COURT FILE NO.: 292/18
DATE: 20201026
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Gregory Albert Richard, Applicant
Kristie Smith, agent for Beverley Johnston, Counsel
- and -
Belinda Holmes, Respondent
Mark LaFrance, Counsel
HEARD: October 5 and 8, 2020, by Zoom
Minnema J.
REASONS FOR JUDGMENT
[1] This was an Application and cross-Application by the parents of Jacob age 11, primarily over parenting and decision making. The parties resolved those issues right before the hearing, but child support, both retroactive and ongoing, remained outstanding and continued to trial.
Background Facts
[2] The applicant father is an IT professional or consultant with a degree in computer science. With the child being primarily in the care of the respondent mother throughout, there is no dispute that he has had the child support obligation. The mother is only seeking adjustments back to January 1, 2018.
[3] Prior to March of 2017 the father’s income fluctuated significantly from year to year. He worked on contracts but also had some employee roles. At some point he became employed by Empire Life, although his remuneration still fluctuated based on the performances of both himself and the company.
[4] Because of the fluctuations, the father decided to pay table child support based on the average of his income for the three preceding years. This method was discussed with the mother, who was of the view that it was appropriate. They refer to this loose formula as the ‘rolling average’. There is no dispute about its application prior to 2018. Although the father has generally been the higher income earner, the parties also agreed that he would only pay half of the section 7 expenses, namely the child care costs. Neither agreement or understanding was in writing. These parties managed to avoid court and operated with few insurmountable difficulties for about eight years.
The Father’s 2017 Income (Employment and RRSP Withdrawals); The ‘Rolling Average’ and Actual Child Support Paid for 2018
[5] In 2015 the father’s Line 150 income was $166,289. In 2016 it was $181,604.
[6] In March of 2017 the father became employed by BDO. His total employment income for that year from all sources was $194,975. He also withdrew $20,953 from his RRSP. A main issue in this trial is whether that and subsequent RRSP withdrawals should be excluded from his income for child support purposes. His total Line 150 income for 2017, which includes his RRSP withdrawal, was $215,928.
[7] For his support in 2018, the rolling average of the father’s three years income prior to 2018 using Line 150 was $187,940. The monthly table child support on that would be $1,572. Without the RRSP withdrawal included, the rolling average of his income was $180,956, and the monthly table child support $1,522. However, the father paid $1,422 per month in January and February 2018, and $1,386 per month starting in March and stopping after making the November 2018 payment.
[8] In September of 2018 the father was terminated from his job with BDO. He received two months’ salary, one as severance and the other in consideration for signing a release. He paid no child support for December 2018.
The Father’s 2018 Income (Employment and RRSP Withdrawals); The ‘Rolling Average’ and Actual Child Support Paid for 2019
[9] The father’s employment income in 2018 as a result of the above was $144,895, and he also withdrew $25,000 from his RRSP for a total Line 150 income of $169,895.
[10] The table child support to be paid in 2019 if calculated based on an average of the father’s previous three years incomes, being $189,142 including the RRSP withdrawals, was $1,580 per month. Without including the RRSP income for 2017 and 2018 the rolling average income was $168,719 resulting in $1,433 per month. However, the father paid no child support for the first five months (January to and including May 2019) and then $98 per month for the rest of the year.
[11] Even though he had paid into it, the father did not apply for Employment Insurance in 2019. He indicated that it was both a matter of pride and his expectation was that he would find work momentarily.
[12] The father provided a general overview of actively looking for work. He obtained a two-month contract with a business called EDIP for $8,000 a month for March and April of 2019. This $16,000 would appear to be the basis for his decision to start paying $98 per month.
[13] The father had no further employment until October of 2019, when he obtained a 14-month contract (to the end of December 2020) with a company called Zernam Enterprise Inc. That contract is not with him directly. He indicated that Zernam wanted to deal with a corporation to avoid any confusion about whether he was an employee or an independent subcontractor. To affect this, he resurrected a lapsed numbered company he owned 7788037 Canada Inc. (“778”). Ultimately his consulting work is with the Bank of Canada in Ottawa. The father works for 778 (he is the sole director, officer, shareholder, and employee), who has a contract with Zernam, who in turn has a contract with a company referred to as CGI, who has the contract with the Bank of Canada.
