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William H. Abbott, Partner

IMPUTING INCOME UNDER THE CHILD SUPPORT GUIDELINES
By William Abbott and Gary Joseph
MacDonald & Partners LLP¹

Introduction

One of the innovations in family law introduced by the Child Support Guidelines is a step-by-step procedure for determining income for a support order.

In many circumstances simply looking at line 150 of an individuals tax return will no provide an accurate number as to their income and what support should be based on. A court also has the power to impute income. Section 19(1) of the Guidelines provides that, “The court may impute such amount of income to a parent or spouse as it considers appropriate in the circumstances, which circumstances include,

“(a) the parent or spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of any child or by the reasonable educational or health needs of the parent or spouse;
“(b) the parent or spouse is exempt from paying federal or provincial income tax;
“(c) the parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
“(d) it appears that income has been diverted which would affect the level of child support to be determined under these guidelines;
“(e) the parent’s or spouse’s property is not reasonably utilized to generate income;
“(f) the parent or spouse has failed to provide income information when under a legal obligation to do so;
“(g) the parent or spouse unreasonably deducts expenses from income [where “the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act” (CSG, s. 19(2)];
“(h) the parent or spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and
“(i) the parent or spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.” (CSG, s. 19(1))”

The categories in this list from (a) to (i) are not exhaustive of the circumstances in which income may be imputed. Room for other circumstances is left open by the word “including” at the beginning of the list. The list is illustrative of the circumstances in which the court may exercise its power, without limiting the power, to “impute such amount of income to a parent or spouse as it considers appropriate.” This paper only deals with those items that fall under 19(1) (a), (c), (d), (g) and (h)

Section 20 of the Guidelines, which is the last section in the series of sections dealing with determining income, provides that where a parent or spouse is a non-resident of Canada, his or her annual income is determined as though he or she were a resident. However, where the income tax rates are higher for the non-resident in his or her home country the “annual income is the amount which the court determines to be appropriate taking the higher rates into consideration.” (CSG, s. 20 (1) and (2))

Case Law on Determination of Income

Add to income the deduction for real property capital cost allowance. In C. (S.K.) v. F. (B.A.) 2006 NBQB 278, 2006 CarswellNB 447 (N.B. Q.B.), the court added to the father’s income the capital cost allowance deducted from the rental income from two apartment buildings that he owned.

In Wilson v. Desrochers (2006), 2006 CarswellOnt 4279 (Ont. S.C.J.), a deduction for the capital cost allowance for land was added back into the father's income.

Add real property capital cost allowance and purchase to be consumed next year. In Magnes v. Magnes 1997 CarswellSask 418 (Sask. Q.B.), adjustments to be made to the payor’s income from farming were the addition of $2,150 which had been deducted for real property capital cost allowance, as well as a $5,000 deduction made in the last year for the purchase of fertilizer for use in the following year.

Add to income the deduction for depreciation of real property. In Ghosn v. Ghosn 2006 CarswellNS 37, additional reasons at 2006 CarswellNS 285, the parties derived income from the development of large rental properties. On an application by the mother, the father’s annual income was imputed to be $294,000. Of this amount, $244,000 was found to be rental income. Included in this rental income was all depreciation of the rental properties, as the properties were substantial and were located in desirable rental areas. They were very durable assets that would increase in value, and the mortgages had been reduced since the parties divorced. (An additional $50,000 was imputed to the father for his various investments, as he refused to provide complete financial information. His spending habits supported the conclusion that his income was significantly higher than declared on tax returns.)

(d) Calculating Income for Purposes of Determining Support - Sources of Income: CSG, s. 16

Stock option income. Even though a parent's stock option income does not give rise to the fairest determination of the parent's income for Guidelines purposes, stock option income can have an effect on the appropriate amount of child support under s. 3(2): Arnold v. Washburn 2001 CarswellOnt 4439 (C.A.).

(f) - Shareholder, Director or Officer – Adding Corporate Pre-tax Income: CSG, s. 18(1)(a)

Two different methods for adjusting shareholder’s income. Where the payor is a shareholder of a corporation and the total income on his personal income tax return does not fairly reflect the money available for child support, s. 18(1)(a) and (b) provide two methods for making adjustments in relation to the income from the corporation. The first method is the corporate income method (s. 18(1)(a)), and the second is the personal services method (s. 18(1)(b)). In selecting the method to apply in a particular case, the court should consider: (1) which method produces an annual income that more fairly reflects "all the money available to the spouse for the payment of child support;" and (2) which method does the nature of the spouse's relationship with the corporation support. The nature of the spouse's relationship with the corporation will be decisive in some cases. Where the payor wholly controls the corporation, for instance, the corporate income method is likely to be the fairer method to use. This is because it allows a court to include not only reasonable payment for personal services but also a reasonable return on the owner's entrepreneurial capacity and investment. Moreover, the corporate income method requires the inclusion of the income of related companies, and of non-arms length payments made without value for the company. Where ownership and control is shared with others, however, the personal services method may be the fairer one. But even where ownership and control is not shared with others, the personal services method may be recommended such as where the company's only business is the provision of personal services for its owner. There may be cases, also, where circumstances relating to the stability of income having regard to s. 17 situations will persuade a court to choose the personal services method: Kowalewich v. Kowalewich, 2001 CarswellBC 1417 (C.A.).

Controlling shareholder’s ability to defer payment of income. “[A] shareholder with a controlling interest in a company has the ability to choose between methods of receiving money or money's worth from a company, some of which may qualify as income, such as salary, bonuses and dividends, and others which may not, such as payment of benefits and personal expenses, repayment of shareholders' loans and dividends. Similarly, that shareholder may defer the payment of personal income by retaining it within the company. The Guidelines recognize that 'income' that qualifies as income under the Income Tax Act is not necessarily income for the purpose of determining the payor's ability to pay an appropriate level of child support. The rules under ss. 17-20 of the Guidelines permit the court to take into account the flexibility that a corporate structure provides a shareholder to either defer income or change its characterization”: A. (S.H.) v. A. (W.D.), 2002 CarswellBC 1144 (S.C.). However, ss. 17 and 18 of the Guidelines should not be applied in a manner that ignores the prudent operational requirements of the business.

