Imputing Income Based on Gifts Received by the Payor
The case of Bak v. Dobell, 2007 CarswellOnt 2324 (Ont. C.A.), deals with imputing income to the payor spouse where they receive gifts and no other income. This case considers section 19(1) of the Child Support Guidelines (“Guidelines”), Can. Reg. 97-175, which sets out the circumstances in which a Court will impute income to a payor spouse. The section reads as follows;
19(1) Imputing income
The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:
- the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse;
- the spouse is exempt from paying federal or provincial income tax;
- the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
- it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;
- the spouse’s property is not reasonably utilized to generate income;
- the spouse has failed to provide income information when under a legal obligation to do so;
- the spouse unreasonably deducts expenses from income;
- the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and
- the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.
This case involves a couple who had a child while cohabiting during college. Three months after the child was born, the mother moved to Ottawa and the father has had little contact with the child since. The father lives with several long-term health problems which prevent him from working. In order to sustain his son, the father’s father (“Mr. Dobell”) has provided him with sufficient funds to cover living expenses, medical expenses, a house, and additional money to support his efforts at becoming self-sufficient. The mother asked the Court to impute the father’s income for the purposes of the Child Support Guidelines based on the gifts he received from Mr. Dobell. The Trial Judge refused to do so. Therefore, the mother appealed the decision.
Section 19(1) of the Guidelines gives the Court considerable discretion in imputing income. The Court of Appeal made three important findings regarding when it is appropriate to exercise this discretion.
(a) Lifestyle and Guidelines income
The broad drafting of section 19(1) was intended to catch cases where unfairness would result from the failure to impute income. The Court gave examples of cases where lifestyle was used to prove that a payor was earning more income than they claimed. The Court concluded that lifestyle, in and of itself, does not determine a person’s income. Instead, it is evidence from which the Court can infer that there is undisclosed income in a particular case. Therefore, in the present case, the fact that the father’s lifestyle was not reflective of his lack of income was insufficient as a basis for imputing income.
(b) Gifts of capital and Guidelines income
Unlike in some previous decisions, the gifts from Mr. Dobell were at his own discretion in terms of amount and purpose. The Court felt that these gifts should not be the basis for imputing income because the father was not able to independently decide how they would be used.
(c) Third party support and Guidelines income
The Court noted that gifts are neither explicitly included nor excluded from the definition of income in the Guidelines. Therefore, the Court had to consider whether this case was an appropriate one for exercising the discretion granted in s. 19(1) of the Guidelines. The Court listed several factors to consider when determining whether gifts should give rise to imputed income. These factors include the regularity of the gifts, their duration, and whether said gifts were part of the family’s income during cohabitation. Having regard to these factors, the Court found that the Trial Judge was not wrong in deciding not to exercise his discretion to impute income in this case.
In a similar vein, the Court rejected the mother’s assertion that these gifts were akin to income from a trust, which is a circumstance for imputing income as stated in s. 19(1)(i) of the Guidelines. The reasons that the Court gave for this finding were that the father was not entitled to receive these funds on a continual basis and that Mr. Dobell remained in complete control of the money.