Court Grapples With Determining Father’s True Business Expenses

Written on behalf of Arbesman Hamilton LLP

When two parents go through a separation or divorce, one of the biggest issues they may face is that of child support obligations. While the government has policy in place that calculates what a parent should pay based on gross annual income, number of children, and province of residence, there are still situations where ambiguity occurs. Such was the case recently in a decision from the Ontario Superior Court of Justice.

The facts of the case

The couple had two children, a son born in 1994 and a daughter born in 2000. They separated in 2003 after living together for ten years. The children both lived with the mother following the separation. By September 2013 the couple’s son had ceased to be a child of the marriage for child support purposes. However, the mother brought a motion to change child support retroactive to 2011.

The couple had a child support agreement in place in 2013, at which time the father informed the mother his employment had been terminated. The husband produced a letter confirming his loss of employment, and as a result the couple agreed to a change their child support arrangements. It turned out the father had fabricated the letter, which led to a number of negotiations where the parties involved attempted to calculate the father’s annual income from 2011-2016. When they finally agreed on his gross income on January 15, 2018, the issue turned to the father’s claimed business expenses, which would be deducted from his net income for the purposes of calculating child support.

Extremely high expenses

The mother argued the father’s income for child support purposes should have been the amount they agreed to in January 2018. She claimed the expenses claimed by the father were insufficient or incredible, and that he had demonstrated a pattern of hiding income.

The father, meanwhile, claimed his income should be calculated for child support purposes only after deducting significant business costs – sometimes totaling half of his income –  related to car mileage as well as other expenses such as cell phone, internet, gas heating, and book keeping.

What the law says about child support and business expenses

The court turned to a 2017 Alberta Court of Appeal decision, which confirmed the following in regards to business expenses:

  • When a self-employed parent argues that his or her gross income should be reduced by business expenses for purposes of calculating income for child support, the onus of proving that the expenses are reasonable is clearly on that parent.
  • A parent claiming a deduction for business-related expenses must present evidence to justify the expenses.
  • If the claimed expenses also resulted in a personal benefit to the parent claiming the deduction, “an explanation is required for why those expense deductions (or a part of them) should not be attributed to the parent’s income for child support purposes.”
  • Even if expenses have been approved for income tax purposes by the Canada Revenue Agency, this does not mean that the test for deducting expenses from income for child support purposes has been met.
  • “Child support is the right of the child. A parent’s legal obligation to pay child support that fairly reflects the parent’s income in accordance with child support guidelines is not to be constrained or limited by income tax statutes that may confer entitlements in relation to deductibility of business expenses.”

The court’s decision

The court determined that the deductions the father sought in relation to car mileage were reasonable and should be taken into account since it was money paid by his employer to offset car expenses incurred by the father.

However, the court, after being presented with six binders containing thousands of receipts for other expenses, could not justify any further deduction of income. The court wrote, “Despite the amount of paper that was filed and the work I accept must have been devoted to compiling the hundreds of receipts and adding up the totals, the respondent has not provided the evidence I would require to find that the receipts and totals represent expenses that were all actually incurred by the respondent or that they represent business expenses exclusively and not personal expenses.”

The court found the father had been given sufficient time to outline how his expenses related to his employment, but failed to do so. The court also found the father to lack credibility, and did not deserve to be given the benefit of the doubt.

The lawyers of Arbesman Hamilton LLP can help you if you have questions around divorce, separation, or child support. The decisions you must make when going through a stressful time can be difficult, but our pragmatic approach to family law keeps your best interest in mind while aiming to avoid high costs and additional emotional turmoil. Please call us at 416-481-5604 or reach us online to schedule a consultation today.