Mobin v. Stephens – Damages as Income for Child Support Purposes?

Background

The parties were in a common law relationship for seven years, which ended in 2009. They have children, aged 8 and 5.
Pursuant to a consent order made in August 2010, the mother had custody of the children with reasonable access to the father on reasonable notice. The order further stipulated that the father would pay child support to the mother in the amount of $320 per month, based on his 2009 income of $20,988.76. The mother is a student, with student loans as her sole source of income.

In November 2010, the father received a settlement of $175,000 USD on account of his claim against a production company for copyright infringement.

In June 2011, the mother brought a motion to change child support. Specifically, she sought an increase in child support to reflect the additional money received by the father under his settlement.

Analysis

At the outset of its analysis, the court reviewed the objectives of the Child Support Guidelines and the definition, determination and calculation of income as stated thereunder.

Pursuant to section 16 of the Guidelines, the court explained that the starting point for calculating a party’s income is their T1 General income tax return for the applicable year. However, in this case, the father did not include the settlement funds in his income for 2010.

In determining how the settlement funds should then be treated, the court turned to a review of the Supreme Court of Canada’s decision in Tsiaprailis v. R. In that case, the court identified the following questions as determinative in deciding whether income received by a payor of child support should be treated as income for the purpose of calculating the child support obligation:

  • What was the payment intended to replace?
  • Would the replaced amount have been taxable in the recipient’s hands?

In this case, the court accepted the mother’s argument that the payment resembles royalties or profits that would have been paid to the father notwithstanding the copyright infringement. As these royalties or profits would otherwise have been taxable to the father for the publication, performance or licensing of the father’s original work, the court held that the settlement must be included in the calculation of the father’s 2010 income under the Child Support Guidelines.

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