IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Worsfold v. Worsfold, |
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2018 BCSC 45 |
Date: 20180115
Docket: 50427
Registry: Kamloops
Between:
Rosaria Maria Worsfold
Claimant
And
Daniel Bernard Worsfold
Respondent
Before: The Honourable Madam Justice Hyslop
Reasons for Judgment
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Counsel for Claimant: |
J.A. Mariona |
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Counsel for Respondent: |
C. Oien |
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Place and Date of Trial/Hearing: |
Kamloops, B.C. July 12, 13, September 18 and October 20, 2017 |
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Place and Date of Judgment: |
Kamloops, B.C. January 15, 2018 |
Contents
Respondent’s Personal Income – 2013
Respondent’s Personal Income - 2014
Respondent’s Personal Income – 2015
Respondent’s Personal Income – 2016
Special or Extraordinary Expenses
Statutory Framework for Special or Extraordinary Expenses
INTRODUCTION
[1] This was a summary trial of a family law proceeding. A Notice of Family Claim was filed July 18, 2015 and amended May 15, 2015 by the claimant, Rosaria Maria Worsfold.
[2] The respondent, Daniel Bernard Worsfold filed a Response to the Notice of Family Claim and a Response to Amended Notice of Family Claim and counterclaimed.
[3] The claimant filed a Response to the Counterclaim.
[4] I have concluded that this family law proceeding is suitable for summary trial, though it was not argued by either party, it was not disputed.
ISSUES
Divorce
[5] Both parties seek a divorce and there is no dispute as to it being granted. The claimant wishes to change her surname to Caputo.
[6] The parties’ marriage of March 31, 2008 is dissolved. This order for divorce is to take effect 31 days from today’s date.
[7] The claimant shall bear the name Rosaria Maria Caputo to take effect 31 days after the date of granting the divorce. This change of name shall relate only to the claimant.
[8] The contentious issue relates to child support for the claimant and respondent’s only child, Andrew Daniel Worsfold, born August 15, 2009 (“Andrew”). Matters relating to guardianship and parenting time of Andrew were resolved by a proposed Consent Order. The claimant seeks retroactive child support from June 1, 2014 to April 1, 2017 and prospective child support. This issue requires determining the respondent’s income for the years 2013-2017 inclusive. The respondent’s income is hotly disputed.
[9] The claimant argues income other than the amount recorded in the respondent’s income tax returns, should be imputed to him.
[10] The claimant proposes that she and the respondent share both special or extraordinary expenses equally.
[11] The respondent’s position is that both special or extraordinary expenses be shared in proportion with the respective incomes of the parties. He argues that this is what was agreed to in the separation agreement.
BACKGROUND
[12] The claimant and respondent began living together on May 1, 2007; married May 31, 2008 and separated April 30, 2013.
[13] After separation, Andrew resided with the claimant.
[14] The parties entered into a separation agreement dated July 30, 2013. This agreement resolved property matters, parenting arrangements for Andrew and child support.
[15] Pursuant to the agreement, the respondent paid a lump sum amount to the claimant; in return, the claimant and respondent released each other from all claims to spousal support.
[16] In the separation agreement, the parties agreed that any disputes arising from the agreement would be resolved through negotiation. If this was not successful, the dispute would be resolved by mediation. There were a number of letters and emails between the parties’ counsel. There was no evidence before me that mediation occurred or for that matter was even considered.
[17] I reproduce and attach to these reasons as Appendix “1” that part of the separation agreement which relates to Andrew’s child support.
[18] The separation agreement states in its recitals:
1.5 ROSIE is employed as a head teacher/administrator by the Kamloops Indian Band, and currently has an annual income of approximately $70,000.00;
1.6 DAN is employed as a heavy duty mechanic by Finning Canada Ltd. He also has part-time self-employment. He expects his combined income for 2013 to be approximately $130,000.00.
[19] Paragraphs 5.6 and 5.7 of the separation agreement relates to disclosure obligations of the parties. However, paragraph 5.6 is permissive; while paragraph 5.7 is mandatory. Pursuant to the mandatory provision, the parties must each year, provide to the other by May 31, “income tax information including corporate financial information if applicable commencing May 31, 2014”, thus adjusting child support each year. It is not disputed that the parties are required to adjust child support each year. Although not specifically stated in the agreement, the parties agree that the adjustment is based on their previous year’s income for purposes of the Federal Child Support Guidelines [Guidelines]. This adjustment, is not only to the table amounts, but also the special or extraordinary expenses.
[20] By an email dated September 23, 2014, the respondent sent the claimant a copy of his income tax return. In the email, the respondent calculated his 2013 income for table child support at $105,766.17.
[21] In coming to this amount, the respondent deducted the withdrawals of his Registered Retirement Savings Plans (“RRSP”) amount of $32,394.16 and deducted his union dues of $1,110.85 to reach this amount. The respondent then determines at different periods of time in 2013, where he overpaid or underpaid the claimant. After making these calculations, he concludes his adjusted table child support as of November 1, 2014 is $968.69 per month going forward.
[22] However, I cannot conclude that the claimant and respondent, as between themselves, met their disclosure obligations pursuant to the separation agreement after 2014.
[23] In 2015, counsel became involved for each party. I find that there was considerable disclosure before this matter came before me, including conducting an examination for discovery of the respondent.
[24] The respondent and his company, Dantek Enterprises Ltd. (‘Dantek”) provided copies of their bank statements, credit card statements and Dantek’s financial statements prepared by its accountant, James Krenz.
[25] At issue is the respondent’s income for the calculation of retroactive child support. The claimant alleges pre-tax corporate income of Dantek should be included in the respondent’s annual income for purposes of calculating child support pursuant to s. 18 of the Guidelines. This issue arises only in the year 2014.
