Back

Federal Child Support Guidelines - Whether a Section 16 Calculation is Fair

February 15, 2022

Nova Scotia

,

Canada

Issue

Will the court consider a party's earnings from the one-time sale of real property when determining that party's income for the purposes of calculating child support?

Conclusion

Under sections 16 and 17 of the Federal Child Support Guidelines, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III, but, if the court is of the opinion that the determination of a spouse’s annual income would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. ( Federal Child Support Guidelines)

Where a spouse has incurred a non-recurring capital or business investment loss, the court may, if it is of the opinion that the determination of the spouse’s annual income would not provide the fairest determination of the annual income, choose not to apply sections 6 and 7 of Schedule III, and adjust the amount of the loss, including related expenses and carrying charges and interest expenses, to arrive at such amount as the court considers appropriate. ( Federal Child Support Guidelines)

Determining whether a section 16 calculation is fair frequently involves consideration of non-recurring gains. Courts should be alert to the nature of any non-recurring gain and whether it is derived from the sale of capital. That is particularly true when the sale involves capital which forms the basis of a payor’s income, and whenever capital is sold the court should consider the effect of that sale on future income. Making money available for support purposes, when it may be needed to maintain a going concern, would be equivalent to killing the goose that laid the golden egg. Moreover, depending on a payor’s age, a sale of assets may be the basis of a payor’s retirement fund, which, in the usual case, is not used to increase a family’s lifestyle but is invested to provide future income. In that case, the investments of capital are available for future support. 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. (Ewing v. Ewing)

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. (Ewing v. Ewing)

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?

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? (Ewing v. Ewing)

Child support is the right of the child. The purpose of child support is to ensure a fair standard of support that ensures that children continue to benefit from the financial means of both spouses after separation. If a payor parent’s means increase, his or her obligation to pay child support increases accordingly. Moreover, as a general principle, children are entitled to benefit from a sudden increase in lifestyle or money available to a payor parent. (J.M.D. v. R.M.J.D.)

When assessing the Guideline income of a non-recurring capital gain, the ultimate question is whether a non-recurring capital gain should fairly be treated in substance as enhancing the income or financial means of a parent. Each case is fact-specific and there are cases in which, given the nature of the capital gain, the court has determined that a non-recurring gain should not be included in income for Guideline purposes. In other cases, a non-recurring gain has been brought into income for Guideline purposes because the capital gain is properly seen in substance as income that enhances the financial means of the payor parent. (J.M.D. v. R.M.J.D.)

The starting point for the calculation of annual income is s. 16 of the Guidelines. Presumptively, appropriate income for child support purposes is what is shown on a payor parent’s tax return including any capital gain. However, a court has a discretion under s. 17 of the Guidelines to determine that a s. 16 calculation would not be a fair determination and, if it does so, s. 17(10) requires the court to determine a fair and reasonable amount having regard to the payor’s income over the last three years and any pattern of income, fluctuation of income or receipt of a non-recurring amount during those years. (J.M.D. v. R.M.J.D.)

The fact that an illiquid asset (real property) has been converted to a liquid asset (financial assets) does not necessarily convert the asset from capital to income. (J.M.D. v. R.M.J.D.)

In Andersen v. Andersen, the respondent's 1996 T1 General form disclosed a total income of $124,190.50 made up of $72,000 paid to him by his corporation by way of management salaries; $45,247.50 taxable capital gains and $6,943 other income. This capital gain arose when the respondent transferred his interest in the company which he formerly utilized to carry on his practice to his present company. The deduction of $45,247.50 from income was allowed, as it was a "non-recurring amount" which the court was entitled to consider in making a fair determination of the respondent's annual income in accordance with s. 17(1)(c) of the Guidelines.