[14] The contract between 778 and Zernam is for the father’s services, and pays $880 per 8-hour day, with a maximum of 302 working days. The fee is payable within 30 days of invoice.
[15] The father advises that he, or rather 778, billed Zernam for his work in October, November and December in 2019, but only received payment for the October bill in the 2019 calendar year (the November payment was late). As he did not start working until part way through October, only $7,955 was billed and received in 2019. He indicates he did not include that amount in his 2019 Income Tax Return (“ITR”), because the company had expenses. Although there are no Financial Statements or Tax Returns for 778 in evidence, he indicates those included $1,300 for accounting, $3,200 for the corporation’s tax filings, and amounts for rent/hotels. He worked on site at the Bank of Canada and had been staying in hotels in Ottawa until he decided to lease a furnished apartment with parking, in addition to his house in Kingston. His rent per the lease is $2,895 per month.
The Father’s 2019 Income (Employment and RRSP Withdrawals); The ‘Rolling Average’ and Actual Child Support Paid for 2020
[16] The father’s employment income in 2019 (less expenses) from his ITR as a result of the above was $13,386 (the $16,000 two-month contract less expenses). He also withdrew $103,372 from his RRSP for a total Line 150 income of $116,757.
[17] The table child support to be paid in 2020 if calculated based on the rolling average from Line 150 including the RRSP withdrawals ($167,526) would be $1,425 per month. The table child support to be paid in 2020 without including any RRSP withdrawals in the three years ($117,752) would be $1,050 per month. The father has been paying $1,247 per month since January 2020.
[18] Again, there are no financial documents from 778 in evidence. The father said that the contract with Zernam would average about $14,000 to $15,000 per month, less about $3,000 to $3,500 per month in corporate expenses. However, in cross examination he did not dispute that the documentation that he had provided showed an average income from January to July in 2020 of $16,641 per month. That average less $3,145 per month in averaged corporate and work expenses extrapolated to the full year would be $161,957, for a table support payment of $1,385 per month for the current year not using a rolling average.
[19] It is noted that the father’s contract officially ends on December 31, 2020, although he is trying to extend it. As he is now able to work from home because of COVID-19, his biggest expense (accommodation in Ottawa at $2,895 per month) will end according to his lease on January 31, 2021, resulting in an increase in income. He unsuccessfully tried to get out of the lease early.
Issues and Positions
[20] In their opening submissions, both parties were seeking to have the rolling average enforced, on an ongoing basis and as a method for determining the retroactive support back to January 1, 2018.
[21] In questioning by the court following closing submissions, however, the parties agreed on a different method for calculating the father’s ongoing income and support obligation, namely that I would apply what I believe is the usual approach. Generally support is to be based on most current information (Guideline s. 2(3) and Coghill v. Coghill, 2006 CanLII 28734 (ON SC), [2006] O.J. No. 2602 (S.C.J.)), with adjustments once the actual income for the year is known: L.(R.E.) v. L.(S.M.) (2007), 2007 ABCA 169, 40 R.F.L. (6th) 239 (Alta. C.A.). This approach fulfills the objectives of fairness and consistent treatment in the Guidelines. Calculating adjustments and retroactive support/arrears as well under this approach is simply a matter in most cases of determining income for a given year and applying the relevant table. This encourages parents to be accurate and reasonable about their current income estimates, as there would be no lasting benefit from an artificially low or high ongoing payment when adjustments will eventually be made.
[22] With the issue of the support calculation going forward resolved, the main remaining issue is the father’s retroactive support obligation. The parties wanted that determined based on the three-year rolling average of the father’s income, but they disagreed how that should be done and, as noted, there was also a dispute as to the treatment of the father’s RRSP withdrawals.
[23] Lastly, there were two smaller issues about retroactive (as opposed to ongoing) section 7 expenses and life insurance to be addressed.
Law
[24] As the parties were not married, child support is governed by the Family Law Act, R.S.O. 1990, c. F.3. Pursuant to section 33(11), I am to make the order in accordance with the Child Support Guidelines (Ontario), O. Reg. 391/97. The issues in this case revolve around sections 15(2), 16, and 17(1) which read as follows:
- (1) Subject to subsection (2), a parent’s or spouse’s annual income is determined by the court in accordance with sections 16 to 20.