[26] In addition, a further issue arises as to whether RRSP withdrawals should be or not be included when determining the respondent’s child support. This issue arises not only in 2013, but also in 2016 and a minor amount in 2015.
[27] The respondent left his employment with Finning Tractor (Canada) Ltd. (“Finning”) around the end of 2013 or the beginning of 2014. After leaving Finning, he started to work as a heavy duty mechanic through his company, Dantek.
[28] I will track the respondent’s income through his income tax returns. I will also track Dantek’s income through its financial statements and the evidence of its accountant, James Krenz.
[29] Dantek’s year-end is a calendar year, January 1 through December 31.
[30] Dantek’s first year of business was 2013, starting in August of that year. During 2013, Dantek had no income, but had expenses of $27,177.00.
THE CLAIMANT’S APPLICATION
[31] The claimant in her application asks the Court to cancel various clauses in the separation agreement and substitute clauses drafted by her. In addition, the claimant asks that certain orders made by Master McDiarmid be permanent. Finally, the claimant seeks to cancel a clause in the separation agreement and substitute a clause which states that if the parties cannot agree as to special or extraordinary expenses, then it is for the claimant to make the final decision. To support her application, the claimant relies on various sections of the Family Law Act, S.B.C. 2011, c. 25 [FLA].
[32] The claimant provides no authority permitting the court to cancel certain clauses in an agreement and write a substitute clause in its place.
[33] The claimant relies on ss. 44 and 45 of the FLA. Those sections do not permit what the claimant proposes. Section 44(4) of the FLA states:
(4) On application by a party, the court must set aside or replace with an order made under this Division all or part of an agreement respecting parenting arrangements if satisfied that the agreement is not in the best interests of the child.
[34] The court may set aside an agreement if the child support provisions are not in accordance with the Guidelines and make orders pursuant to ss. 148(3) and 150(1) of the FLA as follows:
Agreements respecting child support
…
(3) On application by a party, the court may set aside or replace with an order made under this Division all or part of an agreement respecting child support if the court would make a different order on consideration of the matters set out in section 150 [determining child support].
…
Determining child support
150 (1) If a court makes an order respecting child support, the amount of child support must be determined in accordance with the child support guidelines.
[35] In adjusting child support pursuant to a separation agreement, it does not require the applicant to provide a material change of circumstances as there is no previous court order determining child support: Kopp v. Kopp, 2012 BCCA 140 at paras. 16, 39 and 41; Fung-Sunter v. Fabian, 1999 BCCA 346 at paras. 6, 27 and 28; and E.M. v. M.S., 2016 BCPC 242 at para. 27. E.M. was dealing with parenting arrangements.
[36] What I am required to do is make an order pursuant to ss. 149 and 150 of the FLA.
[37] In Kopp, the Appeal Court found that deference to a separation agreement for child support and spousal support is different as:
[37] …courts have a separate responsibility to children to ensure their interests are upheld. Thus, the appropriate weight to be accorded an agreement for child support will be less than that accorded to an agreement for spousal support.
[38] That is not to say that the separation agreement was not relevant to the chambers judge's consideration of the issues before her. In my view, she considered those terms as the reflection of the parties' intentions at every stage of her analysis, giving the agreement appropriate weight in the context of those issues. While I do not agree with all of her conclusions, in my opinion she did not err by not giving appropriate consideration and weight to the separation agreement as a whole.
[38] As my reasons reflect, I have deferred to the separation agreement as the parties correctly made Andrew’s support based on the Guidelines. Depending on the respondent’s income, I will determine the amount of child support that the respondent must pay for Andrew’s support. The claimant’s income for special or extraordinary expenses is not in dispute.
Respondent’s Personal Income – 2013
[39] In the year 2013, the respondent earned $139,271.47 – Line 150 income comes from the following sources:
|
T4 |
$91, 901.72 |
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Taxable dividend |
$517.50 |
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Interest |
$50.48 |
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Taxable gains |
$167.36 |
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Other income (RRSP) |
$32,394.16 |
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Business income (gross $39,024.11) |
$14,239.95 |
[40] The respondent argues his income in 2013 is $105,766.47 ($139,271.47 - $32,394.16 - $1,110.84 = $105,766.57). The main source of the respondent’s employment income is $91,901.72 from Finning and business income of $14,239.95.
[41] The parties agreed, pursuant to the separation agreement, to adjust child support each year starting June 1, 2014. Although the agreement does not state it, the adjustment is based on the previous year’s income. Both the claimant and the respondent state in their respective affidavits that child support, when adjusted, is based on the previous year’s income. In the separation agreement, the word “approximately” is used to describe the claimant’s income and the respondent describes his Finning and part-time income from self-employment as he “expects his combined income in 2013 to be approximately $130,000.00”.
[42] I conclude at the time of entering into the separation agreement, neither the respondent nor the claimant had filed their 2013 tax returns. By choosing May 31, 2014 as an adjustment date, they intended on adjusting child support based on their 2013 tax return using the same adjustment date in the following years.
[43] Pre-tax corporate income does not arise in 2013. However, included in the respondent’s income for 2013, is RRSP income.
Claimant’s position
[44] The claimant’s position is the withdrawal of funds from the respondent’s RRSP should form part of his 2013 income for purposes of determining the respondent’s child support in 2014/15 starting June 1, 2014.
[45] The claimant relies on Neff v. Neff, 2015 BCSC 2385 to support her position.
[46] In Neff, counsel for the plaintiff is the same counsel appearing for the claimant in this action. Counsel did not bring to the attention of G.P. Weatherill J. in Neff, the Court of Appeal’s decision of McKenzie v. Perestrelo, 2014 BCCA 161 or de Bruijn v. de Bruijin, 2011 BCSC 1546. In these cases, one of the issues was whether, for purposes of determining child support, RRSP withdrawals ought to form part of the payor’s income. The Appeal Court in McKenzie referred to case law, not only in British Columbia, but also other provinces in Canada.
