“In determining the Respondent’s income for support purposes, the default approach under section 16 of the CSG is his Line 150 income as shown on his income tax return. The last tax return filed by the Respondent was in 2019. His Line 150 income in 2019 was $1,362,197.00.
The Respondent, relying upon section 17 of the CSG, submits that his income for support purposes is $180,000.00, which is his current salary with Basecamp. The Respondent submits that his income in the years 2017, 2018 and 2019 reflect non-recurring capital gains and other items and that those non-recurring amounts should be removed. In this regard, the Respondent relies on the Scenario 2 income figures from the Marmer Penner report which results in a three-year average income of $340,000.00 for the period 2017-2019.
In Ewing, at paras. 33-35, the Alberta Court of Appeal provided the following guidance on whether it would be fair and reasonable to exclude a non-recurring gain from income.
33 Thus, the nature of the sale of a capital asset, or other extraordinary gain or fluctuation in income, should always be considered when determining fair income. Frequently the fairest method of income may be to exclude the gain. On the other hand, where a non-recurring gain is in the nature of an employment bonus, in the sense that it is truly income for work done, its inclusion in section 16 income may not make that method of calculation unfair. The sale of stock options as part of annual compensation may be such an example.
34 In addition to considering the nature of the non-recurring gain, or fluctuation of income, it is also important to consider the purpose of support orders when deciding whether a section 16 calculation of income is fair. Support orders are directed at ensuring that, to the extent possible, that children enjoy the same standard of living they would have experienced if the marriage had not broken down. Thus, when determining a fair and reasonable income, the day-to-day standard of living the family would have enjoyed, had it remained intact, is relevant. A court might want to consider whether a specific non-recurring gain would have resulted in a change in lifestyle of a particular family, had it remained intact. For instance, if the family’s standard of living is high to begin with, the unusual gain may not affect the family’s standard of living at all but may simply be seen as a means of providing security for future years. Thus, notwithstanding a large gain, a section 16 calculation which includes the gain might not be the fairest method of calculation.
35 While the courts have the discretion to determine whether the section 16 income calculation is fair, having regard to non-recurring gains and patterns of income, the following, although not an exhaustive list, outlines some of the matters a court might consider:
Is the non-recurring gain or fluctuation actually in the nature of a bonus or other incentive payment akin to income for work done for that year?
Is the non-recurring gain a sale of assets that formed the basis of the payor’s income?
Will the capital generated from a sale provide a source of income for the future?
Are the non-recurring gains received at an age when they constitute the payor’s retirement fund, or partial retirement fund, such that it may not be fair to consider the whole amount, or any of it, as income for child support purposes?
Is the payor in the business of buying and selling capital assets year after year such that those amounts, while the sale of capital, are in actuality more in the nature of income?
Is inclusion of the amount necessary to provide proper child support in all the circumstances?
Is the increase in income due to the sale of assets which have already been divided between the spouses, so that including them as income might be akin to redistributing what has already been shared? [Emphasis added]
Did the non-recurring gain even generate cash, or was it merely the result of a restructuring of capital for tax or other legitimate business reasons?
Does the inclusion of the amount result in wealth distribution as opposed to proper support for the children? [Emphasis added]
The test in s. 17(1) of the CSG is what is “fair and reasonable” having regard to the payor’s income in the preceding three years: Marquez v. Zapiola, 2013 BCCA 433, at para. 53. While it may be appropriate to average a spouse’s income over the last three years, there is no obligation to do so: Decaen v Decaen, 2013 ONCA 218, at para. 50. When a spouse’s income fluctuates significantly due to the inherent unpredictability of income from business interests, the averaging approach can certainly be appropriate: Halliwell v. Halliwell, 2017 ONCA 349, 138 O.R. (3d) 671, at para. 128. In Jakob v. Jakob, 2010 BCCA 136 the British Columbia Court of Appeal, at para. 46, stated:
The calculation of income for the payment of support is based on a payor’s capacity to pay; it is a payor’s income or earning capacity that determines the amount of support he or she will be required pay. Actual income may not always reflect a payor’s capacity to pay. Where income has fluctuated in previous years, in the sense that it has increased and decreased over a fixed period of time, and it is anticipated that it will continue to fluctuate in that manner, it may be appropriate to take an average of fluctuating income for a fixed number of years to calculate a payor’s income or earning capacity.”
In this case, the Respondent’s stated income of $144,000 as well as his current salary of $180,000 does not “fully and fairly” reflect his income when viewed from a three-year perspective. In the last three years, the Respondent’s salary has been only one aspect of his compensation. Amongst other things, scenario 2 of the Marmer Penner report excludes from the Respondent’s income the retention bonuses and RSUs that he has received. I find that the Scenario 2 figures of the RVG report are a better representation of the Respondent’s income for purposes of this interim support motion. Accordingly, taking the three-year average of his 2017-2019 income, I find that it is fair and reasonable to conclude that the Respondent’s income for purposes of this interim support motion is $1,192,666.67 rather than his Line 150 income in 2019 of $1,362,197.00 or his current salary.”