The law surrounding child support in Ontario is based on the goal to make sure that children enjoy the same standard of living as if their parents were still together. The primary goal is to prioritize the financial best interests and well-being of the child.

Determining child support payments often revolves around calculating the paying parent’s income. For most employees, this is relatively straightforward, as their income can be established through their pay stubs and annual tax returns. However, complications can arise when dealing with self-employed individuals.

Complexities in Self-Employed Income Determination

Self-employed individuals have more complex financial situations, making it challenging to determine their true income for child support purposes. Here are some of the complexities involved:

  • Income Fluctuations: Self-employed individuals may experience fluctuations in their income from year to year, which can affect child support calculations. It may be appropriate to consider an average income over time in some cases.
  • Business Expenses: Determining what qualifies as a legitimate business expense can be contentious. Some expenses may be necessary for business operations, while others could be personal and not deductible for child support calculations.
  • Undisclosed Income: Some self-employed individuals may attempt to underreport their income to reduce child support obligations. This can complicate matters, and thorough investigations may be needed to uncover hidden income.
  • Business Valuation: If a self-employed parent owns a business, its valuation can be a complex process. Deciding what portion of the business’ income should be considered for child support purposes can be contentious.

Given the complexities surrounding income determination for self-employed individuals, it’s crucial to seek professional assistance. Sudano Law PC has the expertise to help navigate you through these complexities and advocate for a fair child support arrangement that serves the child’s best interests.

If a support payor’s income changes annually, how is their annual income calculated for child support purposes?

In Ontario, the calculation of a support payor’s annual income for child support purposes is typically based on the payor’s income as disclosed under the heading “Total Income” in their income tax return. This is in accordance with section 16 of the Child Support Guidelines.

However, if the payor’s income fluctuates significantly from year to year, the court has discretion to determine an income for support purposes that is fair and reasonable based on the payor’s financial circumstances. This is captured in section 17 of the Child Support Guidelines.

In addition, section 19 of the Child Support Guidelines permits the court to attribute income to a spouse in certain circumstances, such as when the spouse is intentionally under-employed.

It’s important to note that these are general principles and the specific circumstances of each case can significantly impact the outcome. Therefore, it’s recommended to contact our office via e-mail or at 647-880-5832 to get advice on how these principles apply to your specific situation.

Resources

  • Child Support Guidelines, O. Reg. 391/97
  • Divorce Act R.S.C. 1985, c. 3 (2nd Supp.)
  • Family Law Act R.S.O. 1990, c. F.3

How does section 17(2) of the Child Support Guidelines apply to people who report a significant non-recurring capital or business investment loss on their taxes?

Section 17(2) of the Child Support Guidelines provides a mechanism for the court to determine a spouse’s income for child support purposes when the spouse is a shareholder, director or officer in a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support.

Section 17(2) reads as follows:

“Where the spouse is a shareholder, director or officer in a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider all or any part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year, or an average of the pre-tax incomes of the corporation and of any corporation that is related to that corporation for the 3 most recent taxation years, as the income of the spouse for the purpose of these Guidelines.”

This provision allows the court to “look through” the corporation and consider the pre-tax income of the corporation, and of any related corporation, as the income of the spouse for the purpose of determining child support. This can apply where a spouse is using a corporation to shield income that could otherwise be used for the payment of child support.

The court may consider all or any part of the pre-tax income of the corporation for the most recent taxation year, or an average of the pre-tax incomes of the corporation and of any related corporation for the 3 most recent taxation years.

It’s important to note that the application of section 17(2) involves a degree of judicial discretion and is determined on a case-by-case basis. Therefore, it’s recommended to seek legal advice to understand how this provision may apply to your specific situation.

Resources

  • Child Support Guidelines, O. Reg. 391/97

I am a director, shareholder or officer of a corporation. How is my income calculated for child support purposes?

In Ontario, the calculation of income for child support purposes for a director, shareholder, or officer of a corporation is guided by the Child Support Guidelines (“CSG”).