Purpose is to prevent payor from hiding income. The purpose of s. 18 is to prevent a paying spouse from using a corporation to hide personal income. Its purpose is not to have the court direct the way in which an individual is to operate his or her business: Lyttle v. Bourget, 1999 CarswellNS 273 (S.C.). In this case, the court relied on the evidence of a specialist in taxation and a certified valuator. Among other matters, the court found that the paying spouse's retention of over $200,000 in retained earnings from his dentistry practice to be legitimate.

Piercing corporate veil mandated by s. 18. “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”: Baum v. Baum (1999), 182 D.L.R. (4th) 715 (B.C. S.C.)

In Arsenault v. Arsenault, 1998 CarswellOnt 1488 (Gen. Div.), the court held that it was appropriate to pierce the corporate veil in the following circumstances:

(a) The individual exercises complete control of finances, policy, and business practices of the company.
(b) That control has been used by the individual to commit a fraud or wrong that would unjustly deprive a claimant of his or her rights.
(c) The misconduct must be the reason for the third party's injury or loss.

All of those criteria applied in this case. The father had absolute control of the company, as he was the sole shareholder, director and officer. His actions in determining when and how moneys were to be paid by the corporation to him resulted in the frustration of the operation of the Family Responsibility and Support Arrears Enforcement Act. Consequently, support was not flowing in a regular and orderly fashion to the applicant and the children. The court stated: “[A] piercing of the corporate veil for the purpose of imputing income is not only mandated, but set out in detail in section 18 of both the Federal and Provincial Child Support Guidelines. It could be argued that section 18 of the Guidelines is a codification of a common practice in the Courts across Canada when imputing income for the purpose of setting the appropriate level of child or spousal support.” In this case the father’s income as a computer programmer for a hospital was channeled through his company. The court found that the hospital was the income source and that the payor was the father or his limited company.

Piercing the corporate veil permitted. In Wildman v. Wildman, 2006 CarswellOnt 6042 (C.A.) the Court of Appeal upheld the trial judge’s order that all amounts owing by the husband be secured by way of a charge against him personally and against his companies (even though the companies had not been made parties to the action). The separate legal personality of a corporate entity could be disregarded where it was completely dominated and controlled by the payor spouse and being used as shield for improper conduct. Piercing the corporate veil was contemplated by s.18 of the Guidelines in certain cases. Here the husband was sole owner of, and exercised complete control over businesses which he structured to divert money from them to his personal use. Allowing him to hide behind the corporate veil, would be flagrantly opposed to justice.

Impute corporate pre-tax income only for current year. In Morley v. Morley (1999), 44 R.F.L. (4th) 442 (Q.B.), the court considered whether a portion of a corporation's retained earnings could be included in the income of the respondent. However, as it is only the pre-tax income of a corporation, or a related corporation, for the most recent taxation year that may be included in a spouse's income and the corporation in question showed a net income loss, there was no pre-tax income of the corporation to be included in the respondent's income for the purpose of paying child support. The court also observed that there were many sound business reasons for accumulating net income in a corporation as retained earnings, not least of which may be to offset net income losses in the future or to satisfy the requirements of lending institutions.

May impute all corporate pre-tax income. In Riel v. Holland 2003 CarswellOnt 3828 (C.A.), the court rejected the contention that s. 18 imposes a cap or ceiling on the use a court may make of a spouse's income from a corporation. The ceiling in both subparas. (a) and (b) of subs. 18(1), would be the corporation's pre-tax income including any "add-ons" flowing from s. 18(2).

Where the paying spouse is the sole shareholder of a company, the court may, pursuant to s. 18(1)(a) of the Guidelines, add the company's pre-tax income to the payor's salary to determine his income: Rudachyk v. Rudachyk, 1999 47 R.F.L. (4th) 363 (Sask. C.A.). In this case the trial judge had added the payor's construction company's pre-tax income to the shareholder’s personal income.

Taking into account the pre-tax income of the husband's corporation, the services provided by the husband to that corporation and related corporations, the benefits paid by corporate entities on behalf of the husband, and the preseparation lifestyle, the court attributed income of $150,000 to the husband for purposes of determining interim support: Shelleby v. Shelleby 1997 CarswellOnt 2232 (Ont. Gen. Div.).

In Brine v. Maarsmen, 2006 CarswellBC 904 (S.C.), the court imputed income of $100,000 to the father, even though he had declared in the parties’ agreement that his income was $36,000. The father had a trucking business operating through five corporate entities. His business in its 2004 consolidated company financial year-end showed an income of $194,631. As well, on an application for a mortgage in September of 2004, the father, under the heading "employment information," stated his employment income as $200,000, being self-employed as a transportation broker. The plaintiff said that it was her understanding that when the parties lived together, the defendant had a discretionary income of approximately $100,000 a year. The parties agreed that s. 18 (1)(a) of the Federal Child Support Guidelines would apply.

In Sagl v. Sagl (1997), 31 R.F.L. (4th) 405 (Ont. Gen. Div.); additional reasons at (1997), 35 R.F.L. (4th) 107 (Ont. Gen. Div.), the court was concerned that the payor/father deliberately withheld his tax returns so as to make it more difficult for the court-to calculate his income and to make an informed application of the Guidelines. The court held that it could impute income to the father under ss. 18(1)(a) and 19(1)(f) of the Guidelines. As the father has said at trial that he would have an annual income of U.S. $200,000 (Can. $274,680), the court imputed this income to him for purposes of calculating child support.