[47] Madam Justice Kirkpatrick, for the Appeal Court, summarized the law relating to this issue at para. 82:
[82] There is no clear rule about the inclusion of RRSP withdrawals in a payor's Guideline income; this is left to the discretion of the judge hearing the case: Burzminski v. Burzminski, 2010 SKCA 16 at para. 11. However, there are some guiding principles from the case law that may be summarized as follows:
* RRSP income is presumptively part of a spouse's income for child support purposes because it forms part of a person's total income on a tax return and it is not listed as an exemption in Schedule III of the CSG. The spouse seeking to exclude the RRSP amount bears the burden of demonstrating that treating his or her RRSP withdrawal as income would not lead to the fairest determination of income: Fraser v. Fraser, 2013 ONCA 715 at paras. 97-99.
* The fact that the RRSP was equalized in the division of property between the spouses does not mean that RRSP withdrawals will be excluded from income for the purpose of determining child support: see Fraser v. Fraser, 2013 ONCA 715 at para. 102 (adopting Aitken J.'s reasoning in Stevens v. Boulerice, [1999] O.J. No. 1568):
[102] Second, Aitken J. observed that the equalization was a matter between the parents while the issue before her was a question of child support. She could see no reason why an available source of income to fund child support should be excluded because of dealings between the parents. The child support was not being paid to increase the mother's lifestyle.
* However, there is a general rule that "income generated from marital property which has already been divided should not be brought into income for purposes of determining the amount of support payable to a payee spouse": Brown v. Brown, 2012 NBCA 11 at para. 16 (emphasis added), reconsideration allowed on a different issue, 2012 NBCA 69. This indicates that regard must be had to whether spousal or child support is at issue.
* Where RRSP withdrawals are regular and a spouse's only source of income they are more likely to be included as income for the purpose of determining support: for example, see Edgar v. Edgar, 2012 ONCA 646.
* On the other hand, there is no presumption that "non-recurring withdrawals from RRSPs should be automatically excluded from income for child support purposes": Fraser v. Fraser, 2013 ONCA 715 at para. 105.
* Where a spouse has contributed to an RRSP and withdrawn that amount in the same year, it may be unfair to include both the contribution and withdrawal in the Guideline income: Dillon v. Dillon, 2005 NSCA 166 at paras. 28-29.
* The court will consider the reason for the withdrawal. For instance, RRSP withdrawals have not been included as income where:
o The amount has already been accounted for in the division of assets and was used to fund legal fees: de Bruijn v. de Bruijn, 2011 BCSC 1546 at para. 34.
o The amount has been used to repay a debt incurred by the other spouse in their joint names: K.A.M. v. P.K.M., 2008 BCSC 93 at para. 51.
[48] She further concludes as it relates to Mr. McKenzie:
[83] Thus it seems clear from the jurisprudence that there is a presumption that RRSP withdrawals should be included in income for the purpose of calculating child support and, depending on the decision with respect to the division of that asset, in the calculation of spousal support. The presumption may be displaced by an array of circumstances.
[84] In this case, Mr. McKenzie bore the burden of establishing that the presumption should not apply, a fact which seems not to have been drawn to the attention of the judge.
[85] Nevertheless, it is clear the judge considered the purpose for which the withdrawal was made (to pay legal expenses) and the fact that the withdrawal was non-recurring.
[49] In de Bruijn, the Court found that Mr. de Bruijn had withdrawn RRSPs to pay legal fees and other expenses, which should not be income in determining child support.
[50] In J.D.C. v. K.L.M.F.C., 2016 BCSC 509, the respondent, when she liquidated her RRSP, took a portion of the claimant’s share before its division. Armstrong J. resolved this issue by increasing, by one-half, the total amount of the RRSP liquidated for each party. In doing so, Armstrong J. relied on McKenzie.
[51] Presumptively, RRSP withdrawals should be included in the respondent’s income for determining child support. The burden rests with the respondent to provide evidence for its exclusion from his 2013 income.
[52] I have reviewed the respondent’s Affidavit #3. Nowhere does the respondent explain his reasons for withdrawing $32,394.16 from his RRSPs or provide evidence as to how it was spent.
[53] Based on McKenzie, and for purposes of determining child support in 2014, the respondent’s income for 2013 was $138,157.16. This amount is less his union dues in 2013. This requires a table amount of child support of $1,231.00 each month, starting on June 1, 2014 and payable up to and including May 1, 2015. The respondent has paid the following amounts of child support for this period as recorded by the Family Maintenance Enforcement Program (“FMEP”):
[54] Starting June 1, 2014, up to and including September 1, 2014, the respondent made four payments of $1,167.00 ($1,167.00 x 4 = $4,668.00).
[55] On October 1, 2014, the respondent paid $674.25. On November 1, 2014, he paid $1,178.59 ($674.25 + $1,178.59 = $1,852.84).
[56] From December 1 up to and including May 1, 2015, the respondent paid $968.59 each month ($968.59 x 6 = $5,811.54).
[57] The total payments from June 1, 2014 to and including May 1, 2015 was $12,332.38. Based on the required payments pursuant to the Guidelines, the respondent should have paid 12 payments of $1,231.00 for a total of $14,772.00 ($12,332.38 - $14,772.00 = $2,439.62).
[58] The claimant, in her written argument, claims retroactive adjustment for child support during this period from June 1, 2014 to May 31, 2015 is $3,148.92. However, in doing so, the claimant bases it on a shortfall of the respondent of $314.00 per month, without taking into consideration some of the actual payments made in different amounts.
[59] The respondent shall pay to the claimant $2,439.62 as the shortfall for the year June 1, 2014 up to and including May 1, 2015.
