Court File and Parties
COURT FILE NO.: FC-19-204
DATE: 2020/09/10
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Manal Samuel Shenouda, Applicant
AND
Raouf Michel Fahim Awadalla, Respondent
BEFORE: Justice Sylvia Corthorn
COUNSEL: James D.S. Whyte, for the Applicant
Kerry Fox, for the Respondent
HEARD: July 30, 2020
ENDORSEMENT
Introduction
[1] The parties were married in August 1991. They have three children, all of whom are now adults age 20 or older. The issues to be resolved on the application include child support, spousal support, and equalization of net family property.
[2] In the fall of 2019, the applicant brought a motion in which she sought several forms of relief. The return date for the applicant’s motion was previously, and has again been, adjourned. The respondent is seeking his costs of the adjournments of that motion.
[3] The respondent is also pursuing his cross-motion. The respondent seeks relief related to $4,000 per month paid by him to the applicant in each of the first six months of 2019 ($24,000 in total and hereinafter, “the Payments”). The respondent requests an order mandating the applicant to execute an agreement pursuant to which the Payments are said to constitute spousal support for the first half of 2019. Alternatively, the respondent requests declaratory relief providing that the Payments constitute spousal support.
Background
[4] On June 26, 2019, the parties appeared before Master Kaufman for a case conference. It was the parties’ first appearance before a judicial officer following the commencement of the application. The parties continue to be represented by the same counsel who attended on the case conference.
[5] Master Kaufman made an order based partly on the consent of the parties and partly on his determination that it was appropriate to grant certain elements of the relief requested in the case conference briefs of one or the other of the parties (“the Order”). The terms of the Order include the following:
a. The Respondent shall prepare an agreement to the effect that $36,000 paid to the Applicant in 2018 constitutes spousal support and the Applicant shall execute that agreement within 10 days from when she receives it.
b. The Respondent shall pay spousal support in the amount of $7,127 on an interim and without prejudice basis, commencing on July 1, 2019.
c. The Respondent shall pay the Applicant the amount of $6,451 on July 1, 2019, of which $3,225 will constitute an interest free loan which the Applicant will pay back at the rate of $200 per month which can be deducted from spousal support payments until it is paid back in full.
[6] Other terms of the Order addressed the applicant’s assumption, effective July 1, 2019, of the responsibility for household expenses and car insurance premiums. Lastly, the Order addressed procedural matters. Master Kaufman granted the parties leave to proceed with motions for temporary relief (i.e., the applicant’s motion and the respondent’s cross-motion).
[7] The Order does not address payments made or spousal support paid by the respondent during the first six months of 2019.
[8] The respondent submits that the Order resulted in a “gap” with respect to spousal support because it does not address payments made during the first six months of 2019. The parties do not otherwise have a formal agreement or an order dealing with payments made in that period.
[9] In summary, the respondent’s position is as follows:
• For the purpose of filing his tax return for 2019, he needs to have the tax treatment of the Payments resolved;
• The tax treatment of the Payments is not a matter which can ultimately be addressed by an adjustment in any accounting done following a determination of all issues on the application; and
• If the tax treatment of the Payments is not resolved at this time, the Canada Revenue Agency (“CRA”) deadline for addressing that issue will pass and the respondent will lose the opportunity to treat the Payments as spousal support.
[10] The respondent asks the court to draw an inference and find that the Payments are spousal support. In support of the suggested inference, the respondent asks the court to consider the following two matters.
[11] First, the respondent highlights the agreement between the parties that $36,000 paid by the respondent in 2018 constitutes spousal support: see the first paragraph of the Order quoted above. It is undisputed that the $36,000 represents nine monthly payments of $4,000 for April through December 2018. The respondent submits that the Payments, made over the six-month period including January through June 2019, reflect a continuation of the agreement between the parties with respect to the $4,000 monthly payments.
[12] Second, the respondent points to the agreement between the parties with respect to spousal support effective July 1, 2019: see the second paragraph of the Order quoted above. That term provides for spousal support in the amount of $7,127 effective July 1, 2019. The respondent submits that the $7,127 (a) includes both periodic support and expenses for which the respondent agreed to pay, and (b) is equivalent to $4,000 in after-tax dollars.
[13] Relying on those two points, the respondent asks the court to draw an inference and find that Payments were spousal support.
[14] The applicant submits that there is no “gap” created by the Order. The applicant’s position is that the parties were deliberate in their decision or choice not to address spousal support for the period January through June 2019 when before Master Kaufman.
[15] The applicant’s position is that the treatment of the Payments is an issue that remains to be determined on the application. Once that and all other issues are determined, the tax treatment of the Payments and any related tax consequences to the parties can be addressed by way of an accounting and adjustments based on the overall outcome on the application.
The Issues
[16] The cross-motion raises the following two issues:
Are the Payments to be treated as spousal support for January through June 2019?
If so, must the tax treatment of the Payments be addressed at this stage of the proceeding?
Issue No. 1: Are the Payments to be treated as spousal support for January through June 2019?
[17] For the following reasons, I conclude that there is insufficient evidence before the court to support an inference, and therefore a finding, that the Payments were spousal support. In the absence of that evidence, I make no finding as to the treatment to be given to the Payments. To find that the Payments were not spousal support would preclude the respondent from seeking some form of tax relief at trial. The treatment of the Payments and the related tax relief or consequences are issues that remain to be determined at trial.