(2) Where both parents or spouses agree in writing on the annual income of a parent or spouse, the court may consider that amount to be the parent’s or spouse’s income for the purposes of these guidelines if the court thinks that the amount is reasonable having regard to the income information provided under section 21.
Subject to sections 17 to 20, a parent’s or spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.
(1) If the court is of the opinion that the determination of a parent’s or spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the parent’s or spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.
Analysis – How to Approach the Retroactive Calculation
[25] While the mother suggests that the father imposed the rolling average calculation of his income, she conceded that she accepted it and thought that it was appropriate.
[26] However, the father resiled from that arrangement. He paid less than the rolling average in 2018 (with or without his RRSPs included) and did not pay anything in December that year and into 2019. He suggests that the rolling average did not include periods of unemployment and was subject to a material change exception. The mother’s view was that the averaging of highs and lows over three years would address any changes, including periods of unemployment.
[27] The critical point here is that, not only was the rolling average understanding or agreement not reduced to writing, but the parties themselves were at odds over what exactly it entailed.
[28] My reading of the section 15 of the Guidelines, reproduced above, is that a parent’s annual income is determined by sections 16 to 20, and the court may only consider a different amount that it thinks is reasonable if the parties agree to it and reduce that agreement to writing. Neither occurred here. In my view, the task before me cannot be to determine the retroactive support based on a rolling average. To do so would require inserting terms into that understanding or agreement, ones that the parties had not even considered at the time. I therefore find that I am to simply apply the Guidelines to the issue of retroactive support, following the general approach set out in paragraph 21 above. While section 17 does not foreclose the possibility of a rolling average, I do not see how it would be fairer or more reasonable than a straight Guidelines approach of assessing the father’s income and his support obligation year by year.
Law/Evidence/Analysis – RRSP Income
[29] Even though an original RRSP contribution or deduction does not reduce the payor’s income for child support purposes, when RRSP monies are withdrawn in a later year they are included in Line 150 by operation of CSG section 16, and presumptively form part of the payor’s income for child support purposes: Fraser v. Fraser, 2013 ONCA 715, [2013] O.J. No. 5347 (Ont. C.A.) at para. 97. There is some flexibility, however, and if the court is of the opinion that including the RRSP withdrawals would not be the fairest determination of the parent’s income, it can apply CSG section 17 as set out above and determine a different amount that is fair and reasonable: see Ludmer v. Ludmer, 2014 ONCA 827 at para. 23. This is a discretionary exercise: Ludmer at para. 23; Liu v. Huang, 2020 ONCA 450 at para. 30.
[30] To summarize the past three years, the father withdrew $20,953 from his RRSP in 2017. For the years that the RRSP withdrawals are being assessed (again the claim is for retroactive support from January 1, 2018), he withdrew $25,000 in 2018, and $103,372 in 2019.
[31] The father argues that the primary reason for his RRSP encroachments in 2017 and 2018, before losing his job, was to pay legal fees associated with his family law dispute. He says that once he became unemployed, his large withdrawal in 2019 was also primarily used for ongoing legal fees but also “to keep a roof over his head”. He acknowledges that while he did not sit home for the whole period of unemployment and travelled for pleasure to Florida, New Brunswick, Quebec City, and Ottawa, he says he did it frugally, always driving, and often staying with relatives. He also suggested in his evidence that he needed the 2019 funds to pay startup costs for his company, but that was contradicted by his other evidence and it was not argued in his closing submissions.
[32] Ludmer v. Ludmer is the leading decision regarding whether withdrawn RRSP monies used to pay for legal fees should be excluded from Line 150 income for child support purposes. In that case the issues included both child support (in a shared parenting plan) and spousal support. Both party’s incomes were therefore relevant. Each parent in that case had taken out sizeable amounts from their RRSPs, although the mother took out substantially more. If both sums were included in income for support calculations, that would have favored the father in calculating the set-off or CSG section 9 child support. The trial judge excluded both. The Court of Appeal agreed, noting that the mother per her Financial Statement had used her proceeds “primarily” to fund the litigation, not to enhance her lifestyle (para. 24). The parties there had “engaged in scorched-earth litigation warfare”, explaining the high fees.
