Child support is calculated on the basis of the paying party’s gross income – the income that person earns before they are taxed on it. While this might seem pretty straightforward, it is not always that easy to determine what a person’s true income is.
It is quite common for parties who are paying and receiving child support to simply default to looking at the “Total Income” of the paying party for the purposes of calculating child support – this is the number that is listed at Line 150 of a person’s T1 Income Tax Return. From there, parties often use this number and any one of the numerous online Child Support Calculators to calculate what they be paid or be paying.
However, there are a number of circumstances that can make a person’s Line 150 Total Income not entirely representative of the actual total income that they have earned. These are not always easy to recognize, and may not be so clear to appreciate. For instance, there are a number of circumstances that can lead to calculating Child Support on an amount less than that listed on Line 150 of the paying party’s tax return. For example a party can typically deduct from their Line 150 Income:
- Spousal Support received from the other parent;
- Any universal child care benefit;
- Any eligible pension income that was transferred to the paying party by the other party, if it is included in the paying party’s Line 150 income;
- Employment expenses such as union, professional, or similar fees or dues – although there are a number of specific professions that are permitted to deduct other employment expenses depending on the profession;
- Social Assistance that the paying party receives for other members in their household;
- The excess portion of dividends from taxable Canadian Corporation that do not reflect that actual dividends received;
- Actual business investment losses the paying party may have suffered during the year;
- Any carrying charges and interest expenses that the paying party actually paid, and that would be deductible under the Income Tax Act;
- Any income required by a Partnership, that the paying party is a Partner in, for capitalization purposes;
Similarly, there are a number of circumstances that might warrant calculating child support on an amount that is greater than that shown in the paying party’s Line 150, such as:
- Capital gains reported on the tax return – as a party is only taxed on 50% of the capital gains they earned, only half of the actual capital gains are reported – the total capital gains must be used for calculating income for child support purposes;
- If the paying party has their own business and pays salaries, management fees, and benefits to family members (known as a non-arm’s-length relationship), unless these payments are actually reasonable and commensurate with the family member’s involvement in the business, such payments could potentially be added back in the paying party’s income;
- When a paying party receives stock options from their employer at a price that is less than the fair-market value of the stocks, if the company is a Canadian-controlled private corporation, the paying party is required to report the difference between the price they paid for the shares, and the actual market value of the shares in the year they purchased the shares, even if they did not sell those shares and receive the actual monetary benefit; and
- If the paying party deducts from their income an amount for an allowable capital cost allowance with respect to real property, that amount is required to be added back in to their total income.
In addition to the above categories, there are other circumstances where a paying party’s income might not be accurately reflected by the income they report in their tax returns. For instance when a paying party is a shareholder, director, or officer of a corporation, that party has a greater ability to determine what income they will report for tax purposes, and to leave money within their corporation rather than pay it to themselves. In such a case, an argument may be made that the money left in the corporation in that particular year should be added, in whole, or in part, to the income of the paying party for the purposes of calculating child support.
This is only one of a number of other circumstances that can affect a paying party’s income, but the above should demonstrate that it is not always so clear-cut when it comes to determining income for the purposes of child support.
Lynsey Mincher and Andrew Koeman, and their Associate Lawyers have a wealth of experience in dealing with complex income issues in the areas of child support and spousal support. Should you require assistance in determining your income, or the income of another party for the purposes of support, the lawyers at Mincher Koeman LLP have the skills and the experience to help you, please contact Mincher Koeman LLP at 403 910 3000 or firstname.lastname@example.org.