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Imputed Income

September 16, 2021

British Columbia

,

Canada

Issue

Will the court impute income to a spouse for the purpose of calculating spousal support where the spouse regularly receives monetary gifts from other family members?

Conclusion

Actual income is presumptively restricted to that which is the subject of taxation. However, imputed income does not depend solely on taxable income. The court has discretion to impute income where the imputation is supported by the evidence. Where a party receives regular gifts from his or her parent, the court may impute the amount of those gifts as income for support purposes. (Korman v. Korman; Bak v. Dobell; Marrello v Marrello)

Where there is evidence of a settled pattern of monetary gifts that are used to maintain the family’s lifestyle, and there is evidence that those gifts will continue, those gifts may be taken into account in imputing income to the recipient spouse. (Marrello v Marrello; Bak v. Dobell; Korman v. Korman)

In S.R. v. B.E., Madam Justice Fisher applied Bak v. Dobell, and imputed income to the recipient mother who was a shareholder in her father’s company and who received regular and ongoing gifts of cash from her father. The court inferred the funds were in part income from the company and, considering the likely continuance of these amounts, imputed $25,000 to the recipient. Madame Justice Fisher used the recipient's imputed income to calculate spousal support.

In Marrello v Marrello, both spouses sought spousal support from the other. The husband received monetary gifts that were used to provide for his basic needs, and, during the marriage, represented most of the monies brought into the family by the husband. The Court concluded that it was appropriate to impute an additional annual income of $30,000 as a result of parental gifts.

In Flader v. Gutnik, the wife sought spousal support from the husband. The husband's parents had lent money, generally evidenced by promissory notes, and given him gifts of cash over the years. Madame Justice Baker declined to impute income on the basis of substantial gifts from parents, noting that the parents had no obligation to provide support in the circumstances.

In Todd v. Todd, the parties were married for four years and had one child. The father's mother paid the father weekly deposits into a joint bank account. The payments, which increased from $750 to eventually $1,000 per week, continue to the time of the trial. The mother sought child support and spousal support. The court declined to impute income based on the gifts from the father's mother because the mother was under no obligation to provide the support.

In T.T. v. J.M.H., the parties had a traditional marriage that lasted 17 years. The wife sought spousal support for an indefinite period in the amount of $16,000 per month pursuant to the Divorce Act. The respondent does not dispute the claimant’s entitlement to spousal support but strongly opposed an order for indefinite support. The respondent asked the court to impute additional income to the claimant. The claimant was to receive an inheritance of $1,240,000, likely in June 2016, from the balance of her parent's estate. Fleming J. imputed the claimant income of almost $50,000 per year once the inheritance cleared in June 2016.

In Korman v. Korman, the Ontario Court of Appeal held that the monetary gifts provided by the payor’s parents should be imputed to Mr. Korman’s income because there had been a settled pattern of such gifts over many years and the gifts were substantial (between 1990 and 2009 the parents gifted at least $986,000). The payor supported himself and the monetary gifts helped him maintain a certain lifestyle.

Law

In Marrello v Marrello, 2016 ONSC 835 (CanLII), Matheson J. commented on when monetary gifts may be taken into account in imputing income to the recipient of spousal support as follows:

[179] Actual income is presumptively restricted to that which is the subject of taxation. However, imputed income does not depend solely on taxable income. The court has discretion to impute income where the imputation is supported by the evidence. Where a party receives regular gifts from his or her parent, the court may impute the amount of those gifts as income for support purposes: Bak v. Dobell (2007), 2007 ONCA 304 (CanLII), 86 O.R. (3d) 196 (C.A.), at para. 75; Korman v. Korman, 2015 ONCA 578, 126 O.R. (3d) 561, at paras. 47-51, 62-65, 67.

[180] Where there is evidence of a settled pattern of monetary gifts that are used to maintain the family’s lifestyle, and there is evidence that those gifts will continue, as is the case here, those gifts may be taken into account in imputing income to the recipient spouse: Bak, at para. 75; Korman, at paras. 66-67.