Respondent’s Personal Income - 2014
[60] The respondent’s income in 2014 is as follows:
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Line 150 income |
$73,621.39 |
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Employment T4 (Finning Tractor Ltd.) |
$20,653.59 |
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Taxable dividends |
$61,832.00 |
|
Rental income (gross $17,100.00) |
<$9,014.10> |
|
Taxable capital gain |
$149.89 |
|
Other income |
$.10 |
[61] The claimant argues that Dantek’s pre-tax income, or some of it, should be added to and included in the respondent’s income for purposes of determining child support.
[62] The respondent, in his Affidavit #3, swears to the following:
21. I worked as a heavy duty mechanic for Finning up until approximately the end of 2013 or beginning of 2014. Upon leaving Finning, I began working through my company, Dantek Enterprises Ltd. Dantek obtained a contract with Graham Brothers Construction to provide heavy duty mechanic services and I provided those services through Dantek. This arrangement lasted from approximately January 2014 to March 2015. In March of 2015, Graham Brothers Construction terminated the employment arrangement with Dantek and I was laid off. Dantek Enterprises had its best financial year ever, and since, in 2014. Attached as Exhibit “B” to this my affidavit is a copy of Dantek Enterprises Ltd. financial statement for the period ending December 31, 2014. Because the business was new, and I had significant business expenses, I was only able to take from the company $73,620. Attached as Exhibit “C” to this my affidavit is a copy of my Notice of Assessment for 2014.
22. After being laid off in March of 2015, I had significant difficulty in trying to find employment. I was able to work with Veg Auto and Industrial for approximately four to six weeks in July 2015 and Ledcor Pipeline from the first week of August of 2015 to the third or fourth week of September, 2015. I next worked at Ledcor Pipeline – Foothills for one week in February of 2016 and then I obtained more permanent work with Emil Anderson Construction beginning February 29, 2016. My work for Veg Auto and Ledcor was done through Dantek, however, I was hired on as an employee with Emil Anderson.
23. In 2014, my gross business income was $299,632. Minus business expenses of $122,811, my net business income was $176,821. Income tax paid by the corporation was $20,805 and, therefore, I had $156,016, on paper, as the available income in the business. In 2014, I took a dividend of approximately $60,000 and had some employment income of $20,000.
[63] Dantek’s pre-tax income in 2014 was $176,821.00. The claimant argues that additional income of $100,000.00 from Dantek’s pre-tax income should be added to the respondent’s Line 150 income for the year 2014, which rounded is $173,620.00.
[64] The claimant alleges in 2014, the respondent took $60,000.00 in dividends. This is simply not true. Mr. Krenz' evidence, which I will refer to later, confirms the respondent took $60,000.00 from Dantek’s bank account and placed it in his bank account. This amount was not declared as a dividend, nor was is it declared as income. It is not undeclared income. The allegation of the respondent receiving $60,000.00 in dividends from Dantek arises from an email from the respondent’s counsel:
October 05-15 3:37 PM
Ms. Oien:
Upon a brief review of Mr. Worsfold’s Financial Statement, I see that he deposes he has Guideline Income of zero. At page 5, he deposes that he has negative income of $42,722.80. Are these typos?
Surely, he cannot expect my client, or the court, to rely on those numbers to establish his spousal support obligations.
Please provide me with an accurate estimate of what he expects his Guideline income to be for 2015 forthwith. Even a running total of what has transpired in the year would be useful. It is in both parties’ interests for the upcoming JCC to be productive. They should not go into it without full disclosure. I expect to be able to provide you with my client’s F8 tomorrow afternoon.
Regards,
Joaquin A. Mariona
October 06-15 7:54AM
Dear Mr. Mariona,
Thanks, I was wondering about that.
This is what my client tells me. He took a $60,000 dividend in January (which he probably shouldn’t have) and he hasn’t been able to take any money since. He has been living off his overdraft which is soon to be maxed out. If he makes any money in his business it all goes to business debt and expenses to work. So, the bottom line is that he doesn’t have any income and won’t have until the oil industry picks up in the North. I suspect it was the wrong time for him to go out on his own.
He is paying the child support in accordance with his line 150 income from his 2014 Income Tax Return.
I hope this is helpful.
Yours very truly,
Carolyn Oien.
[65] Unfortunately, the respondent adopted his counsel’s version under oath.
[66] The claimant argues that the respondent’s income for table child support should be $173,620.00, which requires the table payment of $1,498.00 each month from June 1, 2015 to and including May 1, 2016. This would require total payments of $17,976.00 for that period. During this period, as recorded by FMEP, the respondent paid 12 payments of $688.83 for a total of $8,265.96. This leaves a shortfall, based on the claimant’s argument, of $9,710.04.
[67] The respondent explains as to why pre-tax income of Dantek cannot be used to determine child support for the period from June 1, 2015 to and including May 1, 2016 in his Affidavit #3 as quoted above.
[68] Dantek had one contract providing heavy duty mechanical services to Graham Brothers Construction from approximately January 1, 2014 to March 2015. The contract was terminated. Dantek had no other employment or contracts. The respondent states because the business was new, he could not take the full pre-tax income that the claimant proposes because he had significant business expenses. He further states that he had difficulty finding work for Dantek and sets out in his Affidavit #3, which I will refer to later, as to the contracts he obtained for Dantek and those he worked personally.
[69] Section 18(1) of the Guidelines permits the court to include corporate pre-tax income when determining the payor’s income for purposes of child support:
Shareholder, director or officer
18(1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse’s annual income to include
(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or
(b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income.
