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The Court of Appeal - Is it a Good Idea to Impute Income?

March 10, 2022

Alberta

,

Canada

Issue

In what circumstances will isolation pay and overtime pay be excluded from a common law spouse's income for the purpose of calculating adult interdependent partner support?

Conclusion

In Freake v. Riley, the parties cohabited for 6 years and had one child. The mother applied for partner support. Marceau J. made a deduction of $20,000 from the father's income for unusually high overtime.

In Coghill v. Michalko, Marceau J. reduced the payor's income to exclude excessive overtime.

In White v. White, the Court of Appeal considered whether it was appropriate to impute income in relation to work the appellant did in addition to his regular employment. The payor was a firefighter who works at various other jobs during his time off. The Court of Appeal held that it cannot be expected that a payor work excessive amounts. The question is determining actual income.

In Betuvski v. Slavica, the parties were married in Macedonia and they moved to Canada. A portion of the husband's income was earned from overtime hours. Burrows J. rejected the husband's argument that he did not have to pay spousal support on actual income. The wife was entitled to spousal support on both compensatory and non-compensatory bases based on actual income, including overtime.

In Wilkins v. Wilkins, the Court, in consideration of the inherent difficulties in attempting to predict income based on how much overtime may be available to him, determined a fair amount that included some overtime.

In Braga v. Braga, the payor had historically worked overtime in an automotive parts factory, but a downturn in the automotive industry made it probable that continued overtime would not be available to him. Further Wright J. noted that there are limits to the extent that a recipient can be entitled to share in the income earned through overtime. The overtime was excluded.

Law

Section 58 of the Family Law Act, SA 2003, c F-4.5 sets out the factors to consider when making an order for an adult interdependent partner support order:

Factors

58 In making a spousal or adult interdependent partner support order, the court shall consider

(a) the conditions, means, needs and other circumstances of each spouse or adult interdependent partner, including

(i) the length of time the spouses or adult interdependent partners lived together,

(ii) the functions performed by each spouse or adult interdependent partner during the period they lived together, and

(iii) any order or arrangement relating to the support of the spouses or adult interdependent partners,

(b) any legal obligation of the spouse or adult interdependent partner having the support obligation under the order to provide support for any other person,

(c) the extent to which any other person who is living with the spouse or adult interdependent partner having the support obligation under the order contributes towards household expenses and thereby increases the ability of that spouse or adult interdependent partner to provide support, and

(d) the extent to which any other person who is living with the spouse or adult interdependent partner who is to receive support under the order contributes towards household expenses and thereby reduces the financial needs of that spouse or adult interdependent partner.

In Freake v. Riley, 2010 ABQB 562 (CanLII), the parties cohabited for 6 years and had one child. The mother applied for partner support. Marceau J. made a deduction of $20,000 from the father's income for unusually high overtime:

[21] I am mindful that it is the standard of living the parties enjoyed during the relationship that is relevant, not what Mr. Riley’s present income may allow him to enjoy as a lifestyle or what his present lifestyle may be: Riad v. Riad, 2002 ABCA 254. I do take into account, however, that Mr. Riley’s present income may be on the decline. I also take into account that like Mr. Michalko in Coghill v. Michalko, 2010Carswell Alta 160, at paras. 70 to 75, Mr. Riley earned $186,000.00 the year he worked some 535 hours of overtime. In 2007, he worked over 800 hours overtime. He cannot be expected to continue to do so and there is some evidence that his income will be significantly less in 2010.

[...]

[26] I have asked the parties to present figures to me, given income for Mr. Riley of $150,000.00, $160,000.00, $170,000.00, $180,000.00 and $190,000.00, as I indicated to them that I would make a deduction from Mr. Riley’s 2006 income of $186,000.00 for unusually high overtime. For Ms. Freake, I have asked for calculations all to be based on $60,000.00 per annum. Evidence is that she earned less than half of that in 2006, but will earn more than that in 2010 (again, no figures for 2009 and 2010 were supplied). I have decided that a realistic deduction for extra overtime is $26,000.00, so I use $160,000.00 per annum as a realistic gross income figure for Mr. Riley.