Matheson J. imputed income to the recipient spouse of $30,000 based on parental gifts:

[183] All the monies gifted, other than the amount needed for the down payment on the house and more recently for legal fees, were used to provide both the basic funds needed to pay the bills and an improved standard of living and, during the marriage, represented most of the monies brought into the family by the respondent. Those factors support taking the amounts into account as imputed income: Bak, at para. 75.

[184] In this case, the main problem is not whether or not to impute the gifts as income – they certainly should be – but the uncertainty around the amount of those gifts from time to time. This uncertainty arises because of the approach taken by the respondent and his father, including an almost total lack of documentation and an apparently near total lack of recall even for recent time periods. There is, however, evidence regarding the amount of gifts shown by the unaccounted for funds in the respondent’s bank accounts and evidence of the family expenses during the marriage and the respondent’s expenses after the marriage. The respondent continues to live in the same townhouse. In his September 11, 2015 financial statement, he showed annual expenses of $48,360. After the child tax benefit, his expenses were $47,510, without any income.

[185] When considering the evidence about expenses that need to be paid after the marriage, I have disregarded the father’s gifts directed at paying lawyer’s fees, as one-time expenses. I have also taken into account the OSAP loan as a source of funds.

[186] In the respondent’s DivorceMate calculations, he used $12,000 for his income. While this amount was not explained, it is plainly insufficient to cover his expenses, even with the OSAP loan covering part of his expenses in 2015.

[187] I conclude that it is appropriate to impute an annual income of $30,000 as a result of parental gifts, as of now. For the earlier period, between separation and commencement of school, I impute $45,000 as the respondent’s annual income, being a minimum wage income together with parental gifts necessary to meet his expenses over that time.

The issue of imputing income pursuant to s. 19(1) of the Federal Child Support Guidelines on the basis of the receipt of gifts was considered in some detail in Bak v. Dobell, 2007 ONCA 304 (CanLII). The husband’s father supported him by providing funds for his day-to-day needs. The father deposited a consistent amount into the husband’s bank account every month with the intention of discontinuing the support if and when the husband was able to make a living, which was uncertain. Writing for the court, Lang J.A. held that “in the normal course” gifts are not included as income:

[60] I turn to consider the more difficult question of whether the periodic support received by the respondent from his father should be considered as the respondent's income for the purpose of calculating the respondent's child support obligation. I do this by returning first to the question of whether any presumptions of statutory interpretation assist with determining legislative intent on this issue. I look first at whether the government deliberately excluded gifts from the definition of income and from the circumstances included as appropriate ones in which to impute income. I then consider, if that is the case, whether gifts can ever be included in income for child support purposes.

[61] When the Guidelines were enacted, the legislature is presumed to have been knowledgeable about the various sources of taxable and non-taxable income available to an individual, including the fact that neither gift nor trust income is taxable. It can be presumed from this knowledge that the legislature deliberately omitted both gifts and trust income from presumptive income.

[62] The legislature, however, did list trust income as a s. 19(1) circumstance in which income could be imputed. It did not list gifts. Since the legislature did not include gifts within the ambit of imputed income, it can be presumed, in the normal course, that the legislature did not intend the receipt of gifts to be an "appropriate circumstance" in which to impute income. [See Note 8 below] For this reason, usual gifts, such as those given to mark a special occasion, are not included as income.

[63] If the legislature knowingly excluded gifts from presumptive and imputed income, can they ever be considered to be an appropriate circumstance in which to impute income under s. 19(1)? It is helpful to consider this question by comparing gifts to the "appropriate" circumstances listed by the legislature in s. 19(1). Income will be imputed where the respondent is intentionally unemployed or underemployed (s. 19(1)(a)); has special income [page212] tax circumstances or unreasonable deductions (s. 19(1)(b), (c), (g) or (h)); has diverted income (s. 19(1)(d)); has failed to reasonably utilize capital to generate income (s. 19(1)(e)); or has failed to make disclosure (s. 19(1)(f)).

[64] These circumstances reflect two main themes: they either allow for the imputation of income to a spouse able to generate income who refuses to do so (or who does not provide proper disclosure of income information), or they adjust the payor's income to compensate for anomalous income tax treatment. Neither is relevant to the receipt of gifts generally and, clearly, the circumstances in this case bear no similarity to the examples listed in ss. 19(1)(a)-(h).