In Kettner v. Kettner 2006 CarswellMan 158 (Q.B.), the father was a dentist who reduced the time that he devoted to his practice by one and one-half days per week. Before the reduction in time, his total income was $319,885.35 in 2002, and $295,994.66 in 2003. His practice was incorporated, but he controlled the corporation and was the only dentist the corporation employed. In imputing an income of $322,300 to him, the court included all of the pre-tax income of the corporation. There was no evidence that retained earnings were required for future capital requirements or business contingencies. The fact that the reduction in his practice income was consistent with the reduction in amount of time that he devoted to his practice supported the conclusion that the pre-tax income of corporation fairly reflected the money that was available to him for child support purposes.

Where the payor was a dentist who carried on his practice through his company with his professional service as the sole source of income for the company, the court should consider the pre-tax income of the company in order to determine the true value of the services of the payor: Blackburn v. Elmitt (1997), 34 R.F.L. (4th) 183 (B.C. S.C. [In Chambers]). The court found that the payor's annual income for child support purposes should be determined by adding together the corporation's pre-tax income and the payor's employment income.

Imputing corporate pre-tax income to controlling shareholder. The payor in Jess v. Strong (1998), 169 N.S.R. (2d) 271 (S.C.), was one of three shareholder/director/employees of an offshore oil company and had a one-half interest in a holding company which owned all the shares of his corporate employer and 90 per cent of a new company that dealt with industrial environmental cleaning services. The payor could determine the exact amount of his taxable income through a corporate structure which paid him a combination of salary, bonus and dividends, taking into account his needs, tax implications for himself and the companies and the amount of retained earnings for the companies. The court held that the payor could arrange payment to himself of his share of the net profit of both operating companies without seriously undermining the financial health of those companies and accordingly additional income was imputed to him for purposes of the Child Support Guidelines.

No imputation of corporate pre-tax income where only 50% shareholder. Income from a corporation should not be attributed to the payor for the purposes of determining child support where the payor owns 50 per cent of the issued shares of a company, the other shareholder is his business associate, a party unrelated to the litigants, and the corporation has experienced a loss before tax in its most recent taxation year: Beeching v. Beeching (1998), 40 R.F.L. (4th) 15 (Sask. Q.B.). Further, a corporation is a juridical entity and its profits belong to the corporation and are retained as earnings until the directors declare dividends, subject to any restrictions in the articles, unanimous shareholder agreements, or the Business Corporations Act. The power to pay dividends is fiduciary in nature and must be exercised in good faith and in the best interests of the company.

Corporate pre-tax income of 51% shareholder. Averaging corporate income. In Giene v. Giene (1998), 234 A.R. 355 (Q.B.), the father owned 51 per cent of the common shares of a company and his second wife owned 49 per cent of the shares. The court was satisfied that the second wife's interest was purchased at fair market value and considered only the portion of the corporation's pre-tax income which was attributable to the father’s 1 per cent. The father's annual income did not fairly reflect all the money available to him for the payment of child support. The corporation had a pre-tax profit, in 1996, 1997 and 1998, and the father projected a loss of $100,000 in 1999. In order to determine the father's corporate pre-tax income, the court attributed 51 per cent of the average of the last three years' earnings before income tax, together with the projected loss in 1999. The court calculated that the father's Guideline income was $126,754 made up of his personal income of $77,691 and the sum of $49,063 which had been determined pursuant to s. 18(1)(a) of the Guidelines.

Balancing imputing income and business obligations of corporation. In Tauber v. Tauber 2001 CarswellOnt 2842 (S.C.); affirmed 2003 CarswellOnt 1009 (C.A.), it was held that in determining the amount of the company’s pre-tax income to include in the shareholder/payor’s income, the court should balance the need to maintain the day-to-day operations of the company against the amount to be made available for child support. Here, particular attention was paid to the potential decline in company revenues.

In Kowalewich v. Kowalewich, 2001 CarswellBC 1417, (C.A.), the amount of corporate income imputed to the husband was reduced on appeal. His income was derived solely from a number of businesses he owned and his income had originally been set as a portion of the pre-tax income of these businesses. While this overall approach was appropriate, the trial Judge had not properly taken into account the contingencies affecting the businesses and the need for capital reserves.

No excessive amount of retained earnings. Only where the payor spouse has control over the corporation and has caused the corporation to retain an excessive amount of retained earnings should corporate income be imputed to him: Blaine v. Sanders, 144 Man. R. (2d) 300 (Q.B.). While in this case, the payor spouse controlled the corporation, he had not caused the corporation to retain earnings unduly. He had a 51 per cent interest in the company and his second wife has a 49 per cent interest.

(g) Parent or Spouse's Services to the Corporation: CSG.s. 18(1)(b)

Amount commensurate with services to corporation. In Dench v. Dench 2005 CarswellOnt 2624 (S.C.), the husband owned a used car company, and a car dealership which in turn owned a holding corporation. Pursuant to s. 18(1)(b), the court considered adding to his personal income an amount that was commensurate with the services that he provided to the company. The court found that he could get a position managing a car dealership at a remuneration of between $100,000 and $125,000 per year. The amount available in the company to the husband for support, while allowing the company to remain viable and providing for some internal financing of the company's operations, was $150,000 per year.

In Bartkowski v. Bartkowski, 2003 CarswellBC 712 (S.C. [In Chambers]), where the payor spouse controlled three companies with his brother, the court, in interim proceedings, concluded that in determining the payor's income, it must value the payor's personal services to the companies pursuant to s. 18(1)(b). Even though the court did not have evidence of the companies' value or of income paid or other positions comparable to the payor's, the court determined that the payor's income was $300,000, comprised of $255,000 as suggested by the payor and $45,000 which would recognize his contribution to management of the companies, but which would leave an amount for reasonable reserves.