In Coghill v. Michalko, 2010 ABQB 59 (CanLII), Marceau J. reduced the payor's income to exclude excessive overtime:

[70] Fort McMurray is a unique place in Canada. As the demand for oil goes so do wages, the cost of living and the cost of housing. In the last 40 years Fort McMurray has experienced major booms and major busts. Were the parties able to reasonably expect the huge hike in wages in 2007 which continued through 2009? The answer is probably not. The evidence of Mr. Michalko was that in 2007 and 2008 to the middle of 2009 he worked excessive overtime because there were not enough employees to do his type of work due to the extreme shortage of skilled labour in Fort McMurray. I take judicial notice that the project in Fort McMurray had drained the Canadian skilled labour force and companies were forced to obtain labour from other countries. For Mr. Michalko this had two consequences. First, much more overtime was offered and, as explained by Mr. Michalko, to refuse the overtime would have been viewed as disloyalty because there was usually no real option but to see production shut down if the overtime repairs were not done. The second consequence was that Syncrude, of its own initiative, instituted an annual incentive for 2007, 2008 and 2009 of about $17,000 payable simply for continuing to work for the company in each of those years. It is my view that the parties could not realistically have believed in 2002 that labour shortages at Fort McMurray and in Canada caused by the Fort McMurray plant construction would be so severe as to cause Syncrude to rewrite its contract with its employees. Therefore, I will discount $17,000 from the income for 2007, 2008 and 2009 as this was a windfall which was not reasonably expected by the parties.

[71] What of the excess overtime? Of course, as Mr. Michalko testified, some overtime is inherent in a 24-hour, 7-day-per-week operation because some statutory holidays have to be worked. I take it that employees are generally happy to do some extra overtime to enhance their income. Until the separation Mr. Michalko had worked some overtime.

[72] Clearly from 2003 on the overtime increased to a high in 2007 of 800 hours. I note that 800 hours is the equivalent of 100 eight-hour days. If one takes regular employment to be 240 eight-hour days Mr. Michalko, in 2007, effectively worked 340 days out of 365. This is excessive in the sense that as Mr. Michalko testified it left him with no life. It is also, in my view, not the basis upon which compensation for Ms. Coghill’s loss of his income stream should be based as it could not have been contemplated by the parties and is not reflective of the overtime worked during the relationship.

[73] What should realistically have been contemplated for the years 2007, 2008, 2009 and ongoing? The base salary without overtime for 2009 is $113,510.02. In 2009 overtime is paid at $114 per hour so every hundred hours worked adds $11,400 to his income. At the same time every hundred hours worked as overtime is 12.5 eight-hour days spent working where a regular 240 day worker would have leisure time. While it is not specifically in evidence I gather $57 times roughly 10 statutory holidays would be earned on those holidays as regular time so the first 100 hours should be reduced by a factor of ½ of 10 or 5 of the 12.5 eight-hour days so 7.5 days are taken away from leisure activities by the first hundred hours. After that 100 hours takes away 12.5 days of leisure in the year. I emphasize that in all the cases I have dealt with to date evidence that a person will not work as much overtime in the future has been met by me with a "show me" response because usually employees work such overtime (usually fairly limited) as is offered and the variations certainly do not eliminate overtime nor do they increase overtime to the point where the employee basically works and sleeps.

[74] What should have been reasonably anticipated for the years 2007, 2008 and 2009 over and above the statutory holidays is about 300 hours of overtime per year, which is the average of the four years prior to the separation. This does not take into account 50 hours of statutory holiday money which would have been earned at regular time rates. 300 overtime hours in 2009 adds $34,500, yielding realistic pay in 2009 of $113,510 plus $34,500 which is $148,010. Realistically, Fort McMurray’s statistics are so skewed for recent years that it is more appropriate to use cost of living indexes or rise in wage indexes relating to Edmonton. I base this mainly on the assumption that the Canadian indexes are not fair to Ms. Coghill in terms of "reasonable expectation" nor in terms of future indexing of support payments because Alberta has historically had greater economic growth than Canada.

[75] Therefore, in order to calculate spousal support, I use a base of $150,000 for Mr. Michalko’s annual income.

[76] In rounding out the income to $150,000 for 2007, 2008 and 2009 I have not included income from the Thrift Plan because I added much more than the Thrift Plan to arrive at a base plus overtime of $150,000 for 2007 although the base salary was $93,105.15 and even adding 7.5%, approximately $7,000 would amount to base earnings for 2007 of about $100,000, not the $113,000 figure I have used. What was lost in 2009 was gained in 2007 and 2008.

