IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20151030

Docket: E141550

Registry:
Vancouver

Between:

P.T.

Claimant (Respondent on
Appeal)

And

K.T. also known as
D.T.

E.T., in her
personal capacity and

in her capacity as
trustee of the T. Family Trust,

B.W.T. also known
as V.T. and K. Holdings Ltd.

Respondent (Appellant on
Appeal)

Before:
The Honourable Mr. Justice Armstrong

On
appeal from:  An order of the British Columbia Supreme Court, dated May 6, 2015
(P.T. v. K.T., 6 May 2015), Vancouver E141550 (B.C.S.C.)

Reasons for Judgment

[1]            
These reasons concern the respondent’s appeal of an order made by Master
Taylor on June 5, 2015 granting her interim child and spousal support.

[2]            
There is no entered order at this time that the parties requested the
court to hear and consider in this appeal.

[3]            
The application was heard May 6, 2015 and decision given June 5, 2015.

Background

[4]            
The parties were married in 1991 in Greece when the appellant was a
student and the respondent working. The appellant was 23 and the respondent 26.

[5]            
The parties immigrated to British Columbia and the respondent completed
a Master’s degree in electrical engineering while the appellant completed a
degree in computer software development and engineering. She worked as a
software engineer but did not return to work after the birth of A.T. The
appellant had quit her job after 2001 to devote herself to overseeing
construction and management of a family fourplex.

[6]            
In 2001 the appellant was involved in a motor vehicle accident and she
received a global judgment of $1,027,063 for her damages. Of that sum, $740,000
represented future income loss due to the permanent reduction of her earning
capacity.

[7]            
The two children of the marriage are A.T., born October 31, 2003, and
C.T., born January 9, 2007. During the early years, the parties decided that
the appellant would not work while the children were young. The children now
attend local private schools.

[8]            
The children are currently involved in multiple activities including
skating, piano, tutoring and second language lessons. The respondent pays
virtually all of the expenses connected with the children’s school and
extracurricular activities. These expenses total $24,130 per year.

Master Taylor’s Decision

[9]            
Master Taylor awarded the appellant interim child support of $2,104 per
month for two children and interim spousal support of $4,200.

[10]        
The Master commented that the respondent did not take issue that his
2014 line 150 income for child and spousal support purposes was $293,451. In doing
so, he did not include an additional amount the respondent received from
liquidating an RRSP of $39,919. He then referred to section 4 of the Federal
Child Support Guidelines, SOR/97-175 which reads:

Incomes over $150,000

4. Where the income of the spouse against whom a child support order is
sought is over $150,000, the amount of a child support order is

(a)        the
amount determined under section 3; or

(b)        if
the court considers that amount to be inappropriate,

(i)         in
respect of the first $150,000 of the spouse’s income, the amount set out in the
applicable table for the number of children under the age of majority to whom
the order relates;

(ii)        in
respect of the balance of the spouse’s income, the amount that the court
considers appropriate, having regard to the condition, means, needs and other
circumstances of the children who are entitled to support and the financial
ability of each spouse to contribute to the support of the children; and

(iii)       the amount, if any, determined
under section 7.

[11]        
Master Taylor concluded that the basic child
support obligation in the amount of $2,104 per month, for a parent earning
$150,000, was appropriate in the circumstances.

[12]        
He framed his reasons on this point as follows:

[17]      … When one considers that it is the respondent who
has been paying for the bulk of the children’s private schools and activities,
I determined that anything further in interim child support paid to the
respondent per month would be inappropriate. As well, unless there is some
drastic change in the children’s schedule, they will be spending three nights
per week with the respondent at his residence, plus a commencing August 2015
the children will be spending equal amounts of vacation time with each of the
parents.

[13]        
Next, the Court addressed the issue of what income should be attributed
to the appellant in order to calculate spousal support and entitlement to
s. 7 expense contributions. He said:

On the respondent’s financial
statement, she shows no employment income, but chose the amount of $9,616.30 in
2014 as her interest in investment income which is also shown as the total
income to be used for child support or spousal support claim.

[14]        
Although the Master was not asked to make a determination of the
parties’ obligations to pay special or extraordinary expenses, he said it would
be appropriate that the respondent pay 71.6% of those expenses and the
appellant at 28.4%.