[65] The remaining listed circumstance is income or other benefits from a trust (s. 19(1)(i)). The trial judge in this case determined that the respondent is not the beneficiary of a trust; however, on appeal the appellant argues that the respondent's receipt of gifts is analogous to receipt of trust funds.

[66] While the stream of income from William Dobell to the respondent bears some similarities to trust income, there are also important differences, most significantly that William Dobell remains in complete control of the funds, the amount of which are closely tied to the respondent's basic needs. The respondent has no entitlement to the stream of income, which could be reduced or terminated at any time by his father with no recourse to the respondent.

[67] Nonetheless, it is important to consider s. 19(1) in light of the Guidelines' objectives of s. 1, which tell us that their purpose is to establish fair support for Jacqueline to ensure she benefits from the "financial means" of both her parents.

Lang J.A. went on to consider s. 19(1) in light of the objective in s. 1 to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both parents. She concluded that a court may consider whether the circumstances surrounding a particular gift are so unusual that they constitute an “appropriate circumstance” in which to impute income. The factors to consider include:

[74] Although it seems the legislature intentionally did not include the receipt of gifts given in the normal course in presumptive income, or as an example of an appropriate circumstance under s. 19(1), a court will consider whether the circumstances surrounding the particular gift are so unusual that they constitute an "appropriate circumstance" in which to impute income.

[75] In considering whether it is appropriate to include the receipt of unusual gifts in income, a court will consider a number of factors. Those factors will include the regularity of the gifts; the duration of their receipt; whether the gifts were part of the family's income during cohabitation that entrenched a particular lifestyle; the circumstances of the gifts that earmark them as exceptional; whether the gifts do more than provide a basic standard of living; the income generated by the gifts in proportion to the payor's entire income; whether they are paid to support an adult child through a crisis or period of disability; whether the gifts are likely to continue; and the true purpose and nature of the gifts.

[76] Clearly, on the facts of this case the amounts provided by William Dobell to the respondent are not gifts given "in the normal course" to mark a special occasion. This is apparent from the circumstances of the gifts, including the quantum, regularity and duration of the periodic payments, as well as the fact that they provided the sole means of support for the respondent, and at least to some extent for his unemployed partner.

[77] In exercising his discretion not to impute income to the respondent on the basis of the periodic support, the trial judge considered that the intended duration of the gifts was limited; that the gifts were intended only to encourage the respondent's self-sufficiency; that the gifts were made to a disabled child and were more in the nature of support for an adult child than in the nature of an allowance, and that the quantum of the gifts did no more than support a basic lifestyle. In my view, for these reasons, the trial judge was entitled to refuse to include these gifts in income.

In S.R. v. B.E., 2011 BCSC 1586 (CanLII), Madam Justice Fisher applied Bak v. Dobell, and imputed income to the recipient mother who was a shareholder in her father’s company and who received regular and ongoing gifts of cash from her father. The Court inferred the funds were in part income from the company and, considering the likely continuance of these amounts, imputed $25,000 to the recipient:

[85] The issue of imputing income on the basis of the receipt of gifts was considered in some detail in Bak v Dobell, 2007 ONCA 304. There, the husband’s father supported him by providing funds for his day to day needs. The father deposited a consistent amount into the husband’s bank account every month with the intention of discontinuing the support if and when the husband was able to make a living, which was uncertain. Writing for the court, Lang J.A. held that “in the normal course” gifts are not included as income:

[...]

[86] Lang J.A. went on to consider s. 19(1) in light of the objective in s. 1 to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both parents. She concluded that a court may consider whether the circumstances surrounding a particular gift are so unusual that they constitute an “appropriate circumstance” in which to impute income. The factors to consider include:

[75] ... the regularity of the gifts; the duration of their receipt; whether the gifts were part of the family’s income during cohabitation that entrenched a particular lifestyle; the circumstances of the gifts that earmark them as exceptional; whether the gifts do more than provide a basic standard of living; the income generated by the gifts in proportion to the payor’s entire income; whether they are paid to support an adult child through a crisis or period of disability; whether the gifts are likely to continue; and the true purpose and nature of the gifts.