In White v. White, 2015 NSCA 52 (CanLII), the Court of Appeal considered whether it was appropriate to impute income in relation to work the appellant did in addition to his regular employment. The payor was a firefighter who works at various other jobs during his time off:

[17] Section 19 of the Federal Child Support Guidelines does permit a trial judge to impute income to a party to a divorce proceeding. The imputation of income is discretionary, but it must not be arbitrary. The discretionary authority must be exercised judicially, based on a solid evidentiary foundation (see: [Coadic v. Coadic, 2005 NSSC 291 (CanLII)]).

[18] When determining income, current income figures are to be used. This principle is found in s. 3 of the Guidelines. As noted by Forgeron J., in MacDonald v. MacDonald, 2009 NSSC 214 (affirmed on appeal MacLellan v. MacDonald, 2010 NSCA 34):

[10] Reliable, current information is to be used in the establishment of income for child support purposes. Historical data can often be helpful, but it is still not determinative. Where historical data is not consistent with the payor’s future income earning potential, the historical data must be adjusted. One must always look to the factual circumstances existing at the time of the trial. Speculation and crystal ball gazing are not appropriate functions of the court.

[19] Although the trial judge’s reasons are not clear, as I will discuss below, I understand her to have been imputing income so as to reflect what the appellant actually earned, not what he could earn.

[20] This was not a case of the appellant asserting that his income earning ability was reduced. (see: MacDonald v. MacDonald, supra; MacGillivary v. Ross, 2008 NSSC 339) Nor was this a case of the respondent arguing that the appellant was capable of earning a higher income but chose not to.

[21] In the present case it is clear that the appellant had a history of working extra jobs on his time off. Even though the trial judge used the words “Mr. White can earn” this case does not turn on how much he could work at those extra jobs. Clearly, the trial judge was impressed by the appellant’s work ethic. He did not shy away from hard work, sometimes working the equivalent of two full time jobs for parts of the year. That would be more than we would expect or require of most people. In the present case, as in the MacDonald case, it cannot be expected that the appellant work excessive amounts. In MacDonald the trial judge referenced the payor as working “astonishing amounts of overtime” which he could not be expected to continue even if he ¶11 “…is physically and emotionally able to work such gruelling hours…”. In the case now on appeal it would be unreasonable for the respondent or the court to expect the appellant to work the equivalent of two jobs, or anything close so as to achieve the income levels imputed by the trial judge.

[22] The issue should be: what did the appellant make from that secondary employment? In that sense the case is more about a determination of his income than one of imputing income where he refuses to work.

[23] There was limited evidence as to what the appellant actually made from those second jobs. I already referenced the period of five months when he earned approximately $8,000 as a mechanic in 2008. He was fired from that job many years before the trial.

[24] There was other evidence as to various amounts earned from jobs but none of that evidence came close to providing a foundation for the trial judge to say the appellant had earnings of $20,000 to $25,000 in addition to his regular employment income in 2013. One piece of evidence that could have been used to calculate the appellant’s income was the respondent’s affidavit which I have quoted at ¶15 above. As general as that evidence was, it was the only evidence upon which the trial judge could have concluded that the appellant’s income from sources other than his regular employment income was as much as $20,000 per year.

[25] In spite of that lack of evidence, the trial judge said (and I quote from ¶55 of the oral decision as transcribed):

[55] I’m prepared to exercise my discretion to accept that Mr. White can earn somewhere between $20,000 and $25,000 in addition to his fire-fighting income, which should properly be grossed up. I’m going to gross it up to $30,000, therefore his 2013 income was $85,463 from the sources reported in his income tax return. His Notice of Assessment is found at Exhibit 1, Tab 5. And I find for the purpose of calculating going forward, the question of the child support obligation and the spousal support obligation, if any, a total imputed income of $115,400 is appropriate to be used for the calculation.

[26] It was a palpable error for the trial judge to have imputed the appellant’s income from sources other than his regular employment at $20,000 to $25,000. That error was compounded when the trial judge then grossed the $20,000 or $25,000 up to $30,000.