(h) Calculating Income for Purposes of Determining Child Support -- Adjustment to Corporation's Pre-Tax Income for Non-Arm's Length Payment or Benefits: CSG.18(2)

Payments to parents not reasonable. In Tauber v. Tauber 2001 CarswellOnt 2842 (S.C); affirmed 2003 CarswellOnt 1009 (C.A.), payments from the payor's company to his parents were not considered reasonable and were added back into the corporation's income. The payor’s mother did no work for the company and when the father retired, his position was not filled.

Rental payments to father added back to corporate income. In Tauber v. Tauber, where the payor made rental payments for a building owned by his father, but had not established that the payments were reasonable, the court should add back into the corporation's income, the amount of the increase above the historical amount of the payments.

Onus on payor. In S. (L.) v. P. (E.) 1997 CarswellBC 2083 (S.C.); varied 1999 CarswellBC 1402 the court held that the onus shifts to the defendant to prove the reasonableness of salaries paid to non-arms length's recipients arises after the plaintiff has made out a prima facie case of unreasonableness. In this case, the court found that there was evidence of considerable active involvement of the defendant's spouse in the corporate business operations.

(i) - Imputing Income: CSG, s. 19

Categories for Imputing Income are Open-Ended. The categories in s. 19(1)(a) for imputing income are not exhaustive of the circumstances in which income may be imputed. They may be expanded to include other circumstances. “The wording of s. 19 of the Guidelines is open-ended (‘which circumstances include’), thus indicating that the categories listed in that section are merely examples of situations in which income may be imputed”: Riel v. Holland, 2003 CarswellOnt 3828 (Ont. C.A.).

The listed circumstances do not purport to be comprehensive and do not interfere with the power of courts to impute income in other circumstances: Quintal v. Quintal 1997 CarswellOnt 3213 (G.D.)

New categories to be similar in purpose. While the grounds enumerated in section 19 are not exhaustive, any new grounds should be similar in purpose. The purpose is to attribute income to a spouse who, for whatever reason, be it purposeful or not, has not supplied the court with a true indication of his or her income: Mascarenhas v. Mascarenhas 1999 CarswellOnt 12 (G.D.); affirmed 2000 CarswellOnt 3887 (Div. Ct.)

Reasonableness and fairness. The imputation of income is a judicial exercise and there must be a rational and evidentiary basis for doing so. It must be governed by the principles of reasonableness and fairness. Drygala v. Pauli 2002 CarswellOnt 3228 (C.A.); additional reasons at 2003 CarswellOnt 17 (C.A.).

(j) - The Parent or Spouse is Intentionally Under-Employed or Unemployed: CSG, s. 19(1)(a)

Meaning of intentionally – no intent to evade support obligations needed. To be “intentionally” under-employed does not require bad faith. “ There Is no need to find a specific intent to evade child support obligations before income can be imputed.” A spouse is under-employed if that spouse chooses to earn less than she or he is capable of earning. Intentionally used in the context of the section means a voluntary act and “makes it clear that the section does not apply to situations in which, through no fault or act of their own, spouses are laid off, terminated or given reduced hours of work”: Drygala v. Pauli 2002 CarswellOnt 3228. (C.A.); additional reasons at 2003 CarswellOnt 17 (C.A.). The father's goal of obtaining his B.A. and Bachelor of Education so that he could become an elementary school teacher was reasonable. The court found that he could work 50 per cent of a normal work week. Consequently, an income of $16,500 or half of his full-time earnings as a tool and die maker was imputed to him.

Intentionally unemployed. In Hearn v. Bacque 2006 CarswellOnt 3561 (S.C.J.), the parties two children lived with their father at the time of the application. The mother had remarried and had two more children. She had not worked outside the home for eight years. Her withdrawal from the work force was pursuant to a decision made jointly by her and her husband, as opposed to the demands of necessity, therefore her unemployment was not "required." Her obligations to all four children were considered and balanced against the need for a support order and the necessity to impute an income. Since she had been out of work force for eight years, and job prospects were less favourable, an income at the level of her previous income should not be imputed to her. In the circumstances the court imputed an income of $20,000.

In Iddon v. Iddon 2006 CarswellOnt 294 (S.C.J.), the court found that the father was under-employed and became bankrupt in part to avoid paying his child support obligations. He did not provide medical evidence of a disability and took no meaningful steps to retrain or seek new employment. The court imputed an annual income to him of $36,000 based on its assessment of his achievable income.

In Trafford v. Trafford 2006 CarswellOnt 6456, (Ont. Ct. Jus.), the father filed income tax information showing that his income in 2005 was $15,500. However, taking into account that he had recently become trained as truck driver, and that he was no longer in receipt of employment insurance benefits, the court found that he was capable of earning $500 per week as truck driver. An income to him of $26,000 per year was imputed to him..

Intentionally under-employed not working to capacity. In Van Gool v. Van Gool 1998 CarswellBC 3028 (C.A.); additional reasons at 1999 CarswellBC 667, (C.A.), the British Columbia Court of Appeal observed that the considerations for imputing income to a spouse under s. 19(1)(a) of the Guidelines are similar to the analysis the court engaged in prior to the enactment of the Guidelines under the former child support provisions of the Divorce Act and the Family Relations Act (British Columbia). Under those provisions, in making or varying child support orders, the courts considered not only the income a spouse was in fact earning, but the amount he or she could earn if working at full capacity. Commensurate with such considerations as age, health, education, skills and work history, a person is expected to take reasonable steps to acquire employment. The chambers judge in this case erred in failing to find that the mother was intentionally under-employed within the meaning of s. 19(1)(a) taking into account her limited and desultory efforts to obtain part-time employment (as a life guard), her failure to comply with the directions of the court as to the ongoing steps to be taken to maximize her employability, the history of the relationship between the parties, including her lack of regard for the truth in earlier proceedings, and her ongoing hostility toward the father.