[87] In the circumstances of that case, income was not imputed despite the fact that the gifts were not given in the “normal course” to mark special occasions but rather provided the sole means of support for the husband. The intended duration of the gifts was limited, they were intended only to encourage the husband’s self-sufficiency, they were more in the nature of support for an adult child than an allowance, and the quantum did no more than support a basic lifestyle.

[88] In this case, B.E. received considerable support from her father throughout the marriage. [...]

91] This evidence shows that these funds are provided on a regular and ongoing basis. The only time in which funds were not provided coincides with B.E.’s trip to Iran between December 2006 and May 2007 and the two months she lived in Olympia. The funds were provided throughout the marriage and clearly permitted B.E. and her family to live a lifestyle beyond what S.R. could afford. The cash she brought with her and the funds she received in the first year she lived in Canada (about $75,000) was more than S.R.’s reported income in 2006. In the following years, S.R. earned a higher income and the gifts were less but still substantial. Clearly, they provided more than a basic standard of living, and continue to do so. I find that the nature and purpose of these gifts is to provide an allowance to B.E. Even if she becomes employed, or re-marries and is supported by her husband, it is likely that the gifts will continue, although in lesser amounts.

[92] It is also relevant, in my view, to consider the evidence about B.E.’s legal title to 25% of the shares of Auto Javid, her father’s company in Iran, her stated salary from that company, and the rent that is payable for the apartment in Iran, legal title to which is in her name. B.E. testified that she never worked for the company. She and her mother both testified that these assets were put into her name for tax purposes but neither had any personal knowledge about this. The power of attorney that B.E. signed October 29, 2005 gave her father full discretion to deal with her assets, but this power of attorney did not transfer her legal or beneficial rights to any assets, contrary to the assertion in a letter from the “Managing Director” of Auto Javid that she did so. This evidence suggests that while B.E. has not actually received any of the income or profit share from these assets, she remains entitled to it. There is no admissible evidence to suggest otherwise. When I consider the funds provided to B.E. by her father over the years in this context, a logical inference to draw is that at least some of those funds consisted of income to which she is entitled. Her father was legally entitled to deal with her assets, but only for her benefit under the power of attorney. In this sense, the funds she received were similar in nature to income or benefits from a trust.

[93] Moreover, B.E. failed to produce any independent evidence from which this court could determine the value of her shares in Auto Javid and what rights those share conferred on her.

[94] I want to emphasize that it is B.E. who has the legal obligation to support her child, not her father’s. However, in the unusual circumstances of this case, given the nature of these gifts as I have described, I have concluded that it is appropriate to include the receipt of some of the funds provided to B.E. from her father as income.

[95] It is a difficult exercise to determine how much of these funds should be imputed as income. The available documentary evidence suggests that the income from Iran in salary and rent is rather modest (about $750 per month) but there is insufficient evidence to determine what entitlement, if any, B.E. would have to share in the profits of Auto Javid. The funds provided to her in 2008 and 2009 were in the range of $20,000 annually. The more recent increase, according to Mr. Ali, was to assist with B.E.’s legal costs. In all of these circumstances, I impute a Guideline income to B.E of $25,000.

Madame Justice Fisher used the recipient's imputed income to calculate spousal support:

115] The length of the marriage and the period of co-habitation are relevant considerations, as indicated in the Divorce Act. Generally, a shorter term marriage will result in a shorter term award, as the shorter the period the parties live together, the less their financial relationship is likely to be intertwined. Much will depend, of course, on the facts of each case. Here B.E. has had the primary responsibility for the child of the marriage but the marriage was a relatively short one of 4 ½ years and the parties’ financial relationship was quite separate. B.E. had access to a joint bank account with S.R. but S.R. did not have access to B.E.’s bank accounts. Using the Guideline incomes of the parties ($100,000 for S.R. and $25,000 for B.E.) the SSAG suggest spousal support from a low of $1,174 to a high of $1,862 and a slightly higher range from $1,342 to $1,995 where child support is paid under s. 9 of the Guidelines.