[18] With respect to the insufficiency of the evidence in support of an inference that the Payments were spousal support, I note the following:
• There is no agreement between the parties as to the treatment of the monthly payments comprising the Payments – this despite the agreements reached with respect to monthly payments made in 2018 and effective July 1, 2019;
• The term of the Order with respect to the treatment of the $7,127 paid commencing July 1, 2019 is on an “interim and without prejudice basis” (see the second paragraph of the Order quoted above) and therefore not indicative of any definitive conclusion with respect to the issue of spousal support;
• The respondent provided no explanation as to why the Payments were not addressed in the Order, when that could have been done; and
• The respondent’s financial disclosure was not complete as of the date of the case conference.
[19] In summary, the respondent’s cross-motion is dismissed without prejudice to the respondent to raise this issue at trial.
Issue No. 2: Must the tax treatment of the Payments be addressed at this stage of the proceeding?
[20] The parties did not address this issue in their respective motion materials. Written submissions on the issue were requested by the court at the conclusion of the oral hearing and received within the deadlines set.
[21] In light of the determination on Issue No. 1, it is not necessary to determine Issue No. 2. Regardless, the irony of the respondent’s position is worthy of comment.
[22] The respondent relies on the potential imprecision at trial for a set-off, if calculated, with respect to the tax treatment of spousal support paid in 2019: see, for example, the decisions reviewed in Charron v. Carrier, 2016 ONSC 7523. The respondent submits that it would be unfair to leave that issue to be determined at trial and potentially deprive him of the full amount of the tax relief to which he is entitled for spousal support paid in 2019.
[23] Yet, the respondent’s financial disclosure was incomplete as of the date of the case conference. In addition, the respondent has yet to obtain a valuation of his professional income from his medical corporation – a report that has, according to the applicant, been promised for some time. How is the court, including on this motion, to assess the tax relief to which the respondent is entitled with respect to the Payments without the benefit of all of the relevant information regarding the respondent’s 2019 income?
[24] The respondent will only be prejudiced with respect to the potential tax relief (a) if the Payments are found at trial to be spousal support, (b) the tax relief to which he would be entitled cannot, for equitable and other reasons, be addressed in an accounting following a determination at trial of all financial issues, and (c) the tax relief, when addressed, falls short of the relief to which the respondent would have been entitled had he been entitled to claim it when filing his 2019 personal tax return. To the extent that the respondent may be prejudiced in that regard, it appears to me that he is, by reason of his delay with respect to financial disclosure and the valuation report, the author of his own misfortune.
[25] I raise the matter of equities because this court is a court of equity and because the conduct of both parties may be considered by the trial judge. The respondent may not be the only party who has not conducted themselves entirely appropriately prior to trial. For example, the applicant acknowledges that she has not yet signed the agreement which she was required to sign pursuant to the first paragraph of the Order.
[26] In any event, the respondent is not without an opportunity to secure some tax relief for 2019 when filing his personal tax return for that year. In his post-hearing written submissions, the respondent states that he is entitled, for the purpose of his 2019 personal tax return, to rely on a court order or an agreement with respect to spousal support for 2019 as long as the agreement or order is dated on or before December 31, 2020. The order or agreement can be filed with CRA in 2021.
[27] Assuming that information to be correct, the parties have slightly less than four months within which to agree upon spousal support payable for January through June 2019. An agreement, even if on an interim and without prejudice basis, would resolve the tax treatment issue for the purpose of the respondent’s 2019 personal tax return. An agreement, even if reached, would not necessarily eliminate the need for an accounting and adjustments following a determination at trial of all of the financial issues.
[28] The parties are working towards the completion of financial disclosure, including the valuation report. Once that report is available, the parties may be able to reach an agreement, whether interim or final, with respect to spousal support payable from January through June 2019. If they do so and an agreement is executed on or before December 31, 2020, the respondent will be in a position to file the document with CRA and gain the tax relief he seeks with respect to 2019.
Summary
[29] The respondent’s cross-motion is dismissed without prejudice to the respondent to raise, at trial, the issues of the Payments and the related tax treatment.
[30] The applicant seeks her costs of the cross-motion and the respondent seeks his costs of the multiple adjournments of the applicant’s motion. There is efficiency to be gained for the parties, counsel, and the court if the costs of the motion and cross-motion are dealt with at the same time. In the circumstances, including that the conduct of the parties throughout the litigation may ultimately be relevant to the issue of costs of the proceeding, the costs of this cross-motion are reserved to the judge hearing the applicant’s motion, if pursued. If that motion is not pursued, then the costs of the cross-motion are reserved to the trial judge.
Madam Justice Sylvia Corthorn
Date: September 10, 2020
COURT FILE NO.: FC-19-204
DATE: 2020/09/10
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Manal Samuel Shenouda, Applicant
AND
Raouf Michel Fahim Awadalla, Respondent
BEFORE: Justice Sylvia Corthorn
COUNSEL: James D.S. Whyte, for the Applicant
Kerry Fox, for the Respondent
ENDORSEMENT
Corthorn J.
Released: September 10, 2020