.
34Within 10 business days of receipt of that 2018 income tax return, the Respondent shall pay to the Applicant lump sum spousal support equal to the full amount of the tax owing. Within 5 business days of receipt of those funds, the Applicant shall provide proof to the Respondent that the full amount of the tax owing has been paid to the Canada Revenue Agency.
35Within 10 business days of receipt of the Applicant’s Notice of Assessment for 2018, the Respondent shall pay to the Applicant lump sum spousal support in whatever amount of interest the Canada Revenue Agency charges on the Applicant’s income tax for 2018. Within 5 business days of receipt of those funds, the Applicant shall provide proof to the Respondent that the full amount of interest owing has been paid to the Canada Revenue Agency.
36If by March 31, 2020, the parties are unable to agree on the amount of tax that the Applicant is required to pay on account of the monthly spousal support of $54,000 and $28,000 for 2019, counsel may arrange with the Trial Co-ordinator for a case conference with me to create a process for establishing the amount.
37Unless the Applicant and Respondent agree to a reduction in the monthly spousal support for the personal care assistant effective May 1, 2019, then the following shall occur:
(a) by May 30, 2019, the Applicant shall serve and file an affidavit as to the reasonableness of the 24/7 PCA including (a) copies of all invoices from March 1, 2018 to and including April 30, 2019 as delivered; (b) if those invoices do not include details as to services, then the Applicant must obtain and provide revised invoices with details that includes the names of the service providers; his/her qualifications; and the nature of services e.g. medical or nursing services (such as injections) or personal services (such as hygiene, housekeeping and other services); (c) evidence from a physician currently involved in her medical care that the services reflected in the revised invoice for the month of April 2019 are medically necessary;
(b) by June 20, 2019, the Respondent shall provide an affidavit responding to the evidence in paragraph 37(a) together with evidence as to the extent to which the invoices have been covered by medical insurance in the period March 1, 2018 to December 31, 2018 and in the period January 1, 2019 to April 30, 2019.
38Upon review of the evidence in paragraph 37 I will issue a supplementary endorsement as to the extent, if any, that the Respondent is required to pay temporary spousal support for a personal care assistant. Until receipt of such endorsement, the Respondent shall continue to pay up to a maximum of $28,000 per month as required by paragraph 49 of the endorsement and paragraph 2 of the order.
39As soon as the Respondent’s business valuation report has been served on the Applicant, the parties shall arrange a case conference with Team Leader Justice Stevenson or with whomever she directs, to establish a timetable leading up to the trial, including what motions, if any, will be permitted before trial. The order at paragraph 54 of the endorsement and paragraph 6 of the order terminates at that case conference.
40By June 20, 2019, the Respondent shall pay to the Applicant costs of the submissions in the amount of $1000.
Kiteley J.
Date: May 9, 2019
Footnotes
- 2018 ONSC 2194
- 2018 ONSC 4895
- The Respondent’s affidavit referred to four exhibits none of which were attached. The two pages of the Applicant’s form 13.1 were available in the continuing record. The draft order was not attached but was not essential for my decision. The invoice and the email were sufficiently described in the affidavit that I did not need the actual documents.
- This consists of monthly spousal support of $54,000 for a total of $540,000; monthly PCA of $28,000 for a total of $280,000; and $22,000 being the annual clinic membership and $4,000 as reimbursement for medical expenses. The payments of $22,000 and $4,000 were not described as “periodic spousal support” in the order made April 6, 2018 and are irrelevant.