Imputing Income – Tulloch v. Khemet, 2026 ONSC 34 – Summary

Overview

The parties were together for 18 years, married in July 2003, with two children (son, 19, in university; daughter, in grade school). They separated in January 2019. The applicant is a pediatrician and assistant professor; the respondent is a professor. The parties resolved parenting, equalization, and spousal support through mediation in February 2023, with Minutes of Settlement signed November 20, 2023. The sole unresolved issue was child support. Both parties sought to impute income to the other.

Applicant’s Position:

• Respondent is underemployed, failed to provide financial disclosure, traveled extensively, and failed to properly disclose alleged family loans
• Seeks retroactive child support from January 2019, ongoing support, and sharing of section 7 expenses

Respondent’s Position:

• Applicant is intentionally underemployed
• Applicant’s line 150 income doesn’t reflect true income (should include pre-tax corporate income, tax debt forgiven, non-business expenses)
• Applicant failed to disclose financial information

Analysis: Applicant’s Income

Is the Applicant Underemployed?

The applicant worked as a self-employed pediatrician from 2012 until spring 2023, when she became a salaried employee at Hospital for Sick Children earning approximately $194,000. She also does consulting work for CAMH.

The respondent’s expert, Melanie Russell, calculated the applicant’s income from 2016-2023. The applicant exceeded $300,000 only once (2016, when she worked 80 hours/week with extensive travel while the respondent pursued his doctorate).

The court rejected the respondent’s argument that income of $325,000 should be imputed. Citing Drygala v. Pauli, [2002] 61 O.R. (3d) 711, which defines “intentionally underemployed” as a voluntary choice to earn less than one is capable of earning, the court found it unreasonable to expect a mother working full-time with parental duties to work in excess of full-time hours as she previously did.

Pre-Tax Corporate Income

The respondent argued the applicant’s pre-tax corporate income should be included. The applicant owned 100% of the common shares of her medical professional corporation (incorporated 2016, ceased operation 2022).

The court agreed, citing Mason v. Mason, 2016 ONCA 725, which permits consideration of pre-tax corporate income under section 18(1) of the Guidelines. The applicant controlled the corporation and provided no business reason for retained earnings. However, the court noted that where a corporation suffers a loss, no pre-tax corporate income may be attributed (Mason at para. 163). In 2021, the corporation had a loss of $35,015 after reassessment by CRA.

Unreasonable Expense Deductions

The respondent’s expert included all expenses deducted by the professional corporation as personal income and grossed them up. The applicant didn’t adequately address this issue.

The court referenced the line of authority from Bentley v. Gillard-Bentley, 2013 ONSC 722 and Chase v. Chase, 2013 ONSC 5335, requiring evidence that employment expenses qualify as deductions under the Income Tax Act. However, the court also cited Picard v. Picard, 2001 CarswellOnt 2111, which starts from the premise that CRA-permitted expenses are bona fide in the absence of contrary evidence.

The court found the applicant’s expenses were business-related. She had an accountant who compiled statements, was reassessed in 2020 and 2021 (with operating losses determined higher than initially reported), and the respondent had overseen joint tax filings until 2019. The court rejected including these expenses as personal income.

Forgiven Tax Debt

The applicant filed a Division 1 proposal under the Bankruptcy and Insolvency Act in 2023, agreeing to pay $150,000 to creditors. CRA’s proven claim was $253,070.88.

The respondent argued the forgiven tax debt should be included in income or grossed up under section 19(1)(h) of the Guidelines. The court was not persuaded, noting:

• The court may gross up income where a person arranged their affairs to pay substantially less tax: Riel v. Holland, [2003] 67 O.R. (3d) 417 (Ont. C.A.) at para. 32; Orser v. Grant, [2000] 12 R.F.L. (5th) 184
• This was not a situation where the applicant arranged her affairs to pay less tax—the taxes owing were the issue itself
• There’s a difference between paying less taxes (resulting in more actual income) and having tax liability eliminated
• Neither party addressed whether forgiven tax liability meets the definition of “income” under section 16 or 18 of the Guidelines
• The Guidelines employ pre-tax inputs: Slongo v. Slongo, 2017 ONCA 272 at paras. 120-121

The court also noted: (1) the exact amount CRA would receive wasn’t established; (2) the liability included not just taxes but penalties, arrears, and interest; (3) some tax liability predated separation; and (4) fairness concerns given respondent’s non-disclosure.

