December 31, 2020 – Imputing Income To Self-Employed Payors (Who Don’t Disclose)

“In Drygala v. Pauli (2002), 2002 CanLII 41868 at paragraphs 56 and 57, the Court of Appeal stated that the onus is on the party requesting imputation of income to establish an evidentiary basis for it and the determination to impute income is always discretionary based on the circumstances of each case.

In the same case, the Court notes:

First, the court should determine whether the spouse in question is intentionally under-employed or unemployed.   In this context, “intentionally” means a voluntary act; i.e., where the parent chooses not to work, or to earn less than he or she can earn.  Existence of such an intention does not require a finding of bad faith, or a specific intent to evade or secure child support.  A parent is intentionally under-employed within the meaning of s.19(1)(a) of the Guidelines if he or she earns less than he or she can earn, having regard to all the circumstances.  He or she is intentionally unemployed, within the meaning of s.19(1)(a) of the Guidelines, when he or she chooses not to work when capable of earning an income.

Second, if the court finds intentional under-employment or unemployment, in the sense required, the court must then determine whether that was and/or is required by virtue of the parent’s reasonable educational needs, the needs of a child, or reasonable health needs.

Third, if the answer to the first stage question is “yes”, and the answer to the second stage question is “no”, the court normally moves on to determination of the income that should be imputed in the circumstances.

The law is clear that using historical income is inappropriate; the only time that a historical approach may be appropriate is where there is no more current information available to the Court; the Court’s task is to determine present income. Whora v. Whora [2016] O.J. No. 2851; Morrissey v. Morrisey [2015] P.E.I.J. no. 51; Meyer v. Content 2014 ONSC 6001 CanLII, [2014] O.J. No. 4992.

The applicant has the burden of persuading the court that the application of section 16 of the Guidelines would not be the fairest determination of that income: Fung v. Lin, 2001 CanLII 28193 (ON SC), [2001] O.J. No. 456 (S.C.J.) at para. 11.

The onus is on the party to establish that the opposing party is intentionally underemployed.  He/she must establish an evidentiary basis upon which this finding can be made:  Homsi v. Zaya, 2009 ONCA 322 CanLII, [2009] W.D.F.L. 2480 at para. 28.

The Supreme Court of Canada has held that payors must not arrange their financial affairs to prefer their own interests over those of their children. (Citation omitted). Further, a parent will not be permitted to knowingly avoid or diminish his or her obligation to support his or her children. Wilson v. Wilson, 2011 ONCJ 103 CanLII at 20.

In Wilson v. Wilson, supra, the Court stated as follows with respect to padding back certain business expenses:

…. the Guidelines expressly provide in section 19(2) that the determination of whether an expense is reasonably deducted from a payor’s income is not governed by whether it is properly deducted for income tax purposes.  Common expenses that may legitimately be deducted for income tax purposes, but personally benefit the payor to the detriment of his or her children include expenses for car, home office, travel and entertainment.

A self-employed person has the onus of clearly demonstrating the basis of his or her net income. As stated in Wilson, supra, this includes demonstrating that the deductions from gross income should be considered in the calculation of income for support purposes.

Such payors have an inherent obligation to put forward not only adequate but comprehensive records of income and expenses, from which the recipient can draw conclusions and the amount of child support can be established…The onus rests upon the parent seeking to deduct expenses from income to provide meaningful supporting documentation in respect to these deductions, failing which an adverse inference may be drawn.” Wilson, supra at 22, citing Whelan v. O’Connor, 2006 CanLII 13554 (ON SC), 2006 CarswellOnt 2581; Meade v. Meade, 2002 CanLII 2806 (ON SC), 2002 CarswellOnt 2670; and Orser v. Grant, 2000 CarswellOnt 13554.

Of course, it is difficult for a party seeking to impute income to get to the first step, laying the evidentiary foundation, where the party against whom income is sought to be imputed makes little or no financial disclosure to the court:  Di Bratto v. Sebastiao, 2015 ONSC 1996, at para. 179.”

Atis v. Atis, 2019 ONSC 7553 (CanLII) at 109-118