In J.M.D. v. R.M.J.D., R.M.J.D. sold a property where he lived on and off. Since he did not reside in the property continuously, some significant portion of the appreciation in the value of the property was a taxable capital gain reportable on his income tax returns. Had R.M.J.D. immediately bought a new home with the proceeds of the sale of the property, there would be no legitimate basis to consider taking any capital gain into income for child support purposes. The capital gain would not be akin to income and including the capital gain would not be necessary to provide proper child support. If R.M.J.D. moved into the new home as his primary residence, he would have simply substituted one piece of property for another; one capital asset for another. If he did not move in, but rented the new home, the income generated from the substituted capital asset would be income for child support purposes, but not the capital gain associated with the transaction. The substitution of one capital asset for another of similar value would not represent an increase in financial means. On the whole, the capital gain on sale of the property was not to be treated as income, as any return generated by the sale proceeds will be taken into income or if other real estate is purchased and rented then the rent will also be considered income. The property was a capital asset used to generate income. It was not income itself. The sale of the property was not akin to income; it was not analogous to a bonus or incentive income in the form of stock options. R.M.J.D. was not in the business of buying and selling assets as a source of income. The proceeds of the sale were not being used as income (except marginally to defray legal costs). They were being held at a financial institution, waiting, apparently, to be reinvested. Capital gain on the sale of the property was not included as income, but R.M.J.D. had to report to J.M.D. within 30 days of closing when he purchased a substitute property and provided full financial disclosure of the purchase.

In Krupa v. Krupa, a non-recurring taxable capital gain in the amount of $16,725 was excluded on the basis of Andersen v. Andersen.

In the Alberta case of Schick v. Schick, the father argued that capital gain to be excluded from his income as it was a non-recurring amount; and the resulting amount of child support is too high and therefore unreasonable. The chambers judge found that all of the available income should be considered. The chambers judge was satisfied that a s. 16 calculation was fair. It was arguable that all the capital gain in question was of a non-recurring nature. The proceeds were reinvested and the father admitted he owned additional shares. It was thus possible that he would dispose of shares periodically in the future when opportune or required by circumstances to do so. The Court of Appeal found no error in the inclusion of capital gains was necessary on the basis that it was non-recurring.

Law

Under sections 16 and 17 of the Federal Child Support Guidelines, SOR/97-175, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III, but may be adjusted further if the court is of the opinion that the determination of a spouse’s annual income would not be the fairest determination of that income:

Calculation of annual income

16 Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.

Pattern of income

17 (1) If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.

Non-recurring losses

(2) Where a spouse has incurred a non-recurring capital or business investment loss, the court may, if it is of the opinion that the determination of the spouse’s annual income under section 16 would not provide the fairest determination of the annual income, choose not to apply sections 6 and 7 of Schedule III, and adjust the amount of the loss, including related expenses and carrying charges and interest expenses, to arrive at such amount as the court considers appropriate.

In J.M.D. v. R.M.J.D., 2011 BCSC 1295 (CanLII), R.M.J.D. sold a property where he lived on and off. Since he did not reside in the property continuously, some significant portion of the appreciation in the value of the property was a taxable capital gain reportable on his income tax returns. Capital gain on the sale of the property was not included as income, but R.M.J.D. had to report to J.M.D. within 30 days of closing when he purchases a substitute property and provide full financial disclosure of the purchase:

[23] Child support is the right of the child. The purpose of child support is to ensure a fair standard of support that ensures that children continue to benefit from the financial means of both spouses after separation. If a payor parent’s means increase, his or her obligation to pay child support increases accordingly. These principles are discussed in, for example, S.(D.B.) v. G. (S.R.), 2006 SCC 37. Moreover, as a general principle, children are entitled to benefit from a sudden increase in lifestyle or money available to a payor parent: see, Plett v. Plett, 2009 BCSC 227.

[24] The most complete consideration, provided to me, of how to analyse the implications for the assessment of Guideline income of a non-recurring capital gain is found in Ewing v. Ewing, 2009 ABCA 227. That case considers many of the cases cited to me in argument. It is clear from that case that the ultimate question is whether a non-recurring capital gain should fairly be treated in substance as enhancing the income or financial means of a parent. Each case is fact specific and there are cases in which, given the nature of the capital gain, the court has determined that a non-recurring gain should not be included in income for Guideline purposes: see, for example, Anderson v. Anderson, 1997 CanLII 1163 (BC SC), [1997] B.C.J. No. 2496; 32 R.F.L. (4th) 177; Krupa v. Krupa, 2010 BCSC 1400. In other cases, a non-recurring gain has been brought into income for Guideline purposes because the capital gain is properly seen in substance as income that enhances the financial means of the payor parent: see, for example, Shields v. Shields, 2006 ABQB 368; Shick v. Shick, 2008 ABCA 196.