[27] The one year the appellant worked out West was an anomaly in the work pattern of the appellant. Throughout the history of this marriage the appellant did not arrange block periods of time off his regular job so that he could go out West for the purposes of obtaining additional employment. This was a one-time occurrence made necessary by the appellant having to raise money to fund the trustee in bankruptcy. It would be unreasonable for the court or the respondent to require the appellant to work extra shifts on a regular basis so that he could go anywhere to work what would amount to a second full time job so as to pay increased child or spousal support.

[28] As noted, the only evidence in terms of how much money the appellant did earn came through the respondent’s affidavit presented at trial. In the affidavit the respondent indicated:

14. I do not know how much additional unreported income the Respondent earned when he was here in Halifax in 2011, but he has told me, in past years, that he has earned at least $15,000 to $20,000 cash over the course of the year, which he deposited into joint account. (AB 173, ¶14, Affidavit dated May 22, 2012)

[29] In view of the lack of any other evidence as to the extra income earned, it was a palpable and overriding error for the trial judge to have found the appellant earned between $20,000 and $25,000 which the trial judge then grossed up to $30,000. The trial judge seriously misapprehended the evidence on a material fact. The best, and only evidence that could be used to calculate earnings over and above the appellant’s regular earnings was the respondent’s affidavit. It suggested $20,000 per annum as the upper range. That therefore is the upper limit of income which the trial judge could impute to the appellant.

[30] The appellant says that he does not want to work as much as he has in the past. The parties and the court appear to have been in agreement that the amount of extra work the appellant did affected the marriage and his family life in a negative way. I do not understand the trial judge to be saying the appellant must work even more now than he did during the marriage. A reasonable interpretation of the trial judge’s words are that she was attempting to ascertain what the appellant’s income was outside of his regular employment.

[31] I am satisfied that for the purposes of calculating child maintenance and spousal support reference should be made to the appellant’s regular earnings from employment which are $85,463. It appears that the trial judge erred in failing to deduct union dues from that amount. Reference to the appellant’s T-4 slip for 2013 shows that union dues for that year were $765. The corrected amount, for the purposes of calculating child and spousal support would be $84,692 plus a maximum imputed income of $20,000. I, therefore, use the sum of $104,692 for the purposes of calculating support obligations.

In Betuvski v. Slavica, 2013 ABQB 387 (CanLII), the parties were married in Macedonia and they moved to Canada. A portion of the husband's income was earned from overtime hours. Burrows J. rejected the husband's argument that he did not have to pay spousal support on actual income. The wife was entitled to spousal support on both compensatory and non-compensatory bases based on actual income, including overtime:

[15] Mr. Betuvski submits that his significant earnings are the result of several factors that have nothing to do with Ms. Slavica or the parties’ marriage. These include:

- that the qualifications required for his job are qualifications he had acquired before the marriage. The qualifications he acquired after the marriage – those of an electrical engineer – are not recognized in Canada, required for his current work, or used in his current work.

- that his high earnings are the result of his working in the “hot” labour market of Fort McMurray to which Ms. Slavica refused to move.

- that his high earnings are also the result of his working extensive overtime and taking little or no vacation.

[16] Mr. Betuvski cited several authorities to support his position. In argument his counsel relied mainly on two decisions of this Court: D.B.C v. R.M.W. (2006) 2006 ABQB 905 (CanLII), 69 Alta.L.R. (4th) 170 and Chalifoux v. Chalifoux, 2006 ABQB 535. Having reviewed these authorities I have concluded that the circumstances of this case are significantly different from the circumstances in both of them. I have found them of limited assistance.

[17] Mr. Betuvski submits that, for the reasons listed above, Ms. Slavica is not entitled to spousal support based on his current income. Rather, he submits that his income level for spousal support purposes should be deemed to be only marginally higher than the average Alberta income of $68,000. He further submits that Ms. Slavica is intentionally underemployed and for purposes of determining spousal support her income should be imputed to be $40,000. His counsel has provided a spousal support guideline calculation using $85,473 as his income, and $40,000 as Ms. Slavica’s income. It indicates spousal support of between $909 and $1213 a month with a midpoint of $1061for a period between 8 to 16 years.