[...]

[121] Although B.E.’s father has been providing her with ample support, it must be emphasized that the legal responsibility to do so does not lie with him but with S.R. B.E.’s entitlement, however, is of a limited duration of three years. My view is that she will need about two more years to learn English sufficiently to enter the work force and establish herself. In these circumstances, I see more benefit to making an award retroactive for only one year, to December 1, 2010.

[122] Accordingly, S.R. will be required to pay spousal support in the amount of $1,300 per month, retroactive to December 1, 2010, and continuing on the first day of each month thereafter for a period of three years, ending on December 31, 2013. The effect of this order is that S.R. owes $15,600 for arrears of spousal support from December 1, 2010 to December 1, 2011.

In Todd v. Todd, 2016 BCSC 243 (CanLII), the parties were married for four years and had one child. The father's mother paid the father weekly deposits into a joint bank account. The payments, which increased from $750 to eventually $1,000 per week, continue to the time of the trial. The mother sought child support and spousal support. The court declined to impute income based on the gifts from the father's mother for the following reasons:

[72] In my view, this is not an appropriate case in which to impute income from gifts from parents. As in Flader, Ms. Todd’s gifts were not trust income or wages in disguise. Catherine Todd has been very generous with the parties but is under no obligation to provide support. Indeed, it appears that she may well not have the ability in any event to continue to provide support in the future given the imminent exhaustion of the fund which has been the source of the payments.

In T.T. v. J.M.H., 2014 BCSC 451 (CanLII), the parties had a traditional marriage that lasted 17 years. The wife sought spousal support for an indefinite period in the amount of $16,000 per month pursuant to the Divorce Act. The respondent does not dispute the claimant’s entitlement to spousal support but strongly opposed an order for indefinite support. The respondent asked the court to impute additional income to the claimant. The claimant was to receive an inheritance of $1,240,000, likely in June 2016, from the balance of her parent's estate. Fleming J. imputed the claimant income of almost $50,000 per year once the inheritance cleared in June 2016:

[115] The claimant seeks spousal support for an indefinite period in the amount of $16,000 per month pursuant to the Divorce Act. The respondent does not dispute the claimant’s entitlement to spousal support but strongly opposes an order for indefinite support and argues his obligation to pay spousal support should end in September 2019 when he turns 65. He does not agree with the monthly amount proposed by the claimant. He asks the court to impute additional income to the claimant and proposes a step down approach that would see his spousal support obligation reduced as of July 1, 2016, after N. has graduated from high school.

[...]

[138] The claimant’s income will further increase once she receives the balance of her inheritance following the sale of her parent’s home. She expects to receive approximately $1,240,000. The property will be listed for sale in the fall of 2014 or 2015. Given the uncertainty about when the balance of the estate will be distributed, and the respondent’s proposal that a step down approach consider the claimant’s additional income from her inheritance starting in June 2016, I find her guideline income as of that date will increase by $49,600 per year assuming a rate of return of 4%, as suggested by the parties. Her guideline income will therefore be $86,000 from that date forward.

In Flader v. Gutnik, 2013 BCSC 414 (CanLII), the wife sought spousal support from the husband. The husband's parents had lent money, generally evidenced by promissory notes, and given him gifts of cash over the years. Madame Justice Baker declined to impute income on the basis of substantial gifts from parents, noting that the parents had no obligation to provide support in the circumstances:

[187] Ms. Gutkin is seeking an order that the court impute income of $83,685 a year to Mr. Flader and that he be ordered to pay spousal support at the high end of the range for a period of two to four years, or alternatively, that he be ordered to pay $27,000 lump sum spousal support to Ms. Gutkin. Ms. Gutkin submits that she is entitled to spousal support on a needs basis; but also that she is entitled to compensatory spousal support because she provided care to Mr. Flader during the marriage.

[188] Although Ms. Gutkin’s counsel made submissions to the effect that Ms. Gutkin took time off work to care for Mr. Flader or drive him to medical appointments, the evidence at trial is not persuasive. I am satisfied Ms. Gutkin took time off work for reasons of her own, generally unrelated to Mr. Flader’s needs or wishes. I am not persuaded that there is an entitlement to compensatory spousal support in this case.