In Sparrow v. Sparrow 2006 CarswellAlta 573 (C.A.) reversing in part (2005), 2005 CarswellAlta 1327 (Q.B.), the husband was a lawyer who chose to practice as a sole practitioner with modest billable hours and hourly rate. His annual income ranged from $44,000 to $135,000. The trial judge imputed to him an income of $120,000 a year, which the father appealed on the ground that it was too high. In dismissing the appeal, the court referred to the trail judge’s findings that the husband’s income varied from year to year and that some of his office expense, although appropriate for tax purposes, likely included items that had an element of personal benefit. In addition, he had admitted that the marriage breakdown had contributed to a reduction in his income so he could be expected, once the trail was behind him, to earn more income in the future. And finally, he had purposely worked modest billable hours at a modest hourly rate.

In Kuznecov v. Kuznecov 2006 CarswellBC 1262 (S.C.), the husband was a stockbroker who also earned an income from investing in the stock market, providing services to companies as a financial analyst, and gambling by playing poker and betting online. After the separation his investing and gambling activities were restricted by a restraining order freezing the assets that were normally available to him. Because of the nature of his activities, it was difficult to determine his income, but even after making allowances for the restraining order, the court was not satisfied that since the separation he fully utilized any of his skills. In considering his future prospects, with the restraining order no longer in place, the court imputed to him a total annual income of $150,000. With respect to financial consulting, he previously earned $30,000.00 to $60,000.00 per year and the court was satisfied that he could earn at least $60,000.00 in this capacity, if he chose to do so. Based on his past history, he was capable of earning a regular income of at least $20,000 a year from gambling. During a period of seventeen months when he was subject to the restrictions of the restraining order, he earned approximately $117,000 from investing. For the future, $80,000 a year was reasonable to impute to him for investment income. In addition, in order to place him on the same footing as a person whose income was as a wage earner, it was necessary to take into account the fact that his winnings were non-taxable, and that the investment income, if capital gains or dividends, were taxed at a lower rate. This was to be done by "grossing up" the amount of the income.

Where a payor parent stubbornly continues to follow a career path that permits him or her to pay a level of support demonstrably inadequate to meet the children's needs, when he or she has the proven ability to earn more, then he or she will be found to be "intentionally underemployed" within the meaning of s. 19(1)(a) of the Guidelines: .Hunt v. Smolis-Hunt, 1998 CarswellAlta 427 (Q.B.); reversed on other grounds 2001 CarswellAlta 1357 (C.A).

In Kettner v. Kettner (2006), 2006 MBQB 103, 2006 CarswellMan 158 (Man. Q.B.), the father was a dentist who reduced the time that he devoted to his practice by one and one-half days per week. Before the reduction in time, his total income was $319,885.35 in 2002 and $295,994.66 in 2003. His practice was incorporated, but he controlled the corporation and was the only dentist the corporation employed. In imputing an income of $322,300 to him, the court included all of the pre-tax income of the corporation. There was no evidence that retained earnings were required for future capital requirements or business contingencies. The fact that the reduction in his practice income was consistent with the reduction in amount of time that he devoted to his practice supported the conclusion that the pre-tax income of corporation fairly reflected the money that was available to him for child support purposes.

In Guy v. Tulloch 2004 CarswellOnt 2165 (S.C.J.); additional reasons at 2004 CarswellOnt 2154 (S.C.J.), the court imputed a higher income to a chiropractor partly on the grounds that he was not earning what he could reasonably earn, based on his skills and proven ability to generate income. He should have been working longer hours and should have made a more lucrative arrangement with the doctor who worked with him.

In West v. West, 2001 CarswellOnt 1936 (S.C.J.), where the father had discontinued participation in lucrative lecture tours after the separation, he was found to intentionally under-employed and income was imputed to him because there was no good reason justifying his actions.

In Lobo v. Lobo, 1999 CarswellAlta 114 (Q.B.), the court imputed income to the husband. He was trained as an architect and chose to be self-employed as he found that situation allowed him the greatest creative freedom. However, as a result, he was not earning income commensurate with his education, ability and experience and had placed the expression of his creativity before the interests of his children.

In Lawson v. Lawson 2006 CarswellOnt 4789 (C.A.), where the payor had worked full-time as a skilled tradesperson for a cable company during the marriage, but subsequently lost his employment and did not apply for other positions in his field, preferring to pursue farming on a full-time basis, the Court of Appeal upheld the trial court's finding that the payor was intentionally unemployed. The evidence included the payor's earning history and the poor financial results of the farming operation during the marriage. An income of $60,897 was imputed to him based on the average of his annual income for three years prior to the separation.

In Lowe v. Lowe 2006 CarswellOnt 160 (S.C.J.), the Court held that even where a payor is employed and working a full work-week, income will be imputed to him if he is not challenging his income-earning abilities. The father, an engineering technician, had over $20,000 imputed to him when the Court found that he could be earning $68,000, but instead chose to earn $45,000 at a position he had held for the last nine years, which offered an easier working environment than the position that would offer him $68,000.00 to perform similar duties.

In C. (M.E.) v. J. (D.E.) 2006 CarswellBC 2956 (S.C.), the father claimed he had no income although he had a master's degree in city planning and had provided an affluent lifestyle for his family during cohabitation under the marriage, including the use of a pleasure boat, cars and other recreational vehicles. He and his wife had accumulated significant RRSP savings and he had an interest in six companies. In a deposition, he referred to having business affairs but gave no indication of what business affairs were, and why they were incapable of generating income. He was highly qualified and given the amount of family assets accumulated during the marriage, the court concluded that he must be able to generate a substantial income. His alleged lack of income appeared to correspond almost precisely with the parties' separation. Even if his fortunes had taken a turn for the worse, he had an obligation to support his children and was not justified in refusing to seek alternative employment. The court imputed an annual income to him of $75,000.