According to section 18 of the CSG, where a spouse is a shareholder, director, or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the following:

  1. The spouse’s income reported on the T1 General form issued by the Canada Revenue Agency for the most recent taxation year.
  2. The spouse’s share of pre-tax income of the corporation, and any corporation controlled by it, for its most recent taxation year.
  3. The spouse’s income for the three most recent taxation years.

The court may also consider the following factors:

  1. The remuneration paid to non-arm’s length persons.
  2. The work the spouse provides to the corporation.
  3. The corporation’s income, undistributed profits, and other circumstances of the corporation.
  4. The court has the discretion to set an income based on the above-noted factors.

As each family situation is unique, it is recommended to contact our office via e-mail or at 647-880-5832 to understand how these principles apply to your specific situation.

Resources

  • Child Support Guidelines, O. Reg. 391/97
  • Divorce Act R.S.C. 1985, c. 3 (2nd Supp.)
  • Family Law Act R.S.O. 1990, c. F.3

I am self-employed individual and write off many business expenses that my accountant said was allowed by the Canada Revenue Agency. Can I use my net income for child support purposes?

In Ontario, the calculation of income for child support purposes is governed by the Child Support Guidelines, O. Reg. 391/97. For self-employed individuals, certain deductions from self-employment income are added back to the earner’s income for support purposes.

According to Schedule III of the Child Support Guidelines, the following deductions from self-employment income are added back:

  1. Salaries, benefits, wages, or management fees, or other payments paid to or on behalf of persons with whom the spouse does not deal at arm’s length (section 9): These amounts are added back unless the spouse establishes that the payments were necessary to earn the self-employment income and were reasonable in the circumstances.
  2. Deduction for an allowable capital cost allowance with respect to real property (section 11): This amount is added back to the income.
  3. Amounts included in income that are required by the partnership or sole proprietorship for purposes of capitalization (section 12): These amounts are deducted from the self-employment income.
  4. Employee benefits from options to purchase shares of a Canadian-controlled private corporation (section 13): The difference between the value of the shares at the time the options are exercised and the amount paid by the spouse for the shares, and any amount paid by the spouse to acquire the options to purchase the shares, is added to the income for the year in which the options are exercised.

In addition to the add-backs set out above, other common add-backs are: meals and entertainment, business use of the home, phone and car expense (or a portion thereof), travel and any other “soft” expense written off for tax purposes that was not necessary for the operation of the business.

The court has discretion in determining what is a reasonable expense and what should be added back to the income for support purposes. The court will consider the nature of the expense, the necessity of the expense for the generation of income, and whether the amount of the expense is reasonable.

Therefore, while your accountant may have advised you that certain expenses are deductible for tax purposes, these same expenses may not be deductible for the purpose of calculating child support. It’s always a good idea to consult with a family law lawyer at our office via e-mail or at 647-880-5832 if you have specific questions about your situation.

Resources

  • Child Support Guidelines, O. Reg. 391/97

Imputing Income

Section 19 of the Child Support Guidelines provides the court with the discretion to impute income to a spouse in certain circumstances. This means that the court can assign an income to a spouse that is higher than their actual income for the purposes of calculating child support. This is typically done when the court believes that the spouse is intentionally under-employed or unemployed, or is otherwise not earning income commensurate with their skills, abilities, and qualifications.

The Guidelines list several specific circumstances where income may be imputed, including:

  1. The spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse;
  2. The spouse is exempt from paying federal or provincial income tax;
  3. The spouse lives in a country where income tax is significantly lower than it would be in Canada;
  4. It appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;
  5. The spouse’s property is not reasonably utilized to generate income;
  6. The spouse has failed to provide income information when under a legal obligation to do so;
  7. The spouse unreasonably deducts expenses from income;
  8. The spouse 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
  9. The spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

In addition, the court may impute income to a spouse based on a payor’s financial circumstances that are not restricted by the above-noted factors.

When imputing income, the court will consider the spouse’s work history, qualifications, job opportunities, lifestyle, and any evidence that the spouse is intentionally earning less than they could be earning. The court will also consider the spouse’s reasonable work-related expenses.

It’s important to note that the person wishing to add income to a support payor for support purposes needs to provide evidence that justifies the imputation of income.

Resources

  • Child Support Guidelines, O. Reg. 391/97

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