[18] Ms. Slavica submits that she is entitled to spousal support on both compensatory and non-compensatory bases and that Mr. Betuvski’s actual income should be used to determine the amount of that support. She has provided a spousal support guideline calculation using $200,000 as Mr. Betuvski’s income and $12,683 as her income. It indicates spousal support of between $3746 and $4995 per month with a midpoint of $4371 for a period between 8 to 16 years.

[19] In my view a very important feature of the circumstances is that after a lengthy marriage the parties jointly decided to emigrate to Canada in order to improve their standard of living and financial security. When they came to Canada Mr. Betuvski was competent in English and Ms. Slavica was not. Mr. Betuvski had qualifications and work experience that was likely to be in demand in Canada and Ms. Slavica did not. They had a child who, though nearly an adult, would be in need of parenting. It was logical that Ms. Slavica would fill that role.

[20] The joint venture which the parties undertook when they decided to emigrate to Canada has been frustrated by a development which, I expect, neither party anticipated. Mr. Betuvski has succeeded in finding lucrative work but it requires him to live in a place where Ms. Slavica does not wish to live.

[21] I do not accept the submission that Ms. Slavica is not entitled to spousal support based on Mr. Betuvski’s actual income because the skills he is using are ones that he developed prior to the marriage and not the ones he acquired during the marriage. In my view the joint venture upon which these parties embarked was one which contemplated Mr. Betuvski using all of the skills he had in whatever way he could use them for the betterment of the family’s financial situation. No distinction between skills he acquired before or during the marriage is justified.

[22] I also do not accept the submission that Mr. Betuvski should have no obligation to pay spousal support based on his actual income because his success is the result of his own efforts post separation and has occurred without any contribution by Ms. Slavica. In my view Ms. Slavica did contribute – she cared for the parties’ child while Mr. Betuvski worked in Fort McMurray.

[23] If the “joint venture” aspect of the situation is seen as a form of quasi-contractual basis for spousal support, Ms. Slavica’s refusal to go with Mr. Betuvski to the place where he is able to make the significant income he makes, arguably constitutes a “breach” of the contract which disentitles Ms. Slavica to spousal support on that basis.

[24] I am satisfied, however, that whether or not that is the case, Ms. Slavica is entitled to spousal support on both compensatory and non-compensatory bases. The couple came to Canada expecting that Mr. Betuvski’s skills would be marketable and would provide them with financial security. That has happened for Mr. Betuvski. Because of their separation, it has not happened for Ms. Slavica. The breakdown of the marriage has clearly resulted in serious economic disadvantage and economic hardship for her.

In Wilkins v. Wilkins, 2018 ONSC 3036 (CanLII), the Court, in consideration of the inherent difficulties in attempting to predict income based on how much overtime may be available to him, determined a fair amount that included some overtime:

[24] Turning to the respondent’s income, the parties do not agree on the income that should be used for spousal support purposes. It is common ground that the respondent is employed on a full-time basis with Toyota Canada at its production plant in Cambridge, Ontario. The respondent’s notice of assessment for the 2016 taxation year shows a line 150 income of $70,269. His 2015 notice of assessment shows a line 150 income of $70,607. In 2014, it was $68,303. The applicant relies on the respondent’s current income figures.

[25] However, the respondent points out that in the past three years, he worked significant overtime, including some Saturday hours and long hours during his Monday to Friday work-week. The respondent says that, as of the summer 2017, over-time work will likely not be available to him in the future because his employer implemented a new work schedule that provides for fewer hours and no Saturday work “as a result of cutbacks due to the fact that our plant is losing the production contract for the Corolla, which will be made in Mexico. As a result, production is winding down as they switch to the new model.”[30]

[26] As such, the evidence of the respondent is that, as of August 2017, he has not worked Saturdays and his hours have been cut dramatically. The applicant does not directly challenge this statement.