[189] Ms. Gutkin’s counsel also made submissions that stress caused by the marriage and Mr. Flader’s condition exacerbated Ms. Gutkin’s health issues. As noted earlier in these Reasons, there is no medical evidence to corroborate Ms. Gutkin’s testimony about the nature of her health issues, and no persuasive evidence that the conditions she has were exacerbated by stress related to the marriage.

[190] Ms. Gutkin’s submission that income should be imputed to Mr. Flader is based on her assertion that his parents have provided Mr. Flader with financial assistance in the past; that they have the ability to continue to provide him with financial support and that they should continue to do so; and that from the funds provided to Mr. Flader by his parents, he should pay spousal support. In the alternative, she submits that Mr. Flader should be required to liquidate some of his assets to pay lump sum spousal support.

[...]

[194] I am not persuaded that any gifts of money that have or may be given to Mr. Flader by his parents can or should be treated as imputed income in Mr. Flader’s hands. There is no evidence that any of the money that has been given to Mr. Flader is really trust income or wages in disguise. For the most part, funds have been advanced in the form of loans, evidenced by promissory notes. The funds given to Mr. Flader have been primarily for his medical treatment and supplies. There is no legal obligation for the senior Fladers to continue to support their son although they are to be commended for the support they have provided.

[195] Even the employment income Mr. Flader does receive and declare as income is really a gift from his sister, who has taken over the duties of managing The Maples while allowing her brother to continue to receive the manager’s salary.

In Korman v. Korman, 2015 ONCA 578 (CanLII), the Ontario Court of Appeal held that the monetary gifts provided by the payor’s parents should be imputed to Mr. Korman’s income because there had been a settled pattern of such gifts over many years and the gifts were substantial (between 1990 and 2009 the parents gifted at least $986,000). The payor supported himself and the monetary gifts helped him maintain a certain lifestyle. The Court distinguished Bak v. Dobell as follows:

[62] The generous monetary gifts made to the Husband by one or both of his parents are also a proper and necessary consideration. The trial judge found, at para. 119, that “[t]hrough the marriage, very generous gifts were given to the parties” and, at para. 126, “that funds will continue to be given to the [Husband] by his mother, whether by gift or through some other tax-friendly plan.” While some of these gifts were intended to enhance the Husband’s employment prospects and his career, others were not. And, contrary to the Husband’s submission, the thrust of the trial judge’s findings is that these gifts were neither irregular nor infrequent.

[63] In this context, the trial judge emphasized that: “the [Husband] has always received money from his parents and will likely continue to receive [monetary gifts] from his mother”: at para. 126. He went on to hold, at para. 129, that, “[w]hile it is impossible to know exactly how much the [Husband] will benefit from gifts or dividends, the amount of $120,000.00 strikes a reasonable balance between earnings and other cash flow the [Husband] is likely to receive.”

[64] The evidentiary record amply supports these findings. There was evidence before the trial judge establishing a settled pattern of monetary gifts to the Husband by one or both of his parents, over many years, to assist him in maintaining his family’s lifestyle, to finance specific family expenditures – such as private school tuition or camp expenses for the children – or to underwrite the costs of the Husband’s various business ventures.

[65] Moreover, these gifts were substantial. Between 1990 and 2009 (the year of separation), one or both of his parents gifted at least $986,000 to the Husband. These funds covered a significant part of the purchase price of the parties’ Matrimonial Home, the costs of the Husband’s various business ventures and investments, and the children’s private school and camp fees. In the five years following separation, 2009 to 2013, the Husband received additional funds from his mother in the approximate amount of $73,500, plus the sum of $100,000 for his costs of the matrimonial litigation. These funds were used to defray personal and family-related expenses.

[...]

[67] I am therefore not persuaded that the trial judge erred in imputing global annual income to the Husband in the sum of $120,000. This is not a case like Bak, where a parent provided financial assistance to support a disabled adult child who would otherwise have been unable to support himself. The Husband is able to support himself and ha

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