[25] In Ewing it is recognised that the starting point for the calculation of annual income is s. 16 of the Guidelines. Presumptively, appropriate income for child support purposes is what is shown on a payor parent’s tax return including any capital gain. However, a court has a discretion under s. 17 of the Guidelines to determine that a s. 16 calculation would not be a fair determination and, if it does so, s. 17(10) requires the court to determine a “fair and reasonable amount” having regard to the payor’s income over the last three years and any “pattern of income, fluctuation of income or receipt of a non-recurring amount during those years”.

[26] After considering the authorities, including the principal authorities relied on by J.M.D. before me, the Alberta Court of Appeal summarized its analysis in the following terms:

[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?

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?

[27] R.M.J.D. deposes that, after trial, he did live in the Granville Avenue property at certain times. He was living in it as his principal residence when he sold it. Not having lived in the Granville Avenue property continuously since it was purchased, some significant portion of the appreciation in the value of the property is a taxable capital gain and is reportable on his income tax returns.

[28] He says that he has sold the property and invested the proceeds, intending to purchase a new home in which he will live. In effect, he has temporarily substituted one capital asset [the Granville Avenue property] for another capital asset [the invested monies].

[29] In my view, had R.M.J.D. immediately bought a new home with the proceeds of the sale of Granville Avenue there would be no legitimate basis to consider taking any capital gain into income for child support purposes. The capital gain would not be akin to income and including the capital gain would not be necessary to provide proper child support. If R.M.J.D. moved into the new home as his primary residence, he would have simply substituted one piece of property for another; one capital asset for another. If he did not move in, but rented the new home, the income generated from the substituted capital asset would be income for child support purposes, but not the capital gain associated with the transaction. The substitution of one capital asset for another of similar value would not represent an increase in financial means.

[30] The issue is somewhat more complicated because R.M.J.D. has not substituted like asset for like. He has sold real estate and is holding financial assets. It appears that R.M.J.D. may be speculating on a decline in real estate values, given that he has not reinvested the proceeds in real estate in nearly 18 months. If this is correct, and R.M.J.D. is successful, then his financial means may be materially altered. He may be able to buy a similar property to Granville Avenue for significantly less money. But whether this will turn out to be the case is not yet known. In the meantime, the sale proceeds of Granville Avenue are invested and to the extent that they yield a return that return will constitute income, just as rent would have done, if a new property had been bought and rented.

[31] On the facts before me, I am not persuaded that the capital gain on sale of the Granville Avenue property should be treated as income. I am influenced in reaching this conclusion by the fact that any return generated by the sale proceeds will be taken into income or if other real estate is purchased and rented then the rent will also be considered income. The Granville Avenue property was a capital asset used to generate income. It was not income itself. Both capital assets are capable of generating income and it is more appropriate to focus on the income generated by the asset for support purposes, not the asset itself.

[32] The sale of Granville Avenue is not akin to income; it is not analogous to a bonus or incentive income in the form of stock options. R.M.J.D. is not in the business of buying and selling assets as a source of income. The proceeds of the sale are not being used as income (except marginally to defray legal costs). They are being held at a financial institution, waiting, apparently, to be reinvested.

[33] If R.M.J.D. buys a new primary residence one asset will have been substituted for another. Only if there is a significant fall in real estate values will R.M.J.D.’s financial means be materially affected and only then will any remaining surplus proceeds potentially acquire the character of income for child support purposes. Only then will it be apparent whether the capital generated from the sale of Granville Avenue and not reinvested in real estate provides a source of income for the future.

[34] The fact that an illiquid asset (real property) has been converted to a liquid asset (financial assets) does not necessarily convert the asset from capital to income. Here it is of some significance that the proceeds of the sale of Granville Avenue have not been used to finance an increased standard of living by R.M.J.D. Had they done so, then the children may well have been entitled to share in that increased standard of living because through his conduct R.M.J.D. would have converted a capital asset into income for child support purposes. This has not happened.

[35] Accordingly, I decline to include the capital gain on the sale of the Granville Avenue property as income in 2010. I order, however, that R.M.J.D. report to J.M.D. within 30 days of closing when he purchases a substitute property and provide full financial disclosure of the purchase. He will also in his financial disclosure fully disclose the information about the status and use of those funds. I will deal with reporting requirements more generally later in these reasons.

