How do you effectively determine a payor’s income for support purposes?
Before a lawyer or judge can determine an appropriate amount of support for a person to pay, it is necessary to first determine the support payor’s income. Sometimes this is easy – if you are an employee, with no complicating factors, your income is accurately reflected on line 150 of your income tax return. But what if you’re self-employed, with a large amount of business deductions? What if you sold some property and have a large capital gain? What if you withdrew money from your RRSP?
Because income can be complicated, the Child Support Guidelines allows the court to “impute” income where appropriate in the circumstances. Section 19 of the Guidelines set out a list of circumstances in which this may be appropriate, which includes:
(a) the person is intentionally under-employed or unemployed;
(b) the person is exempt from paying income tax;
(c) the person lives in a country that has significantly lower rates of income tax than Canada;
(d) income has been diverted;
(e) the person’s property is not reasonably utilized to generate income;
(f) the person has failed to provide income information when obligated to do so;
(g) the person unreasonably deducts expenses from income;
(h) the person derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and
(i) the person is a beneficiary under a trust.
This list is not exhaustive, and it is open to the court to find it appropriate to impute income in other situations as well.
If the support payor is the shareholder, director or officer of a corporation, one way a court may choose to impute income is to attribute part or all of the pre-tax corporate income to the individual. Alternatively, the court can instead impute an income that would be commensurate with the services the payor provides to the corporation.
The Court may also review all of the expenses that the person is claiming as self-employment to determine if these expenses are legitimate or not. We are all generally aware that self-employed persons claim higher expenses in order to write off the expenses rather than pay higher tax.
Although income is often imputed higher than a person’s line 150 income, it is certainly possible to impute a lower income as well, if appropriate. An example of when this might be appropriate would be a support payor who received a one-time non-recurring amount of money which artificially inflated his or her gross income in that year.
Another option available to the court is to impute a support payor’s income by determining an amount that is fair, in reference to the person’s pattern of income over the last three years. This might be appropriate, for example, for an individual with an income that tends to fluctuate up or down.
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