[70] In Hausmann v. Klukas, 2009 BCCA 32, citing Madam Justice Huddart in Kowalewich v. Kowalewich, 2001 BCCA 450, who adopts Madam Justice Martinson’s comments in Baum v. Baum (1999), 182 D.L.R. (4th) 715 (B.C.S.C.) the purpose of s. 18(1)(a) of the Guidelines and factors that should be taken into consideration whether any or all of pre-tax corporate income should be considered in determining the payor’s income for child support:
[32] In Kowalewich, Madam Justice Huddart comprehensively analyzed s. 18 and the related sections of the Guidelines. In particular she commented on the purpose and application of s. 18:
[43] In this regard, I find helpful the view Justice Martinson expressed in Baum v. Baum (1999), 182 D.L.R. (4th) 715 (B.C.S.C.) at para. 28:
Valid corporate objectives may differ from valid child support objectives. The purpose of s. 18 is to allow the court to "lift the corporate veil" to ensure that the money received as income by the paying parent fairly reflects all of the money available for the payment of child support. This is particularly important in the case of a sole shareholder as that shareholder has the ability to control the income of the corporation. See Bhopal v. Bhopal, [1997] B.C.J. No. 1746 (S.C.), Blackburn v. Elmitt (1997), 34 R.F.L. (4th) 183 (B.C.S.C.) and McCrea v. McCrea, [1999] B.C.J. No. 1514.
...
[54] The Guidelines allow a court to include all of the pre-tax income of a corporation for the most recent taxation year in a spouse's annual income for Guideline purposes. They do not require it. I am not persuaded they make the inclusion of all pre-tax income the default position.
...
[58] It seems to me regard should also be had to the nature of the company's business and any evidence of legitimate calls on its corporate income for the purposes of that business. Justice Drake cautioned about not killing the goose who lays the golden eggs. Monies needed to maintain the value of the business as a viable going concern will not be available for support purposes. In my view they should not be included in determining annual income. In Hollenbach v. Hollenbach, 2000 BCCA 620 (B.C.C.A.), the trial judge recognized the need for a reserve for depreciation as an appropriate factor to be considered in a real estate business. Justice Dorgan recognized Mr. Kowalewich's business expansion plan as a valid business purpose in a retail business.
[59] I do not recite these factors to suggest this Court should tinker with a trial judge's exercise of discretion, nor that a trial judge should second guess business decisions. I do say that a trial judge must have regard to the evidence of legitimate business needs in determining what portion of pre-tax corporate income to include in annual income for Guideline purposes.
[71] The onus lies with the payor parent to convince the court that the corporation may need to retain some or all of its corporate pre-tax for valid business reasons. In considering this need, there must be some supporting evidence when the court exercises its judicial discretion under s. 18(1)(a).
[72] However, looking at Dantek’s assets and liabilities, it had a modest amount of cash – $2,494.00 – and liabilities of $30,861.00 consisting of accounts payable and income tax due. The only management salary paid that year was $860.00. There are no other salaries or wages paid. The respondent was the only employee. In other words, the respondent received nothing from Dantek for his work other than the declared dividends of $50,000.00, grossed-up to $61,830.00, which were paid after income taxes of $20,805.00 and taking into consideration the previous loss of 2013 of $27,177.00.
[73] The Appeal Court found that it is an error in law to look at the retained earnings rather than the pre-tax earnings in the application of s. 18(1)(a) of the Guidelines: Hausmann at paras. 51 and 65.
[74] In Hausmann, the Court concluded:
[67] Having regard to the onus referred to above, the evidence, the absence of a clear explanation of the legitimate calls on Pioneer's pre-tax corporate income, and the chambers judge's acceptance of Mr. Mynett's evidence as to the available income, I would impute to Mr. Klukas all of the pre-tax corporate income of Pioneer for the purpose of s. 18. The total available for the payment of child support would therefore be:
|
|
2003 |
2004 |
2005 |
|
Total income from personal income tax returns with Schedule III adjustments |
$420,525 |
$345,776 |
$516,607 |
|
Pre-tax corporate income |
$349,295 |
$297,936 |
$293,865 |
|
Total available |
$769,820 |
$643,712 |
$810,472 |
[75] In Hodgkinson v. Hodgkinson, 2011 BCSC 634, the trial judge recognized and accepted, in determining the amount of available pre-tax earnings for child support, that Mr. Hodgkinson’s business was “highly dependent upon availability of capital” and “dependent upon commodity markets” and that Mr. Hodgkinson’s business experienced highs and lows.
[76] The respondent in this case provides an explanation as to why pre-tax earnings at Dantek should not form part of his income in 2014 for determining child support at paragraphs 21-23 of his Affidavit, as set out above.
[77] Because Dantek was a new business, the respondent stated he was only able to take $73,620.00 from the company.
[78] I accept the respondent’s explanation. In addition, there was a loss suffered in 2013 that must be considered. Further, in early 2015, Dantek lost its contract with its only customer, Graham Construction. It is clear that when preparing its financial statement, to take only $50,000.00 in dividends, the respondent would have known that business would be tough in 2015, despite the efforts taken by the respondent to find new customers. Not all the pre-tax earnings must be taken into account when determining child support: Hodgkinson at paras. 63-64.
[79] I will attribute some pre-tax earnings to the respondent; an amount of $15,000.00.
[80] I find the respondent’s income for child support payments for the income tax year 2014 is $88,621.39. This requires a payment of child support from the respondent of $823.00 per month from June 1, 2015 to and including May 1, 2016. The total payment for that period should have been $9,876.00. The total amount paid in this period was $688.83 each month, except for the month of October 2015, when the respondent paid $689.66. The respondent should have paid an additional amount of $1,610.21 of child support.
Respondent’s Personal Income – 2015
|
Other Employment Income |
3,500.00 |
|
Rental Income |
<7,541.13> |
|
RRSP income |
$252.00 |
|
Line 150 income |
<3,789.13> |
[81] In 2015, the respondent earned Line 150 income as -$3,789.13. He has employment income of $3,500.00, loss in his Kamloops rental investments of $7,541.13 and RRSP income of $252.00. There was no evidence or argument made that the rental residence loss was unreasonable based on unreasonable expenses. No such argument was made for the loss of rental income in the year 2014 either. Despite this, the respondent continued to pay child support from June 1, 2016 to and including May 1, 2017. In June and July 2016, the respondent paid $668.83. A further payment was made in July 2016 by the respondent to FMEP in the amount of $788.97. After that and starting in September 2016, up to and including May 2017, the respondent made eight payments of $688.84 and one payment of $590.97 for a total of $8,228.29. The respondent made no application to reduce child support based on his lack of income, so he continued to pay the amounts described above.
