Shaw v. Shaw, [1998] 3 CTC 202

Menzies J.:

Background

The Petitioner, Catherine Ellen Shaw and the Respondent, Bradley Ian Shaw were married on February 28, 1981. There are two children of the marriage, namely Ladene Jennifer Shaw (born April 11, 1984) and Mandi Lorissa Shaw (born January 6, 1987).

The parties separated on October 18, 1996 and entered into a separation agreement dated May 13, 1997. The separation agreement provided, inter alia, that custody of the two children would be with the Petitioner and if the issue of child support could not be settled, that either party could apply for a determination.

On an interim basis, the Petitioner applies for child support.

Respondent’s Income

There is no dispute that the Federal Child Support Guidelines are to be applied in this case. However, the parties are in disagreement as to the calculations to be used to determine the Respondent’s income under those Guidelines.

Under the Guidelines, “income” means the annual income determined under section 15 to 20. Under those sections, the Court is to use the total income found in the T1 form issued by Revenue Canada and adjust it in accordance with Schedule III. It is agreed that the total income of the Respondent found in the T1 form issued by Revenue Canada for 1996 is $10,388.34. The effect of the adjustments under Schedule III are in dispute.

Dividend Income

In reviewing the Respondent’s Income Tax Return, one source of declared income is a dividend from a taxable Canadian corporation. The actual dividend received is in the amount of $42.09 rather that the $52.62 declared under the Income Tax Act. As per section 5 of Schedule III, the actual amount of the dividend should be used and the T1 figure should be reduced by $10.53.

Capital Gains

Another source of income for the Respondent was through capital gains. Although the capital gain for income tax purposes was reported as $94.92, the actual capital gain was in the amount of $126.56. As per section 6 of Schedule III, the Respondent’s income should be increased by the difference between the amount declared and the actual gain or $31.64.

Non-Recurring Expenses

The Respondent has deducted from his income for 1996 the sum of $3,370.00 for building and fence repairs. The Petitioner argues that this deduction should not be allowed as it is a non-recurring loss pursuant to section 17(2) of the Guidelines. It is the Petitioner’s position that as she received all of the farm land in the separation agreement of May 13, 1997, the Respondent will not have this expense in the future. I cannot accede to this argument. This was a legitimate expense incurred in the ordinary course of the farming operation by the Respondent. Although the nature of the Respondent’s farming operation may be greatly altered in 1997, this does not mean the expenses incurred in 1996 should now be disregarded. As well, section 17(2) refers to non-recurring capital or business investment losses. I am not satisfied that this expense is either.

Capital Cost Allowance

The final item in dispute in the calculation of income is the Respondent’s claimed expense of $24,257.94 for capital cost allowance. It is the Petitioner’s position that this is not an out of pocket expense and should be included in the Respondent’s income for Guideline calculations. The Respondent counters that this is a legitimate expense for farmers. While the capital cost allowance is not an out of pocket expense, the Respondent argues it provides an allowance to replace his farm machinery as it wears out. In addition the Respondent points out that the Guidelines do deal with the issue of capital cost allowance at section 11 of schedule III. That section provides that the capital cost allowance for real property is to be included in income. There is no similar provision for chattels.

This Court may impute income where expenses have been unreasonably deducted. Pursuant to section 19(2) of the Guidelines, the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act. The fact that the Income Tax Act may allow certain deductions for the calculation of income does not make that deduction reasonable.

One of the objectives of the Guidelines is to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses after a separation.

There are many valid arguments from a business perspective to granting a farmer the right to deduct capital cost allowance in calculating his income for income tax purposes. I also note that the farmer is not required to use his capital cost allowance in any year where his income does not warrant it. The farmer may save the deduction for a year where his income is greater and thereby reduce his income.

There is no question that this may not be an actual expense in the year claimed. If the children of the marriage were living with their father on the farm, they would benefit from the actual income derived by the farm. I agree with the Petitioner that this amount should be included in the Respondent’s income under the Guidelines.

Final Income Calculation

For the purposes of the Guidelines, the Respondent’s income is as follows:

Support Payable

As a result of the determination of income in the amount of $34,667.39, the amount payable under the Guidelines by the Respondent to the Petitioner for support of the two children is in the amount of $471.61.

As no application has been made pursuant to section 7 of the Guidelines, there will be no order in that regard.

As the issue of child support was requisitioned for hearing on June 19, 1997, the child support will commence July 1, 1997 and be payable on the first day of each month thereafter. The Respondent will have until September 1, 1997 to make the July 1 and August 1 payments.

The Petitioner is entitled to her costs of this motion in the amount of $350.00 plus disbursements.

Application allowed.