Justice Sherr, a renowned Judge known for his witty and straight forward writing, recently gave a judgement on precisely this matter. In doing so, he analyzed a number of case laws in this area and has given an excellent summary. The case is: Gordon v. Wilkins, 2020 ONCJ 115 3.1.3 Imputing income to persons who are earning less than they should be earning due to their own reckless behaviour or misconduct
[34] In this case, the mother is not submitting that the father is presently earning annual income of $150,000. She is asking the court to impute income in this amount to him on the basis that this is income that he could and should be earning. In summarizing past case law, Justice Sherr has gone through various case laws on this topic and notes as follows: [35] Justice Alex Pazaratz reviewed the legal considerations for imputing income to a person who, due to their own misconduct, is not earning what they are capable of earning in Rogers v. Rogers, 2013 ONSC 1997. Excerpts from this decision are as follows: 39. Section 19 of the Child Support Guidelines allows the court to impute such income to a 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; (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. 40. The list of categories set out in section 19 is not exhaustive. The court has the discretion to impute income in circumstances that are not only analogous but also those in which imputation would be consistent with legislative intent. Bak v. Dobell (2007) 2007 ONCA 304 (CanLII), 86 O.R. (3d) 196 (C.A.) 41. The wording of section 19 of the Guidelines is open-ended (“which circumstances include”), indicating that the categories listed in that section are merely examples of situations in which income may be imputed. There are, therefore, other potential scenarios in which income can and should be imputed. Riel v. Holland (2003) 2003 CanLII 3433 (ON CA), 67 O.R. (3d) 417 (C.A.). 49. Many cases have held that where a payor quits his or her employment, their previous level of income will continue to be imputed to them, irrespective of whether they have become unemployed or employed at a lower wage. At the other end of the continuum, the caselaw has generally held that where a payor loses employment through no fault of their own, the resulting change in income will generally constitute a material change in circumstances, justifying adjustment of the support order.
50. In some cases, it is difficult to determine if a payor is a victim of unfortunate financial circumstances, or whether he or she is the author of their misfortune.
51. But in the Applicant’s case, there is no uncertainty as to cause and effect. He may not have quit his job. But he created and controlled the circumstances under which his job was terminated. He made conscious decisions to do things – illegal things – with the full knowledge that his reckless and anti-social behavior would make him unavailable (let alone, unacceptable) for employment. The net result is the same as if he’d handed in his resignation. [36] In Rogers, Justice Pazaratz found that the father was intentionally unemployed due to his own reckless behaviour, without reasonable excuse. He imputed the base income that the father had previously earned for support purposes. [37] Many courts have taken a similar approach. [38] In Luckey v. Luckey, 1996 CanLII 11217 (S.C.J.), the court did not reduce a support order when the payor lost a job for assaulting a co-worker. [39] In Sherwood v. Sherwood, 2006 CanLII 40795 (SCJ), the court did not reduce a support order when a payor was fired for his own misconduct. [40] In Costello v. Costello, 2012 ONCJ 399, Justice Roselyn Zisman did not reduce the payor’s income for support purposes when he lost his job due to impaired driving charges. [41] In Billingsley v. Billingsley, 2010 ONSC 3381, the court chose not to reduce the payor’s support obligation when he was sentenced to 22 months in jail. [42] In Stoodley v. Klein, 2013 ONSC 3058, the court did not reduce the payor’s support obligation when he lost his employment due to criminal convictions related to assaulting his wife. [43] This court took a similar approach and did not reduce the payor’s support obligation during his eight-month incarceration for assaulting his wife in S.H. v. R.R.A., 2016 ONCJ 255. [44] However, the imputation of income to a payor who is earning less income due to their own misconduct or reckless behaviour is not automatic. It remains an exercise of discretion for the court. [45] In Cote v. Taylor, 2013 ONSC 5428, the court rescinded child support arrears accumulated during the five years the payor was in prison. The court wrote at paragraph 23: [23] I fail to see any rational basis to impute income to Mr. Taylor while he was incarcerated for five years. There may be situations where a payor is convicted of an offence against his spouse or a family member, or of an offence to defeat creditors, where it would offend public policy to allow an incarcerated person to avoid his support obligation because of his crime. (see Bernard v Bernard, [2208] A.J. No. 302 (A.B.Q.B.) at para 42 and 43). However, the matters for which Mr. Taylor was