[82] In 2015, the respondent owed the company $26,550.00. In the previous year, 2014, the amount he owed the company was $2,494.00. I will explain, when dealing with Mr. Krenz’ evidence, how this came about.
[83] In 2015, Dantek’s revenues were $94,596.00. Its expenses were $127,754.00 for a loss of $33,158.00. After a tax recovery, the net loss was $28,902.00.
[84] Of the $94,596.00 income earned by Dantek, it earned from Veg Auto and Industrial, working for it from mid-June 2015 to the end of August 2015, a gross amount of $5,898.84. In that same year, Dantek worked for Ledcor from August 8 through to about the end of September 2015, and earned $32,048.63, which included GST of $1,497.13. When working for Veg Auto and Industrial, Dantek’s hourly rate was $37.00 per hour and for Ledcor the hourly rate was $101.50.
[85] Although the respondent does not explain the difference in the hourly rates, I expect that given some of the evidence of the hourly rates of heavy duty mechanics, the $37.00 per hour rate refers only to the work performed by the respondent, while the rate of $101.50 per hour is Dantek’s shop rate.
[86] In its financial statement for 2015, Dantek spent $16,003.00 for education and training taken by the respondent. The respondent was seeking a different occupation unrelated to heavy duty mechanic and took education and training towards that end. The claimant alleges that it is unreasonable and that it is a personal expense. Whether it is or it is not, Dantek still would suffer a loss and there would not be an increase in the amount of child support the respondent actually paid.
Respondent’s Personal Income – 2016
[87] The respondent earned:
|
Line 150 income |
$118,254.47 |
|
Employment income T4 |
$57,207.29 |
|
Rental income |
$5,529.36 |
|
RRSP |
$54;278.61 |
|
Other income |
$1,116.80 |
|
Union dues |
($1,897.84) |
[88] The income the respondent earned as T4 employment income was $57,207.29. This consists of $3,926.29 from Ledcor and $53,281.00 from Emil Anderson Construction.
[89] From the period of June 1, 2016 to May 31, 2017, and based on the respondent’s 2016 income tax return, the claimant argues the respondent’s Guideline income of $118,254.00, requires monthly child support of $1,071.00. I do not have any evidence of the child support paid to FMEP by the respondent from June 1, 2017 and thereafter.
[90] The respondent’s position is the RRSP should not be taken into consideration. His explanation for withdrawing funds from his RRSP is contained in part of paragraph 25 of his Affidavit where he says “I had to cash out RRSPs in 2016 in order to survive in the amount of $54,278.61”. He then states in paragraph 26:
26. To make ends meet in 2015, I had to use my line of credit secured against my home. As of April 30, 2015, the outstanding balance on my mortgage and line of credit was $415,250.69. In September 2015 I had the line of credit portion increased from $52,499.17 to $146,373.51. By December 31, 2015, the increased line of credit was at its maximum with a balance of $148,843.99. I still had my mortgage loan of $354,876.63 and, therefore, the total indebtedness against my home as of December 31, 2015 was $503,720.62. Attached as Exhibit “J” to this my affidavit are my RBC Homeline Plan statements from April 1, 2015, which is the first month after I was laid off from Graham Construction, to December 31, 2015, which shows how I was able to live and pay the child support payments I did when my income was almost nothing. Since January 1, 2016, I have been able [to] bring down that line of credit to $443,423.63 using the rent payments and making ongoing payments. Attached as Exhibit “K” to this my affidavit is a copy of my RBC Homeline Plan statement to January 31, 2017.
[91] This meets the McKenzie factors in that the respondent was paying down debt which had accumulated during Dantek’s poor year in 2015. Further, the income of RRSPs is non-recurrent. As a result, I conclude that the respondent’s income in 2016 is $55,409.45, less his union dues, plus rental income of $5,529.36 and other income of $1,116.80 for a total of $62,035.61. This requires the respondent to pay a monthly child support payment of $576.00 starting June 1, 2017, and payable on the first day of each and every month thereafter, up to and including May 1, 2018, at which time child support will be adjusted again.
[92] The parties will have to determine on their own as to the ongoing payments made starting and after May 1, 2017.
[93] Based on the respondent’s 2016 income, the respondent shall pay, starting June 1, 2017 up to and including May 1, 2018, child support of $576.00 each month.
[94] I have found that the respondent’s income for the years 2013, 2014, 2015 and 2016 required the respondent to pay child support payments in differing amounts. The respondent is to pay for 2014/15 $1,231.00 each month; for 2015/16 $823.00 each month; for 2016/17 the amount paid by the respondent is unchanged; and for 2017/18 $576.00 each month.
[95] I order that FMEP make all adjustments retroactive in their records. Any default fees or interest shall be adjusted accordingly to reflect the amounts paid by the respondent or the amounts he should have paid.
[96] Without any adjustment for interest or default fees, the respondent owes the claimant $4,049. 83. This amount does not reflect any payments made, or payments that should have been made, after May 31, 2017.
EVIDENCE OF JAMES KRENZ
[97] Mr. Krenz is the respondent’s and Dantek’s chartered accountant. He prepared all of Dantek’s financial statements, as well as the respondent’s income tax returns that were before the court. The financial statements are for the years 2013 to 2016 inclusive, as are the respondent’s personal tax returns.
[98] It is not disputed that the respondent took $60,000.00 from Dantek’s account and deposited it into his personal account on June 7, 2015.