In B. (S.M.) v. B. (L.M.) 2006 CarswellAlta 235 (Q.B.), where a mother, who held master's degree in occupational therapy, earned employment income of $56,500 in 2003, $13,769 in 2004 and $22,800 in 2005, the court imputed an income of $56,000 for 2004 and the years following. With her qualifications and experience, it was not reasonable to accept that she was limited to earning an income in the range of $22,800. An income of $56,000 was an appropriate imputed income as it was based on actual employment income earned at a time close to the current date.

Intentionally under-employed not working after maternity leave. In Lachapelle v. Vezina 2000 CarswellOnt 3007 (S.C.J.); additional reasons at 2000 CarswellOnt 3721 (S.C.J.), the court held that income should be imputed to a mother of a newborn child once her paid maternity leave had expired. The mother had neither primary care of the children, nor had there been a period of time during which the mother as the custodial parent had borne an unfair brunt of the financial expenses of children. To give her relief beyond her paid maternity leave would be unreasonable, unfair and not supported by the circumstances of this case.

Intentionally under-employed providing child care. In R. (C.) v. A. (I.) 2001 CarswellOnt 1143 (S.C.J.); additional reasons at 2001 CarswellOnt 1692 (S.C.J.), where the father failed to provide adequate income information; had unreasonably deducted expenses from his income in his business financial statement; and had been intentionally underemployed for four years so that he could provide his share of child care for the parties' daughter, the court found that changes made in the custody order would allow him to take more remunerative employment. Consequently, the court imputed income to him of $40,000 per year for the three months from the date of judgment, and after that an income increased to $55,000 per year.

Intentionally under-employed changing to lower paying employment. In Riel v. Holland 2003 CarswellOnt 3828 (C.A.), the father's appeal from a decision imputing a higher income for child support purposes was dismissed. After the separation, he stopped operating his electrical business and took a salaried position with another company. Payments for his employment continued to be made to his electrical company. The court found that the father's employment decision that would lead to two children receiving approximately one-half of the support they had received previously must be justified in a compelling way. There was nothing in the evidence that provided that justification. His explanation for the job change -- lack of credit, difficulty financing jobs, bad debts, trouble finding big jobs due to a lack of regular employees -- was not credible in light of the strong financial results of his company.

Where the husband turned down a job with his employer with an annual salary of $55,000 for a job with a friend that paid only $36,000, an income of $45,000 was imputed to him for child support purposes. Although he was partially motivated by genuine job-related criteria, he also appeared to base his decision in part on the desire to avoid support. Accordingly an imputed income halfway between the two was appropriate: Brain v. Brain (2000), 4 R.F.L. (5th) 341 (S.C.J.).

The court must consider not only the amount of income a spouse actually earns, but the amount of income a spouse could earn if working to capacity: Bater v. Alessandro 2002 CarswellOnt 7579 (C.J.); affirmed 2002 CarswellOnt 3573 (S.C.J.). The father had been a car salesman but after changing careers operated an onion and potato business. The court found that income must be attributed to him since it was utterly obvious that he could not possibly live the present lifestyle with the income he disclosed. He had both the ability and opportunity to earn income at the levels he had reached prior to separation. There was no evidence he could not find employment in his particular area at a commensurate salary, and in the absence of evidence, the court could draw an adverse inference.

Intentionally unemployed even though unemployed during cohabitation. In D. (M.A.B.) v. S. (L.R.S.), 2006 CarswellBC 115 (Prov. Ct.), where the father had consciously remained unemployed during the parties' cohabitation, with no necessity to work, since he was supported by the mother and latterly by another person, and was the recipient of several inheritances which were not generating income, the court imputed income to him on the basis that he was deliberately under-employed or unemployed.

Intentionally unemployed in educational program. The payor husband was without an income, because he had quit the business where he had been selfemployed to take a business administration and computer course. On an application for interim child support, the court attributed an annual income to him of $30,000 on the basis that he had been earning approximately that amount after personal expenses charged to the business were taken into account. He had "chosen an inopportune time to re-educate himself": Fahel v. Fahel (1997), 1997 CarswellBC 1302 (B.C. Master).

Intentionally under-employed by not working in area of training. The payor spouse may be intentionally under-employed when he has obtained professional training but does not obtain employment in the profession. In this case, the father had obtained a law degree, but had not sought a career in law: Egan v. Egan, 2003 CarswellBC 1 (S.C. [In Chambers]), The court’s refusal to reduce the arrears of child support was not grossly unfair where the payor had not used his education to earn his income and where he suspended payment without an order of the court.

Intentionally under-employed by making capital investments instead of creating income stream. Where the payor spouse is engaged in accumulating capital and property instead of creating an identifiable stream of income, the court may conclude that he is intentionally under-employed and take this circumstance into account when imputing income: Reyes v. Rollo 2001 CarswellOnt 4541 (S.C.J.).

Intentionally under-employed making poor business decisions. In David v. David 2004 CarswellOnt 5185 (S.C.J.), the father was a dentist alleging his income was $72,000.00 even though he operated two practices. The father contended that the two practices were actually decreasing his income because in opening the second practice, he incurred significant debt. It was found that he had intentionally increased his debt to detract from his income, knowing that this would ultimately affect his support obligations. The court would not accept that the father’s conduct was merely poor business judgment. It found that he had arranged his business affairs in order to decrease the support he would owe, and imputed income to him.