Non-Disclosure

The respondent asked for an adverse inference under section 19(1)(f) of the Guidelines, citing Gray v. Rizzi, 2016 ONCA 152 and Smith v. Pellegrini, 2008 CanLII 46927.

The court rejected this argument. By August 2024, the applicant had provided: Order Approving Consumer Proposal, statements for 2018-2024, corporate and personal notices of assessment, claims register documents, general ledgers, tax returns, financial statements, and banking information going back to 2014. The respondent’s expert received documents a year before trial and was formally retained in September 2024 (one month before trial). The court found disclosure must be proportional and the requests became disproportionate to the issues.

Final Income Determination

Using section 17 of the Guidelines (which permits averaging over three years: Mason at para. 173), the court determined:

Applicant’s Income:

• Retroactive (2022-2024 average): $184,150
• Ongoing (2025): $194,213

Analysis: Respondent’s Income

The respondent is an Assistant Professor at University of Toronto, Faculty of Architecture, Landscape and Design since 2019. He completed his PhD in 2019. His income increased from $49,800 (2018) to $161,560 (2023), then $150,039 (2024) due to a voluntary sabbatical.

Is the Respondent Underemployed?

The applicant argued the respondent was underemployed based on research funding and extensive foreign travel. The court rejected this, finding:

• The respondent works full-time with possible faculty restrictions on outside work
• Research funds are disbursed for equipment and students
• Foreign travel coincided with his sabbatical and was work-related
• Lifestyle can be evidence of undisclosed income (Bak v. Dobell, 2007 ONCA 304), but his travel appeared work-related

The court imputed 2025 income at $180,000 based on his return to full-time work and anticipated July 2025 salary increase.

Family Loans

The applicant challenged deposits to the respondent’s accounts, including $54,000 to his CIBC Visa. The respondent claimed he borrowed from his brother and parents since late 2020, totaling approximately $234,000.

The respondent produced two typed “Summary Statement of Account” documents:

• September 15, 2024: shows “cumulative family loan” of $157,000, unsigned, no terms
• January 13, 2025: increased to $233,400 ($76,400 more in 4 months), includes terms (Prime + 2%, repayment after divorce finalized, $1,500/month)

The court found the evidence not credible under Heard v. Heard, 2014 ONCA 196, which permits imputation where income evidence is not credible. There were no contemporaneous documents, documents were created years after alleged borrowing, only one name appears despite “family loan” reference, and documents were inconsistent.

The court cited Malkov v. Stovichek-Malkov, 2017 ONSC 6822, noting that where gifts take on the appearance of a long-term subsidy, they bend towards income. The respondent had been subsidized for 3-4 years with no credible repayment evidence.

The court drew an adverse inference from the respondent’s failure to call his mother or brother as witnesses, citing John Sopinka, The Law of Evidence in Canada and Lane v. Kock, 2015 ONSC 1972. The court imputed $25,000/year to the respondent’s income.

Respondent’s Income:

• Retroactive (2023-2025 average with $25,000 imputation): $188,853
• Ongoing: $188,853 (imputed)

Key Takeaway

Pre-tax corporate income should be attributed to a payor who controls the corporation, but corporate losses cannot be attributed. Tax debts forgiven through bankruptcy proposals are not automatically income for support purposes—there’s a distinction between arranging affairs to pay less tax and having tax liability eliminated. Alleged family loans require credible contemporaneous documentation; unsigned documents created years later shortly before trial are insufficient, and courts may draw adverse inferences from failure to call family members as witnesses. Disclosure must be proportional to the issues in dispute, and overly broad requests made shortly before trial may be deemed disproportionate.