In Ewing v. Ewing, 2009 ABCA 227 (CanLII), the Alberta Court of Appeal case cited with approval in J.M.D. v. R.M.J.D., 2011 BCSC 1295 (CanLII), the Court of Appeal outlined the factors the court might consider when determining whether the section 16 income calculation is fair, having regard to non-recurring gains and patterns of income:

[28] The mother also argues that, even if section 17 applies to the calculation of income, a section 16 calculation is not automatically unfair just because it includes a non-recurring amount. She relies on Schick v. Schick, 2008 ABCA 196, 433 A.R. 242, and Shields v. Shields, 2006 ABQB 368, 150 A.C.W.S. (3d), as authority for the proposition that children of the marriage are entitled to the benefit from any sudden increase in the payor’s income and lifestyle, even when the increase is due to a non-recurring gain.

[29] In my view, these cases are also of limited utility. In Schick, the payor spouse argued that a capital gain should be excluded from his income calculation because it was a non-recurring gain. A chambers judge disagreed and that decision was upheld by this court. The Court of Appeal agreed with the general principle that children should benefit from sudden increases in a payor’s lifestyle and income. The court also noted that it was difficult to classify this particular capital gain as non-recurring. The court observed at para. 25:

Whether an amount is non-recurring is a factor that may be considered by the court in determining what is fair and reasonable, if a court considers a calculation under s. 16 not to be the fairest method of calculation. Here the chambers judge was satisfied that a s. 16 calculation was indeed fair. Moreover, that all the capital gain in question is of a non-recurring nature is arguable. The proceeds were reinvested and the father admitted he owns additional shares. It is thus possible that he will dispose of them periodically in the future when opportune or required by circumstances to do so.

[30] In Shields, the chambers judge noted that even where an increase in income is non-recurring this is only a factor to be considered in determining what is fair and reasonable. While she decided on the facts before her that it was appropriate to include the non-recurring amount in income, this case only stands for the proposition that in certain fact situations inclusion of non-recurring amounts does not make a section 16 calculation unfair.

[31] Thus, both Shields and Schick are useful in that they recognize the determination of income must be fair and based upon the facts of the particular case. In addition, Schick suggests that the exercise of a court’s discretion to arrive at a fair and reasonable figure will not be interfered with lightly. Neither of these cases, however, stands for the proposition that non-recurring gains must be excluded in determining the fairest means of income calculation. Nor did either of these cases deal with incomes of the magnitude involved here where the support payments were generous.

[32] Determining whether a section 16 calculation is fair frequently involves consideration of non-recurring gains. Courts should be alert to the nature of any non-recurring gain and whether it is derived from the sale of capital. That is particularly true when the sale involves capital which forms the basis of a payor’s income, and whenever capital is sold the court should consider the effect of that sale on future income. In Kowalewich v. Kowalewich, 2001 BCCA 450, 155 B.C.A.C. 143, the British Columbia Court of Appeal noted that making money available for support purposes, when it may be needed to maintain a going concern, would be equivalent to killing the goose that laid the golden egg. Moreover, depending on a payor’s age, a sale of assets may be the basis of a payor’s retirement fund, which, in the usual case, is not used to increase a family’s lifestyle but is invested to provide future income. In that case, the investments of capital are available for future support.

[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?

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?

[36] In this case, the chambers judge carefully considered the nature of the non-recurring gains, and the fact that they were not “in line with the historical pattern of the father’s income,” and concluded a section 16 calculation was not the fairest method of determining income. I see no reason to interfere with his conclusion. In coming to his decision the chambers judge considered expert reports from both sides that documented the source of the father’s income for 2005 and 2006. Here the exceptional income for these years was due, primarily, to the sale of business assets which had been the source of the father’s income in previous years. These fluctuations in income were non-recurring and the gains were not extra employment income. In fact, the father’s income was projected to decrease substantially after the sale. This is a case where including the proceeds of the sale of Prime’s assets in income would amount to “killing the goose that laid the golden egg” – in the sense described by the British Columbia Court of Appeal in Kowalewich. The chambers judge did not err in his determination that section 16 was not the fairest method for calculating income.

[37] Having found that a section 16 calculation was not fair, the chambers judge chose to determine fair income by averaging three years’ income, including the year applied for. This court upheld a decision to average a payor’s income over the previous three years in Steeves v. English, 2004 ABCA 195, 6 R.F.L. (6th) 125. The father does not take issue with the averaging in this case and so it is unnecessary for us to consider whether the election to average was appropriate. But we would point out, for future cases, that section 17 does not suggest that the way to establish a fair income is to average. It merely directs the court to set a fair and reasonable amount taking into consideration the past three years’ income and any patterns of income, fluctuations in income and non-recurring gains. The court has the discretion to elect the fairest method, and that could be done by averaging the three years prior to the gain, or a court could remove part, or all, of the non-recurring gains, or take whatever steps it determines are appropriate to arrive at an income figure that is fair for the purposes of support.