Intentionally under-employed by move to another country. In Melzack v. Germain 1998 CarswellOnt 2374 (C.A.), the Ontario Court of Appeal dismissed an appeal from a finding that the appellant's decision to move to Hawaii demonstrated an intention to be under-employed and that he was capable of earning a substantial income. There was no error in principle in imputing income to the appellant in light of his past work history, his business activities and experience, and the level of income he had earned prior to his bankruptcy. The appellant's evidence that he would not be able to find employment in Canada or reestablish himself in business there was not acceptable.

Intentionally under-employed by not working overtime. In S. (R.) v. S. (T.), 2005 CarswellNB 614 (Q.B.), the court held that in order for a spouse to be considered not intentionally under-employed or unemployed he or she must maintain full earning capacity. Full earning capacity is not simply a function of available hours in isolation, Obviously, the availability of overtime or a second job are pivotal factors, but should not always be the only factors considered. With respect to overtime the following factors should be considered:

(a) The necessity of overtime in relation to appropriate support needs. The determination of the necessity is to include a consideration of the condition means and needs of the parties, and the effect of the removal of the overtime amount from income on the pre-existing standard of living enjoyed by the parties.
(b) Any detriment created by the past working of overtime.
(c) The impact on the children of working overtime; i.e. does overtime adversely affect the appropriate care of or the appropriate exercise of access to the children.
(d) Whether the elimination of overtime is a deliberate attempt to avoid otherwise necessary support obligations.
(e) A consideration, in context of the overtime in question, of the age and health of the payor.
(f) The training experience and education of the payor.
(g) The nature of the actual overtime work i.e. quantity, type of work (sedentary or labor intensive), how much notice of the availability or obligation with respect to particular overtime is provided and the effect of same.
(h) The amount of overtime with respect to which there is reason to believe there will be some consistency of availability and appropriate ability to work.
(i) The purpose of past overtime worked. Was it worked of necessity or for a specific purpose i.e. debt reduction, purchase of luxury item etc. and to what extent the need still exits?
(j) Whether the working of the overtime is a mandatory or discretionary from the employer's perspective. Is the working of the questioned overtime to some measure expected or advisable in relation to a person's employment, i.e. employer expectation, historical practice, trade practice or otherwise?
(k) The potential affect of overtime on lifestyle and life quality issues, recognizing the need for all persons not to be unnecessarily thwarted in their pursuit of a rewarding balanced and fulfilled life. (l) Recognition of legitimately arising obligations of others with respect to the support in question.
(m) Such other factors and considerations as appropriate in particular circumstances.

Overtime in many ways is comparable to working at a second job. Simply because it is available and the payor is capable of doing the work, does not mean it should be mandated as a requirement by the courts. In this case, the court found that in all the circumstances, it was not reasonable to expect the father to work the amount of overtime that he once did. However, the court held that the approximate 110 hours he would be able to work in 2005 would be reasonably used for income and not banked time off.

In Odendahl v. Brule 1999 CarswellOnt 1030 (Gen. Div.), where the father ceased working overtime and premium shifts at the commencement of child support proceedings, the court imputed additional income to him. Prior to the proceedings, he had a consistent pattern of working such shifts.

Intentionally under-employed by taking time off instead of working overtime. In Krawczyk v. Krawczyk 1998 CarswellOnt 2552 (Gen. Div.), the payor father was a police officer who was required to attend at court in the course of his employment. For these "court days", he was given the option of receiving $200 a day or taking time off. The fact that during the marriage he took time off in lieu of pay for court days was irrelevant to how the "court days" should be handled after separation and divorce. The court did not accept the payor's contention that he needed to take time off instead of pay for "court days" in order to exercise access. The court attributed additional income of $2,000 to him based on ten "court days" at a value of $200.00 per day for those days which he had taken time off when he could have been working.

Intentionally unemployed self-induced. Where the father had quit two jobs, was unemployed, failed to remove his wife's name from the mortgages on income properties and failed to manage those properties profitably, the court imputed an income of $19,500 per year to him: Monette v. Jordan (1997), 163 N.S.R. (2d) (S.C.).

In Brook v. Brook 2006 CarswellOnt 2514 (S.C.J.), the husband had recklessly lost his job and had not made reasonable efforts to obtain full-time employment, he was intentionally under-employed or unemployed. An income of $50,000 was imputed to him, which was the average of his annual income in the three years preceding the separation.

Intentionally unemployed and supported by son. In Arsenault v. Mann 1998 CarswellPEI 91 (T.D. [In Chambers]), where the father had diverted assets to his son, was unemployed and let the son support him, the court imputed an annual income to him of $10,000 for the purposes of determining his child support obligation towards his daughter. A parent who is without income and is supported by relatives is still obliged to pay child support.

Intentionally unemployed when able to work. In Beggair v. Nixon, 2006 CarswellNWT 27 (S.C.), the court found that income should be imputed to the mother on the basis that she was intentionally underemployed or unemployed. There was no valid reason why she should not seek and obtain employment since the youngest child of the relationship was attending school full-time, and the two youngest children were parented by their father at least 50 per cent of the time. Although she had no particular job skills or work experience, the evidence indicated that she was capable of obtaining at least unskilled employment at minimum wage.

In Lessard v. Lessard 1999 CarswellAlta 408 (Q.B.), the court was satisfied from the evidence that the respondent had done nothing productive toward employment although he was able to. He refused to take medical treatment which he asserted was necessary for him to become employed. The court, after giving him some relief for his alleged disabilities, assumed the respondent could work 40 per cent of the time and attributed to him an income of $14,400.

Intentionally unemployed taking early retirement. In Moffatt v. Moffatt 2003 CarswellOnt 3818 (S.C.J.), the husband, voluntarily took early retirement two years after the parties' separation agreement was signed, The parties had anticipated that the husband would retire five years after he actually did so. The court found that the husband's decision to take retirement and change his lifestyle may have benefited him, but it had a significant negative effect on his two dependent children, as they received $222 less per month than they would have received if their father had remained fully employed. Where a payor voluntarily takes early retirement which benefits him alone, the court should attribute income to him in the amount that he would have earned had he remained fully employed. The payor had the ability to pay support at the table amount as he had significant assets, many of which were liquid and could increase his investment and employment income for purposes of calculating child support. Payment at the higher rate was ordered until the date when the husband had been expected to retire.