[15]        
In his analysis of the respondent’s spousal support obligations Master
Taylor accepted that the appellant had received a judgment for future loss of
earning capacity in August 22, 2011 valued at $740,000. He calculated that
after deducting legal fees from her total damages award, she received 71.2% of
the gross amount. The gross amount of the judgment would have resulted in a
payment of $59,500 per year to age 65. The Master deducted 28.8% of that amount
(representing legal costs) and concluded that the appellant had received the
equivalent of receiving $42,364 annually from the damages awarded for future
loss of earning capacity. He also took into account that she was receiving
interest income of $9,616 in 2014.

[16]        
He did not consider any attribution of additional Guidelines
income to the appellant because these monies were received by her without tax.
The only evidence concerning tax rates was included in the parties financial statements
filed in the application.

[17]        
Master Taylor then determined that on a rough and ready calculation
under the Spousal Support Advisory Guidelines, considering the fact that
the respondent was paying most of the children’s expenses and that the
respondent’s income exceeded $150,000, spousal support should be $4,200 per
month.

Appellant’s Position

[18]        
The appellant argues that Master Taylor made two distinct errors in
arriving at his conclusions regarding the amounts of support payable.

[19]        
First, he erred in not considering the portion of the respondent’s
income exceeding $150,000 contrary to s. 4 of the Guidelines. The
Master did not consider the respondent’s income exceeding $150,000 in his
decision on child support because he accepted that the respondent was paying
virtually all of the children’s education and extracurricular expenses.
Nevertheless, the Master went on to make a finding that the parties should
share the children’s s. 7 expenses at the ratio of 71.6% for the respondent
and 28.4% for the appellant. In essence she argues that the Master did not
consider the respondent’s income over $150,000 because he was paying the bulk
of the children’s expenses and then ordered the appellant to pay 28.4% of those
expenses. She contends that this is contrary to the requirements of the Guidelines
and resulted in a form of double credit to the respondent.

[20]        
The appellant also contends that after performing the calculations set
out in his order there remains an income imbalance between the parties of
$1,680 per month which should have been addressed in his analysis.

[21]        
The appellant argued that three-year averaging of the respondent’s
income is not appropriate in the context of the respondent’s earning pattern.
She contends that with a steadily rising income curve, it would be
inappropriate to ignore the likelihood that his income will continue to rise
and equal or exceed his 2014 income.

Respondent’s Position

[22]        
The respondent said he agreed with the appellant that the Master had
made an error in the calculation of his support obligation. Nevertheless, he
too alleges errors on the part of the Master that must be taken into account
when revisiting the spousal support analysis. He contends that his 2014 income
was an anomaly and the Master did not take into account the dramatic difference
between 2013 and 2014. He argues that his income is composed of salary and
commission income. The latter is paid out during the year and, although there
is a pattern of rising income, his 2014 income is not a reliable predictor of
his future income and thus an average should be applied to establish a fair
measure of his income for support purposes.

[23]        
He contends that for support purposes his income should be averaged over
his three prior year’s income as permitted under s. 17(1) of the Guidelines.

[24]        
The respondent contends that using a three year average of his income
reduces the amount to $214,333 for Guidelines purposes.

[25]        
Next, the respondent argues that the damages award received by the
appellant is not taxable in her hands and that the imputation of her income
should be grossed up because those damages are exempt from federal and
provincial income tax. He relies on s. 19(1)(b) of the Guidelines.

[26]        
He also argued that the appellant’s Guidelines income should be
$59,500. On this basis he thinks child support should be $2,012 and spousal
support at the midpoint should be $3,037.

Analysis and Conclusion

Principles

[27]        
In Stober v. Stober, 2015 BCSC 743 the Court succinctly described
the challenge of assessing appropriate child support on an interim application.
Weatherill J. said:

[89]      The task of the court
on an interim application for child support is to put in place a reasonable
arrangement which will serve the interests of the children and the parties
until a thorough review of the family’s circumstances can take place at trial.
Any unfairness may be resolved by the trial judge: Roche v. Chen, 2012
BCSC 1290 at para. 32.

[28]        
Master Keighley summarized the approach to be considered in arriving at
the “rough and ready” assessment of amounts payable on summary applications in Robles
v. Khun, 2009 BCSC 1163; this decision informed Master Taylor’s analysis in
this application.