[99] Mr. Krenz testified that the respondent paid back to Dantek $22,700.00 and paid $7,054.80 of Dantek’s expenses. Mr. Krenz had all bank statements, Visa and credit cards statements necessary to come to this conclusion.
[100] Mr. Krenz testified that in 2015, $3,500.00 of income described in the respondent’s 2015 income tax return as “other income”, is part of the $60,000.00 that the respondent took from Dantek. Mr. Krenz testified that this amount of $3,500.00 is so small that Canada Pension Plan and income tax payments are not required to be deducted.
[101] Earlier in these reasons, I referred to an amount that the respondent owed Dantek. That amount owing was $30,283.00.
[102] Mr. Krenz testified, if this amount is not paid back in 12 months, after Dantek’s year-end, it must be treated as income or dividends in the respondent’s hands for tax purposes.
[103] Mr. Krenz explained it is possible that the one-year payback is extended if the shareholder, in this case the respondent, pays money to the company and then takes it out again.
[104] Mr. Krenz testified that when the company stops operating, the assets will be sold and the amount owed to the company would be paid to the respondent as dividend or wages reducing the amount owing. In 2013, the respondent owed nothing to the company. In 2014, the respondent owed Dantek $2,494.00 and, by 2015, owed Dantek $26,550.00. In the last year of financial statements, that is 2016, the respondent owed $30,283.00.
[105] If the respondent is no longer operating Dantek, then the $30,283.00 owing will become income or dividends to the respondent. When that happens, the respondent will pay child support based on that amount, together with any other amounts he earns.
[106] The claimant provided evidence that the respondent’s girlfriend, who lives in Alberta, has incorporated a company in Alberta speculating that the respondent will be providing heavy duty mechanic services from that company. I cannot, as asked by the claimant, make advance rulings. The claimant suspects that the Alberta company will pay wages to the respondent’s girlfriend. If that occurs, it is likely that the claimant will raise s. 18(2) of the Guidelines, in particular:
…or benefits, to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.
Special or Extraordinary Expenses
[107] Pursuant to the separation agreement, special or extraordinary expenses are defined in s. 7(1) of the Guidelines. The parties agreed that special or extraordinary expenses would be paid in proportion to the parties’ respective incomes.
[108] In the separation agreement, Andrew’s special expenses are identified as “any medical expense in excess of $100.00 per year net of benefits”. This is a much shortened version of s. 7(1)(c) of the Guidelines which states:
(c) health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy and prescription drugs, hearing aids, glasses and contact lenses;
[109] Extraordinary expenses are identified in the separation agreement as child care and pre-school expenses and fees. At the time the separation agreement was signed, Andrew was almost four years old. Full-time child care and pre-school are no longer needed as Andrew is now eight years old and in school full time. Andrew is enrolled in a before and after school care program, which the respondent contributes. I find before and after school care is a special expense as the claimant is employed full-time.
[110] The claimant’s income is the amounts set out for the following years:
|
2013 |
|
|
Line 150 income |
$72,306.39 |
|
Spousal support |
$73,247.62 |
|
Commission income |
$2,008.23 |
|
|
|
|
2014 |
|
|
Line 150 income |
$73,539.25 |
|
RRSP |
$.08 |
|
Commission income |
$1,025.00 |
|
|
|
|
2015 |
|
|
Employment income T4 |
$80,475.76 |
|
|
|
|
2016 |
|
|
Line 150 income |
$115,918.86 |
|
Universal Child Care Benefit |
$360.00 |
[111] According to the separation agreement, as with the table child support, the proportionate share of special or extraordinary expenses is adjusted each year at the same time as the table child support is adjusted. I do not know the payments the respondent has made towards special or extraordinary expenses. If any adjustments need to be made, they will have to do that between themselves, based on the income I have found for each party.
Claimant’s position
[112] The claimant states that she is agreeable that special or extraordinary expenses be shared equally. The claimant also seeks the cost of extraordinary expenses for baseball and hockey.
Respondent’s position
[113] The respondent opposes the sharing equally of special or extraordinary stating that they should be in proportion to their respective incomes. The respondent is not agreeable to paying for baseball and hockey.
Discussion
[114] The claimant has provided no case law which would permit me to order special or extraordinary expenses be shared equally; except of course, if the parties’ incomes were equal.
[115] The evidence before me as to the special or extraordinary is in the claimant’s Affidavit #2:
40. Andrew is involved in hockey and baseball. I spend approximately $750 in fees per year in those activities, not including equipment. Andrew enjoys those activities. Furthermore, the Respondent does not oppose Andrew participating in those activities. He simply does not wish to pay for them. I attach herein as Exhibit “I”, a copy of an e-mail from my counsel to the Respondent’s counsel with regard to that specific issue.
41. I have repeatedly asked the Respondent to reimburse me for the hockey and baseball fees. Up to this time, I have spent $940 ($380 for two seasons of baseball and $560 for one season of hockey). Thus, I seek reimbursement from him in the sum of $470.
42. I note that Andrew has also participated in swimming and skiing. I am not seeking reimbursement from the Respondent in that regard.
[116] Exhibit “T” is an email from the claimant’s counsel to the respondent’s counsel in which the claimant is asking about the payment for hockey and baseball expenses. The respondent answers the claimant’s allegations set out above in his Affidavit #3 as follows:
41. In response to paragraph 40, the problem is the Claimant does not ask me if enrolling Andrew in those activities is agreeable to me. She enrolls him in activities and then tells me that I have to pay for the activity. I have never been asked by the Claimant to pay swimming or baseball fees, or seen receipts, with the exception of one receipt the Claimant gave me for hockey and told me to pay 100% of it. I received one email regarding hockey and there were no “multiple requests”. In 2015 when I had no income, paying for these kinds of expenses was impossible for me. In response to paragraph 41, again, I have the same issue with the Extraordinary Expenses.