[38] As the father did not challenge the chambers judge’s decision to average, nor the method of averaging he chose, it is unnecessary to discuss this issue further, except to say that although setting a fair income is highly discretionary, there should be a logical basis for the method chosen and averaging will not always be appropriate.

[39] In summary, section 16 of the Guidelines is the starting point for determining income for the purpose of establishing child support orders. Section 17 requires the court to ensure that section 16 is the fairest means of determining income, and where it is not, to determine a fair and reasonable income. The principle of fairness, which guides the court in calculating income for the purpose of setting support, applies with equal strength to both prospective and retroactive orders, and there is nothing in the Guidelines that limits the application of section 17 to prospective support orders. The chambers judge, therefore, performed the duty imposed on him by section 17, and did not err when he determined that section 16 was not the fairest method of determining income. He was entitled to apply section 17 to an application for retroactive child support, and his decision to average is owed deference. The mother’s appeal is dismissed.

In Andersen v. Andersen, 1997 CanLII 1163 (BC SC), the respondent's 1996 T1 General form disclosed a total income of $124,190.50 made up of $72,000 paid to him by his corporation by way of management salaries; $45,247.50 taxable capital gains and $6,943 other income. This capital gain arose when the respondent transferred his interest in the company which he formerly utilized to carry on his practice to his present company. The deduction of $45,247.50 from income was allowed, as it was a "non-recurring amount" which the court was entitled to consider in making a fair determination of the respondent's annual income in accordance with s. 17(1)(c) of the Guidelines:

[23] The respondent's 1996 T1 General form discloses a total income of $124,190.50 made up of $72,000 paid to him by his corporation by way of management salaries; $45,247.50 taxable capital gains and $6,943 other income.

[...]

[29] The second issue which arises, utilizing the respondent's 1996 total income figure or his 1996 tax return, is whether there should be deducted therefrom the taxable capital gains of $45,247.50 received by him in 1996, leaving an income for the purposes of the Guidelines of $78,943. This capital gain arose when the respondent transferred his interest in the company which he formerly utilized to carry on his practice to his present company.

[30] I agree that this deduction should be made as it is a "non-recurring amount" which the court is entitled to consider in making a fair determination of the respondent's annual income in accordance with s. 17(1)(c) of the Guidelines.

In Krupa v. Krupa, 2010 BCSC 1400 (CanLII), a non-recurring taxable capital gain in the amount of $16,725 was excluded on the basis of Andersen v. Andersen, 1997 CanLII 1163 (BC SC):

*This amount includes imputed business and employment income and includes employment income declared on Mr. Krupa’s tax return of $38,556.60. **The actual line 150 amount for 2009 (again excluding certain business losses which Mr. Krupa concedes should be excluded) is $75,495. However, Mr. Krupa takes the position that a non-recurring taxable capital gain in the amount of $16,725 should be deducted from this amount. I agree with this position: Andersen v. Andersen (1997), 1997 CanLII 1163 (BC SC), 32 R.F.L. (4th) 177, [1997] B.C.J. No. 2496, paras. 29 and 30.

In Schick v. Schick, 2008 ABCA 196 (CanLII), leave to appeal dismissed, David Ross Schick v. Sherry Lee Schick, 2008 CanLII 55981 (SCC), the father argued that a capital gain was to be excluded from his income as it was a non-recurring amount and the resulting amount of child support is too high and therefore unreasonable. The chambers judge found that all of the available income should be considered. The chambers judge was satisfied that a s. 16 calculation was fair. It was arguable that all the capital gain in question was of a non-recurring nature. The proceeds were reinvested and the father admitted he owned additional shares. It was thus possible that he would dispose of shares periodically in the future when opportune or required by circumstances to do so. The Court of Appeal found no error in the inclusion of capital gains on the basis that it was non-recurring:

[24] The father argues that it is only fair to exclude his capital gains from income because:

1) it is a non-recurring amount; and

2) the resulting amount of child support is too high and therefore unreasonable.

[25] The chambers judge found that all of the available income should be considered. She concluded that this was in keeping with the wording and the purpose of the Guidelines. In

Alexsei publishing date:
103