Intentionally unemployed after windfall. In Bartole v. Parker 2006 CarswellSask 318 (Q.B.), the father quit his employment after winning a lottery of approximately $3.17 million. After making some major purchases, which were not excessive, the father invested a total of $1,525,575. The court imputed an annual income to him of $128,675 holding that the appropriate basis for calculating income for child support was to add the investment income he earned on his lottery winnings to the amount of employment income that he earned prior to quitting his job. It was his choice to remain unemployed so it was appropriate to impute income to him as if he were still employed.

(l) The parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada: CSG, s. 19(1)(c)

Difference in rates or in application of rates. In B. (A.D.) v. M. (S.A.) 2006 CarswellNS 258 (S.C.), the father lived in Minnesota, U.S.A, and mother alleged that his effective rate of income tax was significantly lower in Minnesota than the rates in Canada. The court considered whether s. 19(1)(c) referred to the difference in the rates or the difference that occurs as a result of the application of the lower rate that needed to be taken into account, and held it was the difference in the rates.

(m) Income has been diverted which would affect the level of child support to be determined under the Child Support Guidelines: CSG, s. 19(1)(d)

Acquiring interest in building diverting income. In Guy v. Tulloch 2004 CarswellOnt 2165 (S.C.J.); additional reasons at 2004 CarswellOnt 2154 (S.C.J.), the father was a chiropractic doctor who practiced in a building owned by a corporation he controlled as the sole shareholder. The court found that it was not necessary for him to own the building in order to carry on his chiropractic practice. His decision to allocate revenue to property acquisition in these circumstances provided a sufficient basis upon which to impute income to him. Section 19 is not exhaustive. However, the expenditure to acquire a capital interest in the building was similar in nature to the circumstances described in s. 19(1)(d), (e) and (g). The amount incurred for mortgage principal should be imputed to him as income for child support purposes. Two-thirds of the property taxes should be imputed as income, also. His practice occupied approximately one-third of the building. Consequently, only those taxes would be incurred by him as a tenant of that space. The court also found that he could work more hours as well as make a more lucrative contractual arrangement with the doctor who worked with him. He was not earning what he could reasonably earn, based upon his skills and proven ability to generate gross billings and that income should be imputed to him. In addition to his current income of $55,200, the court imputed income based on the principal mortgage reduction, two-thirds of the property taxes due on the building, and the restoration of one shift to his patient load, for a total annual income of $102,540.

Diversion of income as business expenses. In Ziomek v. LaSelva 2001 CarswellOnt 1341 (S.C.J.), income was imputed to the Husband, and a retroactive award was ordered for the difference between what he had been paying, and what he should have been paying pursuant to his proper income. He asserted that his self-employment income was $50,000. The Court found that a more accurate estimate would be $250,000. The Court has discretion to add back business expenses of a personal nature, draw adverse inferences in situations where there has been a refusal to produce financial disclosure, and impute income where there are unexplained business expenses, a finding of undeclared income, or where business funds are paid to non-arm’s length individuals. The father claimed business expenses which were nearly half of his gross income, and had subcontracts with immediate family members. He had established another company (that his spouse controlled) for the purpose of income splitting, had incorrectly disclosed automobile expenses in four separate places in his tax return, and arranged his deductions in order to pay only 12% in tax.

Underutilizing corporate earnings only if retained earnings excessive. Only where the payor spouse has control over the corporation and has caused the corporation to retain an excessive amount of retained earnings would s. 19(1)(e) of the Guidelines apply to the retained earnings of the corporation: Blaine v. Sanders, (2000)144 Man. R. (2d) 300 (Q.B.). While in this case, the payor spouse controlled the corporation, he had not caused the corporation to retain earnings unduly. The payor spouse had a 51 per cent interest in a numbered company and his second wife has a 49 per cent interest in the company.

(p) - The Spouse Unreasonably Deducts Expenses from Income: CSG, s. 19(1)(g)

Expense deductions disallowed. In R. (S.) v. R. (N.) 2006 CarswellBC 690 (S.C.), the father alleged that the average annual income from his engineering business was $74,626. The court disallowed unreasonable expense deductions and imputed an income of $95,000 to him.

Expense deductions reasonable. The court in Wedge v. McKenna (1997), 481 A.P.R. 294 (P.E.I. T.D.), found that the expenses claimed by the father were reasonable. He was entitled to deduct expenses incurred to produce rental income. His proportionate share of his law firm's payment toward long-term debt should not be added back into his income, and his proportionate share of the firm's capital cost allowance, a non-cash item, should not be deducted from his share of the expenses. These practices were consistent with the financial evidence, particularly the law firm's financial statements, generally accepted accounting principles, and business reality. Long-term debt is not an income and expense item. Capital cost allowance is a real and allowable expense which addresses amortization of the firm's assets.

Expenses for loan payments and depreciation reasonable. Where the husband drove a truck for a living it was found to be inappropriate that he be allowed to deduct both loan payments relating to the truck as well as depreciation when calculating his income for child support purposes: Tidball v. Tidball (1999), 45 R.F.L. (4th) 437 (Ont. Gen. Div.).

In B. (S.I.) v. B. (M.D.) 2006 CarswellAlta 1068 (Q.B.), the court imputed income to the payor-father for part of the food and entertainment expenses paid by employer, (but did not impute income to him for the use of the employer's vehicle, employer contributions to health and welfare benefits, or the employer's pension contributions).

1. Special thanks is acknowledged for James MacDonald’s Q.C. extensive contribution to this paper.