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Calculating Child Support: What About Those Self-Employment Expenses?

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Calculating Child Support: What About Those Self-Employment Expenses?

In a recent case called Sawma v. Zeidan, the court was tasked with calculating the child support amounts payable by the separated father to the mother for the child they had together. The essential issue was the father’s annual income for a 5-year period; those figures would be used to calculate his ongoing support obligation amounts as directed by the Child Support Guidelines.

To their credit, the former couple had largely agreed between themselves as to the correct amount for the father’s gross income figure for each of the five years in question. However, they remained at a crossroads over the proper amount of his deductible business-related expenses for each year. The father’s purported deductions under this category related to usual items such as his cell phone, internet, gas heating and bookkeeping expenses, but he also claimed hefty amounts as “mileage expenses” – in some years totalling the equivalent of between one-third to one-half of his gross income.

The mother questioned the father’s proof that these business expenses were valid, claiming they were either unbelievable or poorly-supported. She also pointed out that he had a pattern of hiding income.

In order to address the key question, the court drew from a 2017 Alberta Court of Appeal decision called Cunningham v. Seveny, that set out the guiding principles (which are of equal relevance to Ontario). Those principles are:

• Onus. When a self-employed parent argues that his or her gross income should be reduced by business expenses for purposes of calculating income for child support, the onus or burden of proving that the expenses are reasonable falls clearly on the parent claiming them.

• Evidence. A parent who claims a deduction for business-related expenses must present evidence to justify those expenses.

• Explanation. If the claimed expenses also resulted in a personal benefit to the parent claiming the deduction, then “an explanation is required for why those expense deductions (or a part of them) should not be attributed to the parent’s income for child support purposes.”

• CRA Not Deteminative. Even if expenses have been approved for income tax purposes by the Canada Revenue Agency, this does not mean that the test for deducting expenses from income for child support purposes has been met.

• Child’s Right. Child support is considered to be the right of the child. A parent’s legal obligation to pay child support that fairly reflects the parent’s income in accordance with the Child Support Guidelines is not to be curtailed or limited by income tax statutes that allow for business expense deductibility.
In this case, and with the exception of certain car-related expenses (for which the father filed six thick volumes of receipts) the court concluded that he had failed to prove any of the so-called business expenses were reasonable and properly deducted from his gross income for calculating child support.

The court said:
Despite the amount of paper that was filed and the work I accept must have been devoted to compiling the hundreds of receipts and adding up the totals, the [father] has not provided the evidence I would require to find that the receipts and totals represent expenses that were all actually incurred by the [father] or that they represent business expenses exclusively and not personal expenses.
For example, the father did indeed provide evidence that he used his car for business purposes, but not the extent to which it was used for that reason, rather than for personal use. He claimed aggressive amounts for car-related expenses, but did not prove to the court’s satisfaction which of them were business-related. Likewise, his proof about his cell phone, internet, office space, and gas heating charges was also deficient.

The court added:
In addition to finding that the [father’s] evidence in support of his claimed expenses is insufficient, I find that, overall, the [father’s] evidence lacks credibility. I find that he is not a party who can be given the benefit of any doubt. My conclusion in this regard is based on the steps the [father] took to conceal income from the [mother], which included preparing a letter the [father] informed the [mother] his employer had prepared and falsifying bank records. In both cases, the [father] initially denied but eventually admitted what he had done.

The court also noted the father received a mileage allowance from three different companies. He argued these should be excluded from income the same way that Canada Revenue Agency (CRA) permitted this on his tax return, but the court rejected this notion. The mileage allowance represented money that went into the father’s pocket, and therefore had to be taken into account in determining his income for child support purposes regardless of what the CRA did.

With that said, and having recognized the father received mileage allowances, the court conceded that permitting him to claim certain car-related business expenses was appropriate, such as certain amounts for gas and repairs.

For the full text of the decision, see:

Sawma v. Zeidan

Cunningham v. Seveny

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com