Respondent’s Income

Income Averaging

[29]        
Income fluctuations experienced by a payor spouse can be considered in
determining the guideline income attributable to that spouse under s. 17
of the Guidelines.

[30]        
In this case, the respondent’s incomes in the years 2012, 2013 and 2014
were $217,928, $216,478 and $293,451 respectively. Further, the respondent’s
wide variation in annual incomes occurs because he receives his income from a
combination of a base salary and varying amounts of commission income. The
amount of his entire commission income is not usually known until late in each
year and is dependent on his success. The average of those amounts over the
previous three years is $242,500.

[31]        
I am satisfied that it is appropriate to consider the respondent’s
three-year averaged income when determining child support. Notwithstanding the
upward trend in his income, his support obligations on an interim application
should, in my view, reflect a three year average because of the anomaly in
2014. Over time, this process will ensure that the respondent pays, and the
children benefit from, a fair portion of his income by way of support. At
trial, there will be a more fulsome inquiry into whether his income is
sustainable at the level of his most recent line 150 reported income; if this
is the case, the final result will be reflected in the trial judge’s conclusions
after considering all of the evidence.

[32]        
The respondent’s support obligations will be measured against an income
of $242,500.

Consideration of Income over $150,000 and s. 7 Expenses

[33]        
The respondent agreed that Master Taylor erred in setting child support
based on an income of $150,000 because the respondent was paying the bulk of
the children’s private school and activity costs. The error was highlighted
when the Master decided that the appellant should pay 28.4% of the children’s
s. 7 expenses. It is quite apparent that the Master relieved the
respondent of the burden of 28.4% of those expenses while at the same time,
declining to consider the respondent’s income over $150,000 as a function of
his child support obligation.

[34]        
I accept the appellant’s assertion, agreed with by the respondent, that
Master Taylor’s decision requiring the appellant to contribute 28.4% to the
s. 7 expenses was inconsistent with his decision not to consider the full
amount of his income in determining the amount of child support payable.

[35]        
Notwithstanding that this was an interim application and in light of the
respondent’s agreement concerning this error, I will address this inconsistency
in the Master’s reasons.

[36]        
In my view, it is appropriate to use a Guidelines income of $242,500
in determining the respondent’s responsibility for child support and to include
an allowance based on his income exceeding $150,000. The Guidelines
provide that support should be $2,104+1.26% of income over $150,000. On the new
Divorce Mate calculations, child support will be $2,344 per month after
considering ss. 8 and 9 and s. 4(b)(ii) of the Guidelines.

Condition, Needs, Means and other Circumstances

[37]        
The Court has discretion under ss. 9(c) and 4(b)(ii) to inquire
into the condition, means, needs and other circumstances of the children in
conjunction with a payor’s evidence of income available to support the
children.

[38]        
I observed that the respondent’s F8 financial statement reflects monthly
expenses for the children of $2,771. In her form F8, the appellant records
expenses for the children of $3,266 with total monthly expenses of $10,572. As
I address below, the respondent will be paying 80% of s. 7 expenses and
the appellant only 20%. Thus, the respondent’s share of s. 7 expenses for
the children will be reduced by 20%.

Appellant’s Income

[39]        
Although I am not able to agree with the respondent’s suggestion that I
should attribute the appellant’s untaxed damages from her injury claim at
$59,500, I am satisfied that whatever amount was paid to the appellant for
future income loss or impaired earning capacity was not subject to tax. In Laxdal
v. Robbins, 2010 BCCA 565 the court described the current treatment of
future income loss awards:

[8]        At common law, awards for past income loss and
loss of future earning capacity were not subject to a deduction for tax; Gehrmann
v. Lavoie, [1976] 2 S.C.R. 561. Legislation which is now in the form of
ss. 95 and 98 of the Insurance (Vehicle) Act, altered the common
law as it relates to those involved in motor vehicle collisions in British
Columbia by providing that:

95        In this Part:

…

”net income loss”, in relation to a
person who suffered loss of income as a result of an accident is, for any
period,

(a)        if the
person is a person referred to in section 2 (1) of the Income Tax Act,
the gross income that the person lost in that period less the amount that would
have been payable on that gross income for the following:

(i)         income
tax under the Income Tax Act, as that Act read on December 31 of the
calendar year before the calendar year in respect of which the net income loss
is to be determined, calculated in accordance with the regulations and with
reference to prescribed deductions and tax credits;

(ii)        income
tax under the Income Tax Act (Canada) as that Act read on December 31 of
the calendar year before the calendar year in respect of which the net income
loss is to be determined, calculated in accordance with the regulations under,
and with reference to deductions and tax credits prescribed under, this Act;

(iii)       premiums
under the Employment Insurance Act (Canada), as that Act read on
December 31 of the calendar year before the calendar year in respect of which
the net income loss is to be determined, or

…

98        Despite any other enactment or rule of law but
subject to this Part, a person who suffers a loss of income as a result of an
accident or, if deceased, his or her personal representative, is entitled to
recover from designated defendants, as damages for the income loss suffered
after the accident and before the first day of trial of any action brought in
relation to it, not more than the net income loss that the person suffered in
that period as a result of the accident.

[40]        
Master Taylor concluded that the appellant was receiving interest income
of $9,616 from investments and her damages award gives her the equivalent of
$42,364 annually without any tax payable on that amount. I accept that for the
purposes of establishing the appellant’s Guidelines income, an
additional amount must be attributed to her because her damages claim was
exempt from taxes.

[41]        
This point was not argued before Master Taylor and he could not have
been alerted to the issue now raised by the respondent. Nonetheless, as it is
agreed that Master Taylor’s order is to be set aside, there must be a proper
assessment of the appellant’s Guidelines income that reflects that her
future loss award was not taxed at any level.

[42]        
Based on the party’s financial records filed in this proceeding, I
estimate that the tax that would be payable on $42,364 is approximately $9,000.
Thus, for the purposes of establishing the appellant’s Guidelines income
from investments ($9,616) and the damage award, her annual income is $60,980
per year.

Child Support

[43]        
The appellant accepts the fact the children will be parented by the
respondent for 40% of the time and thus s. 9 is engaged and a set off of
their obligations should be applied.

[44]        
In the final analysis, the appeal is allowed and the respondent will be
required to pay child support based on the respondent’s Guidelines
income of $242,500 sharing custody with the appellant. The appellant’s Guidelines
income is established at $60,980. The set off amount for child support is
$2,344.

[45]        
The respondent’s spousal support obligation at the midpoint is $3,337
and I find that this is the appropriate amount for the respondent’s support
obligation.

[46]        
Finally, insofar as the respondent will be paying full child support at
his Guidelines income average, he will only be responsible for 80% of the
s. 7 expenses. The appellant must then pay 20% of the children’s s. 7
expenses. Based on prior years’ experience, those expenses are $24,130 per year
and they will be paid by the parties at those ratios. Thus, she will likely pay
$4,826 (estimated $402 per month); and he will pay $1,608 per month. I have
observed that s. 7 expenses described in each of the parties F8 financial statements
exceed $24,130 per year; if those expenses exceed $24,130 each will pay their
proportionate share.

[47]        
Based on the finding that the appellant receives the equivalent of (a)
$51,364 from her damages award; (b) $9,616 from interest income, (c) $40,044 in
spousal support, and (d) $28,128 child support, her total income will be
$129,152. After excluding from her expense statement the special expenses
payable by the respondent, the appellant’s net monthly expenses will be $8,964.

[48]        
On this basis and considering a needs and means approach to support, I
am satisfied that spousal support of $3,337 per month and child support of
$2,344 per month (after the set off) will provide the children a reasonable
standard of living with all of their needs met by the parties. The calculations
I have used include s. 7 expenses based on the historical experience of
the parties and not the estimated expenses in the appellant’s Form F8 financial
statement. The difference will place a heavier burden on the respondent; I have
not taken this into account because of the uncertainty concerning those future
expenses.

Summary

[49]        
The appeal is allowed and the appellant will receive interim support for
herself and the children as determined in these reasons; namely interim spousal
support will be $3,337 and interim child support $2,344.

[50]        
The parties may make further submissions as to costs; in the absence of
submissions by November 30, 2015 the parties will bear their own costs of this
appeal.

“The
Honourable Mr. Justice Armstrong”