[27] The respondent states that, based on his employer’s new work-schedule, he expects to work 40 hours per week for the foreseeable future, which, based on his hourly wage of $25.72, would result in an annual income of approximately $53,500.[31]

[28] That said, the respondent does acknowledge that even after August 2017, he has been fortunate to obtain some overtime hours, both on the Corolla production line and on other production lines. The respondent maintains that overtime hours will be increasingly unavailable for him, as production of the Corolla is being discontinued, and overtime on the other production lines is not guaranteed, as the workers who normally work on those production lines have priority over any available overtime hours.[32]

[29] The respondent provided copies of his bi-weekly pay statements for the pay periods ending August 26, 2017, September 9, 2017, and September 23, 2017. The September 23rd statement shows a year-to-date gross income of $51, 685.74, representing total gross income paid over 19 of 26 pay periods. There is some merit in Mr. Handysides’ argument, that if one were to use the September 23rd statement to extrapolate an annualized income, the result would still be $70,727 in income for the year. However, annualizing income in that way assumes that the eight months of overtime hours would continue to be available for the entire year at the same levels as they existed from January through August. That is inconsistent with the essentially unchallenged evidence of the respondent that, with the discontinuance of the Corolla production line, one should reasonably expect that the amount of overtime hours available to the respondent will decrease.

[30] In my view, the fairer approach is to consider what actually happened to the respondent’s position in the pay periods following the implementation of the new work schedule in August 2017. To that end, it is instructive to examine each of the August 26th, September 9th, and September 23rd statements and consider what an annualized income would obtain if one extrapolated based on each statement.

[31] The pay statement for the pay period ending August 26, 2017, shows total gross income of $2,607.95 paid for that period. On an annualized basis, that would amount to $67,806 per annum. Similarly, the statement for the pay period ending September 9, 2017, shows total gross income of $2,548.45 paid for that period. On an annualized basis, that would amount to $66,259 per annum. Finally, the statement for the period ending September 23rd shows total gross income of $2,609.37 paid, which, on an annualized basis, would amount to $67,843.

[32] I note that the average of those three annualized incomes is approximately $67,302. In my view, that provides some support for the respondent’s position.

[33] Recognizing the inherent difficulties in attempting to predict what the respondent’s income will be based on how much overtime hours will or will not be available to him, I conclude that $68,500 is a fair amount to attribute to the respondent as an annual income for purposes of determining spousal support on an interim basis.

In Braga v. Braga, 2006 CanLII 21776 (ON SC), the payor had historically worked overtime in an automotive parts factory, but a downturn in the automotive industry made it probable that continued overtime would not be available to him. Further Wright J. noted that there are limits to the extent that a recipient can be entitled to share in the income earned through overtime. The overtime was excluded:

[40] The husband submits that the company by which he is employed is caught up in the general decline of the automotive industry in Ontario, that there will be substantially less opportunity to work overtime, that his sons are now independent and it should not be necessary for him to work the punishing hours that have been necessary in order to meet the requirements of the interim support payments which were ordered based upon income of approximately $90,000 per year.

[41] The wife argues that the issue of spousal support should be approached on the basis of Moge v. Moge on not on the basis of a means and needs test. The wife argues that on a previous occasion the husband came into court seeking a variation of interim support on the basis of a downturn in the automobile industry but that time has shown that there was no adverse impact upon his income.

[42] As noted earlier, a member of the Human Relation Department of Walker Exhaust was subpoenaed to testify on behalf of the husband. She noted that during the years 2001, 2002 business was booming and there was substantial overtime for those who chose to work it. The workforce was substantially increased to handle this work. With the larger workforce less overtime was available but in 2003, 2004, 2005 work has been declining. Approximately half of the workforce has been laid off but the ensuing dislocation has made more overtime work available in the short term. It was her evidence that the opportunity to work overtime is first extended to those with the fewest overtime hours. Contracts with purchasers are entered into a year or more in advance of production and it now appears that the years 2006, 2007 will see substantially lower production. In the short term little if any overtime can be expected.

[43] The husband has been paying interim spousal support in the amount of $2,000 per month since August 20, 2003. The wife asks that this be made retroactive to April when he left the home and the husband asks that this be declared to be unconscionable given all of the circumstances.

[44] Even if sufficient overtime remains available, support in the amount of $2,000 per month locks the husband into working substantial overtime. If that overtime is not available then it imposes a substantial hardship.

[45] This was a “modern” marriage. The wife rather disdainfully testified that she was not like her Portuguese immigrant mother, she was a “modern woman”. The wife was gainfully employed at the time of the marriage and continued to contribute to her own support and that of her family through her factory work until her injury in 1993. No question of compensatory support arises. This is not a case of a wife whose marriage disadvantaged her in the wo

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