incarcerated, during which time his support arrears accrued, had no connection with his support obligations. I am not prepared to find that although Mr. Taylor had no ability to pay the support ordered to be paid on December 21, 2000, public policy demands that he not be relieved of his obligation because he is benefitting from his criminal act. [46] In S.M. v. M.T., 2018 ONSC 6011, Justice P. MacEachern chose not to impute income to a payor who had been incarcerated for 18 months and would not be able to earn the same level of income after his release from jail. She wrote the following at paragraphs 44 and 45: [44] This matter is not a situation, in contrast to some of the other decisions, where the Respondent’s present incarceration is related to conduct that was motivated by an intention to evade his child support obligation. Although the law in Ontario, under the Drygala v. Pauli decision of the Ontario Court of Appeal, is that there is no need to find a specific intention to evade child support obligations before income can be imputed, the lack of such an intention may still form part of the circumstances the court may consider in determining whether it is appropriate to impute income. [45] Based on all of the circumstances before me, I find that it is not appropriate to impute income to the Respondent for the purpose of paying child support. The Respondent has no ability to pay child support at this time. The consequences of making a child support order that the Respondent has no means of paying exposes the Respondent to further enforcement measures due to non-payment, which ultimately exposes him to the risk of further incarceration. Such a result does not serve the interests of justice, does not provide a fair and just result, and does not assist the best interests of K. [47] The court is also not bound to impute income at the payor’s previous income level if it decides to impute income due to the payor’s reckless behaviour or misconduct. It can impute income in an amount different than what the payor had been earning, or it can impute different amounts of income for different time periods. Courts have a significant degree of discretion when imputing income. See: Menegaldo v. Menegaldo, 2012 ONSC 2915; Tillmans v. Tillmans, 2014 ONSC 6773. [48] In Samaroo v. Monasar, 2016 ONCJ 47, where a payor had unjustifiably quit his job in 2014 and had not found comparable employment by the time of trial, this court decided to maintain the payor’s support obligation from the time he quit his job, and only reduce it beginning in February, 2016. This was determined to be a fair balancing of the consequences of the payor’s decision to quit his job. [49] In Malcolm v. McGee, 2017 ONCJ 357, where a payor was fired from their job due to his misconduct, this court wrote at paragraphs 46 and 47: [47] The court must determine how to allocate the consequences of the father’s poor decisions. The mother argues that the father should bear the entire cost of these decisions – the child should not receive any less support. [48] The court agrees with the mother to some extent. However, at a certain point, an existing order can become unrealistic and unjust due to a payor’s changed circumstances – no matter if those changed circumstances were caused by the payor’s misconduct. The court should conduct a contextual examination of all the circumstances in determining the support amounts it should order.
[50] In Malcolm, the court balanced these factors by maintaining support at the father’s prior income level for seven months before reducing it to reflect his actual income.
3.2 Analysis of the father’s evidence
[51] The father ran his law practice through his solely-held corporation – Paul Anthony Wilkins Professional Corporation.
[52] The father filed personal notices of assessment indicating that his line 150 income for both 2017 and 2018 was $70,000. He told the court at the hearing of this motion that his income declined when his troubles with the Law Society of Ontario began.
[53] The father said that he has been unable to work since his licence was revoked in August 2019. He said that the Canada Revenue Agency (CRA) has placed a lien on his business account. He said that he owes the CRA about $550,000. He said that he owes the bank $250,000 for his line of credit. He claimed to have credit card debts of $23,000 and that he owes the Law Society of Ontario $45,000.
[54] The father told the court at the motion hearing that he plans to file for bankruptcy.
[55] The father filed several job applications he has made since August 2019 to work in the insurance claims field. He said that he has not received any job offers. He told the court that he is being financially supported by friends.
[56] The father told the court at the motion hearing that he sold the family home in September 2019 for about 1.25 million dollars. He claimed that he only cleared $60,000 from the sale of the home and that he paid a debt with that money.
[57] The father was generally not credible and the court found his evidence to be unreliable.
[58] The court does not accept that the father only earned $70,000, as he claimed, in 2017 and 2018.