[33] There is no evidence in this case setting out the amount of legal fees paid by the father. As the mother points out, there are no bills, statements of account, or other evidence about legal fees to substantiate his suggestion that was what the withdrawals were for. He did not even reference a specific amount. Given the lack of evidence, I find that the father has not established legal fees as the reason for his RRSP withdrawals. In Tone v. Tone, 2020 ONSC 2965, the payor made a similar argument about “legal fees and other expenses”, but without evidence that the monies were indeed used primarily for legal expenses (para. 95) the court was not persuaded to exclude the RRSP income.
[34] The father makes a ‘double dipping’ argument, noting that where monies representing the RRSP withdrawal were previously included in the income used to calculate child support, they will be counted twice. There is no question that this can occur. Using only Line 150 incomes, contributing to a RRSP in a year when child support is being paid and then withdrawing those funds from it in a later year when child support is still being paid, will result in the same income being counted twice. If the in/out happens in rapid succession, say in back to back years, this may lead to its exclusion based on fairness: for example, see Murdoch-Woods v. Zywina, [2011] O.J. No. 602 (Ont. S.C.J.) at paragraphs 6 to 9. However, an automatic exclusion was specifically rejected by the Court of Appeal in Fraser at para. 105. The income must be assessed in the context of the purpose of the support payment, namely the obligation of the payor to contribute to the child’s expenses, and the drafters of the Guidelines did not carve out an exception for RRSP income in Schedule III.
[35] There is limited evidence in this case as to when the father contributed to his RRSP. He was 42 years old when Jacob was born. Only his ITRs from 2015 forward are in evidence. They show a contribution of $10,000 in 2014 (from the Comparative Two-Year Review), $12,334 in 2015, $8,334 in 2016, nothing in 2017, $1,184 in 2018, and $3,333 in 2019. This is not the rapid succession in/out seen in Murdoch-Woods, and the amount put in is not nearly equivalent to what was taken out. Indeed, the amount withdrawn in 2017, a year not under consideration, accounts for the bulk of those contributions. The father may have seen 2019 as a good time from a tax perspective to withdraw long held RRSPs. The mother adds that although the father made his large withdrawal in 2019, he paid virtually no support that year (a total of $686). She points to Fraser (at para. 104) for the proposition that even though a large one-time withdrawal from an RRSP for a specific purpose (ie. a house purchase) might be excluded from income for child support purposes (see also Horowitz v. Nightingale (2015), 2015 ONSC 190, 123 O.R. (3d) 772 (S.C.J.) at para. 33(c)), the court is still unlikely to allow even that exclusion where the payor was not working and his or her first obligation was to ensure the child was properly supported.
[36] Another factor to consider is that the father’s income in 2017 was his highest in all the years under consideration. The mother feels that it is very unfair that by resiling from his commitment to the rolling average when he did, the father has denied the child the full benefit of that income in the year it was earned or as part of a rolling average in each of 2018, 2019, and 2020.
[37] Lastly, as noted above, the father’s income for 2019 without the RRSP withdrawals was unreasonably low as a result of his own actions. Even though he had paid into it and it was available, he chose not to apply for Employment Insurance benefits. He therefore paid almost nothing towards the child’s expenses that year.
[38] Considering all the above and using the language from section 17 (thus the following double negative), I am not of the opinion that the Line 150 income for 2018 and 2019 would not be the fairest determination of the father’s income for child support purposes. I would therefore include his RRSP income.
Analysis - Table Support
[39] In summary of the above findings, I would therefore set out the amount of child support owing as follows:
| Year | Father’s Income (Line 150) | Monthly Child Support Payable per the Guidelines | Child Support Owed | Payments Made | Yearly Totals Owing |
|---|---|---|---|---|---|
| 2018 | $169,895 | $1,442 x 12 months | $17,304 | $15,318 | $1,986 |
| 2019 | $116,757 | $1,042 x 12 months | $12,504 | $686 | $11,818 |
| 2020 (to October) | $161,957 (est.) | $1,385 x 10 months | $13,850 | $12,470 | $1,380 |
| Total | $15,184 |
[40] For clarity, the retroactive child support is set as $15,184 as of October 31, 2020. The ongoing support commencing November 1, 2020 shall be $1,385 per month based on an estimated income for 2020 of $161,957, subject to adjustment once the actual income for 2020 is known.