[117] As paragraph 41 states, the respondent does not state that he is opposed to Andrew participating in these activities, he states that he just cannot afford them.
[118] The issue is whether Andrew’s participation in baseball and hockey are extraordinary expenses.
Statutory Framework for Special or Extraordinary Expenses
[119] Sections 7(1) and 7(1.1)(i)(ii) are as follows:
Special or extraordinary expenses
7 (1) In a child support order the court may, on either spouse’s request, provide for an amount to cover all or any portion of the following expenses, which expenses may be estimated, taking into account the necessity of the expense in relation to the child’s best interests and the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family’s spending pattern prior to the separation:
(a) child care expenses incurred as a result of the custodial parent’s employment, illness, disability or education or training for employment;
(b) that portion of the medical and dental insurance premiums attributable to the child;
(c) health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy and prescription drugs, hearing aids, glasses and contact lenses;
(d) extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child’s particular needs;
(e) expenses for post-secondary education; and
(f) extraordinary expenses for extracurricular activities.
Definition of “extraordinary expenses”
(1.1) For the purposes of paragraphs (1)(d) and (f), the term extraordinary expenses means
(a) expenses that exceed those that the spouse requesting an amount for the extraordinary expenses can reasonably cover, taking into account that spouse’s income and the amount that the spouse would receive under the applicable table or, where the court has determined that the table amount is inappropriate, the amount that the court has otherwise determined is appropriate; or
(b) where paragraph (a) is not applicable, expenses that the court considers are extraordinary taking into account
(i) the amount of the expense in relation to the income of the spouse requesting the amount, including the amount that the spouse would receive under the applicable table or, where the court has determined that the table amount is inappropriate, the amount that the court has otherwise determined is appropriate,
(ii) the nature and number of the educational programs and extracurricular activities,
[120] The British Columbia Court of Appeal discusses extraordinary expenses in Bodine-Shah v. Shah, 2014 BCCA 191:
[66] Special expenses listed in ss. 7(1)(a)-(c) and (e) are distinct from extraordinary expenses referred to in ss. 7(1)(d) and (f). Special expenses are defined as relating to child care, medical or dental insurance premiums, health-related costs, and post-secondary education. They must be found to be reasonable and necessary. Extraordinary expenses are not defined. Their extraordinariness is determined in the context of the combined income of the spouses, as well as other considerations, including the nature and amount of the individual expense, the nature and number of the activities, any special needs or talents of the child, and the overall cost of the activities. They also must be found to be reasonable and necessary. Relevant considerations for the tests of necessity and reasonableness include whether the expenses are necessary in relation to the child's best interests, and reasonable having regard to the means of the spouses, the child, and to the family's spending pattern prior to separation. See McLaughlin v. McLaughlin (1998), 57 B.C.L.R. (3d) 186 at paras. 81-82 (C.A.). In assessing "means", the court may consider the parties' capital assets, income distribution, debts, third-party resources, access costs, support obligations, receipt of support, and any other relevant factor: Delichte v. Rogers, 2013 MBCA 106, 37 R.F.L. (7th) 81 at para. 38. Courts may consider whether the non-custodial parent was consulted regarding the expense, though a lack of consultation does not automatically preclude a finding that the expense is reasonable and necessary: Delichte at paras. 39, 44.
[121] The claimant, in an email dated October 10, 2016, stated:
Dan,
…Andrew wanted to try hockey this winter, so I am letting him [give] it a go…here is the receipt for it as per the ‘special expenses’ in our agreement. I will send an October calendar asap, since I now have his schedule for October.
Happy Thanksgiving
Rosie
[122] The claimant sent to the respondent an account and receipt for $560.00 relating to hockey. The word “novice” appears in the account. I have inferred that this relates to Andrew’s level of hockey. In an email dated June 3, 2017, the claimant sent the respondent receipts for Andrew’s baseball of $150.00 and $40.00. Both receipts bear the word “tadpole”, which I infer is Andrew’s level in baseball. There is no evidence before me whether the expenses are extraordinary as analyzed in Bodine-Shah.
[123] It is not sufficient to say that a child participates in certain activities and they are automatically extraordinary.
[124] Andrew is only eight years old. I infer that he is likely at the beginner level in both these sports. That is not to say that these activities in the future, or some other activity, may become extraordinary. I find that at this time, baseball and hockey are not extraordinary. There is no evidence the claimant cannot afford them. Her income, since the signing of the separation agreement, has increased. I find at this time, baseball and hockey are not extraordinary.
[125] The respondent will continue to pay for before and after school care in proportion to the claimant and his respective incomes as reviewed annually.
COSTS
[126] This summary trial took three days and a very short part of a fourth day.
[127] Confusion arose over whether the respondent received $60,000.00 in dividends or not. The respondent misled the claimant about the payment of this amount; I might say, unintentionally. This led the claimant to believe that the respondent took from Dantek $60,000.00 in undisclosed income. It appears not to have been straightened out until a letter written by Mr. Krenz, at the request of the respondent, dated July 14, 2017.
[128] The claimant has been successful as to retroactive child support. The respondent has been successful in defending extraordinary expenses. In order to reflect the respondent’s success, I order costs to the claimant for only two days of this summary trial relating only to child support and not parenting arrangements, as that issue was resolved. This means that there will be no costs as to the preparation on account of the issue of parenting arrangements.
[129] The claimant will not have her disbursements for the copying of bank account statements and Visa accounts for Dantek or for those of the respondent. The respondent did not deny taking out $60,000.00 from Dantek’s account and placing it in his account.
[130] The costs to the claimant are pursuant to the Supreme Court Family Rules, B.C. Reg. 169/2009 at Scale B.
“H.C. Hyslop J.”
HYSLOP J.
Appendix “1”