[59] The father significantly delayed in providing the mother with any financial disclosure. When he did provide financial disclosure, it was woefully incomplete. In particular:
a) He did not comply with a number of extensions to file his financial disclosure.
b) He did not provide complete copies of his 2016 to 2018 personal income tax returns.
c) He did not provide his 2017 and 2018 corporate returns.
d) He provided no income information for 2019, personal or corporate.
e) He did not provide any meaningful backup documentation to establish his revenue and expenses.
f) He provided no evidence about the sale of his home, including a statement of adjustments showing the sale price and how the proceeds were disbursed.
g) He provided no evidence about the debt he claimed to have paid from the proceeds of the sale of his home.
[60] The father was represented by counsel until the fall of 2019. He was advised by the court about his disclosure obligations yet chose to disregard them. The court finds the father’s failure to provide meaningful financial disclosure in a timely manner to have been deliberate and an attempt to avoid his support obligations. It draws an adverse inference against him.
[61] A review of the 2016 reassessment for the father’s corporation shows revenue of $2,187,229, salaries paid of $1,037,915 and net (after-tax) income of $340,324. The father’s personal 2016 notice of reassessment showed income of $210,000. The father provided no explanation or meaningful documentary evidence about how these figures were arrived at.
[62] The 2016 corporate reassessment showed that the father had a thriving legal practice. He was clearly earning much more than $70,000 each year. The father did not provide an acceptable explanation or any supporting documentation that would lead the court to accept that he had such a significant drop in his income after 2016. The court agrees with the mother that it strains credulity that the father earned exactly $70,000 in both 2017 and 2018.
[63] It appears from the disclosure provided by the father that he has not been properly remitting HST/GST and payroll deductions to the CRA and has not been paying his personal and corporate taxes. On November 25, 2019, the CRA sent him a letter indicating that it was seeking income tax arrears from him of $47,017. On December 4, 2019, the CRA sent two letters to him indicating that they are considering assessing him for $232,736 for unpaid GST/HST and $232,736 for unpaid source deductions as the sole director of his corporation.
[64] The father provided no explanation about why his debts are significantly higher than his assets, even taking the CRA claims out of the equation. He was earning substantial money, not remitting HST and source deductions and was underpaying his taxes. Where did all of his money go? Absent a viable explanation, the logical inference at this point is that the father is hiding money.
[65] The father’s credibility is hurt by the revocation of his licence to practise law due to professional misconduct arising out of his misappropriation of trust funds.[3]
[66] The father’s credibility is also hurt by his conduct in this case. He stopped paying support to the mother in May 2019 (although he did pay the mortgage on the family home until September 2019). He did not pay any of the $8,000 the court ordered him to pay to the mother for support. He said that he received $60,000 from the sale of his home in September 2019 and gave none of it to the mother for support. He has actively avoided providing the mother with meaningful financial disclosure. He has delayed this process and has tried to avoid his support obligations.
ANALYSIS:
So, how did the Court analyze the facts and come to a conclusion? Well, the court analyzed the facts in relation to the case laws given above and ruled as follows -
3.3 Determination of father’s income
[67] The court accepts that there has been a reduction in the father’s income since his licence was revoked. He can no longer work as a personal injury lawyer. This was not an attempt by him to avoid his support obligations.
[68] The reduction in the father’s income is directly attributable to his own misconduct and reckless behaviour. The court finds that he is deliberately unemployed by his own actions, without reasonable excuse. Income should be imputed to him.
The above paragraph is important - after analyzing all the cases and Justice Sherr’s comments, in my opinion, if a litigant does something to intentionally and deliberately be unemployed, then, that person has to pay the price of his or her carelessness.
[69] It is likely, based on the evidence produced at this point, that the father earned annual income well in excess of $200,000 from 2017 until his licence was revoked in August 2019. This is even without grossing up his income for paying taxes on a lower reported income to the CRA.
[70] It appears that the father had the ability to pay significant support to the mother from the proceeds of the sale of his home and chose not to do so.
[71] The father has limited his job search to insurance claims positions. He should be widening this search and working.
[72] Balancing these factors, the court will impute the father’s income at $150,000 (the figure sought by the mother) for the purpose of the temporary support calculation for the period from October 1, 2019 until March 31, 2020. Starting on April 1, 2020, the father’s annual income shall be imputed at $100,000 for the purpose of the temporary support calculation. This recognizes the reality that the father is no longer earning $150,000.
[73] This order will take the place of the support terms in the court’s September 20, 2019 order.
[74] The monthly guidelines table amount for two children at an income of $150,000 is $2,077. At an income of $100,000 it is $1,471 each month.
You need a competent lawyer who is well read, well researched and takes the time and effort to get into your facts and issues.
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