Section 7 Expenses
[41] As a quick summary of section 7, the court may order parents to provide an amount to cover all or any portion of the listed expenses if they meet the two-part test of being both reasonable and necessary. The guiding principle is that the amount of the expense is to be shared by the parents in proportion to their respective incomes after deducting any contribution from the child. Actual and eligible subsidies, benefits, or income tax deduction or credits relating to the expense must be taken into account.
[42] The only wrinkle here appeared to be how to treat the parties’ agreement to share section 7 expenses equally. I note that per sections 54 and 55(1) of the Family Law Act any agreement relating to support obligations is unenforceable unless made in writing, signed by the parties, and witnessed. Nothing was in writing here. Further the mother resiled from that oral agreement when she claimed proportionate section 7 expenses in her Answer, and more importantly the father resiled from it even earlier as it appears that the equal sharing of expenses was part and parcel of their rolling average understanding. I therefore calculate the retroactive section 7 expenses in the usual way, per the graph below. The mother paid all the expenses, and the parties provided me with the figures for the yearly after tax costs, the amounts paid, and the mother’s income.
| Year | Amount Paid by Mother After Deductions and Credits | Proportionate income | Amount owed by Father | Amount Paid | Total Owing |
|---|---|---|---|---|---|
| 2018 | $1,771 | F: $169,895 M: $61,088 F’s Percent: 74 |
$1,310 | $1,128 | $182 |
| 2019 | $634 | F: $116,757 M: $92,352 F’s Percent: 56 |
$355 | 0 | $355 |
| 2020 year to date | $76 | F: $161,957 est. M: $92,352 est. F’s Percent: 64 |
$49 | $123 | $(74) |
| Total | $463 |
[43] The father shall pay the mother $463 in retroactive section 7 expenses. The parties have agreed that there are no ongoing section 7 expenses being incurred by either party at this time. For the future, the parties shall share the expenses in proportion to their incomes, which for 2020 would be 64 percent by the father and 36 percent by the mother, subject to adjustment once the actual incomes are known.
Life Insurance
[44] The mother claimed life insurance as security for child support. This issue was barely addressed. The parties seemed to agree per their Draft Orders on a base amount of $150,000 and an irrevocable designation, the only difference being that the father wanted a mutual obligation. In fairness to him, that may have been a hold-over from his position when the parenting issue was still outstanding. However, I am not inclined to require the mother to obtain life insurance with the father as beneficiary when she does not have a table child support obligation and there are no ongoing section 7 expenses being incurred. I make the order as requested by the mother.
Decision
[45] Orders to go as set out above.
[46] To assist the parties, the formal order shall include, along with the usual FRO and interest clauses, the following paragraphs from their respective Draft Orders.
(a) Re retroactive support and section 7 expenses, paragraph 1, the first two sentences only, from the mother’s Draft Order with the number $15,647 replacing $24,859. The mother had a provision for the father to pay the arrears at a rate of $1,000 per month, but I did not hear argument on that. If the parties can agree on a payment schedule, they can add it to the formal order.
(b) Re ongoing support, paragraph 2 of the father’s Draft Order.
(c) Re future section 7 expenses, paragraph 3 of the mother’s Draft Order.
(d) Re disclosure and adjustments, paragraph 4 of the father’s Draft Order. While there are different ways of adjusting support, in my view this one works, and in it the father has reasonably even proposed no adjustments if he makes a modest overpayment.
(e) Re life insurance, paragraph 7 of the mother’s Draft Order.
[47] I thank counsel and the parties for agreeing to a fixed amount for costs. However, as it appears that the results here are mixed, I am not inclined to order any costs. Appreciating that there may be factors to consider that are unknown to me, such as offers, if the parties still want to address me on the issue of who should pay, they can file their Offers to Settle and seek a 30-minute Zoom hearing from the Trial Coordinator, provided that they do so within 10 days.
Mr. Justice Timothy Minnema
Released: October 26, 2020