FAQ: Income for Support Purposes

Find out the answers to frequently asked questions ("FAQs") with regard to family law and other legal issues.

Are RRSP withdrawals included in income for support purposes?

Child Support

The Ontario Court of Appeal held in Fraser v Fraser, 2013 ONCA 715 (ONCA) that RRSP withdrawals are “presumptively part of a spouse’s income for child support purposes.”

Furthermore, section 16 of the Child Support Guidelines, outlines that:

Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.

RRSP withdrawals are found under the heading “total income” on a T1 General form.

However, section 17(1) of the Child Support Guidelines allows the payor spouse to make the argument that their “total income” on their Income Tax Return should not be their income for support purposes.  Section 17(1) provides that, if the payor spouse can show that the determination of their annual income under section 16 of the Child Support Guidelines would not be the fairest determination of their annual income, a court may:

have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.

For instance, if a spouse makes an RRSP withdrawal on a one-time basis, for a specific purpose such as paying legal bills, it may not be included in their income for support purposes (Ludmer v Ludmer, 2014 ONCA 827; Foley v. Weaver, [2010] O.J. No. 2741 (ONSC)).

Spousal Support

RRSP withdrawals may well not be included in income for spousal support purposes if they have already been equalized, in order to prevent double-dipping (Horowitz v. Nightingale, 2015 ONSC 190).  However, if spousal support is regular, and a spouse’s only source of income, it is more likely to be included in their income for the purpose of determining support (Edgar v. Edgar, 2012 ONCA 646).

To learn more about the way in which RRSP withdrawals affect child support and spousal support, call the lawyers at Krol & Krol at 905.707.3370.

How is support related to my Line 150 Income?

When calculating a party’s child or spousal support obligation in family law, the payor’s obligation is based on his or her  income as indicated on Line 150 of his/her Income Tax Return/Notice of Assessment (subject to certain adjustments which are specifically stipulated in the Federal Child Support Guidelines).

However, there are cases where a payor’s Line 150 income does not correctly convey how much money s/he is actually earning in a given year. Common examples of this surface when an individual owns a business or is self-employed. In these cases, recipients of support often argue that the payor is, in fact, earning more income than is reflected on Line 150 of their Income Tax Return and Notice of Assessment.

It is also interesting to note that there are cases where a party’s Line 150 income is overstated. In the case of Stober v. Stober, the Court notes that child and spousal support obligations are based on the income available to the payor and not on his/her Line 150 income without regard to any other evidence. Clearly, the evidence available to the parties and to a Court is crucial to any such an argument. In Stober, much to the wife’s dismay, Justice Weatherill decreased the husband’s income from $1,000,000.00 (stated as his Line 150 income) to $600,000.00. It appears that based on the accounting evidence presented, the Judge was convinced that the husband did not have $400,000.00 available to him in the relevant year.

It is, nevertheless, to be noted that it is rather rare for judges to determine that the income available to a payor is less than the income stipulated on his/her Line 150.

To learn more about Line 150 income as is relates to a payor’s support obligations in your case, schedule a consultation by telephoning 905.707.3370.

Are annuities included in calculating child support?

In Tookenay v. Laframboise, 2015 ONSC 2898 a husband and a wife had separated after a seven year marriage. They had two young children, being 8 and 4 years old at trial in this case.

The following issue came before Justice Newton on the issue of child support – When determining the father’s child support obligation, should an annuity he receives from a personal injury claim (settled when he was 2 years old) be included in determining his income for child support purposes?

The father’s position was that the annuity should not be included in his income because it was intended to repair the damage he had suffered from an accident.

Justice Newton found that the monies used from the settlement for ordinary expenses ought to be included as income. However, monies from the settlement, which were used for medical expenses or rehabilitation expenses should not be imputed to the father as income. Justice Newton ultimately finds that half of the monthly annuity payments were income.

To learn more about our team of lawyers at Krol & Krol, click here.

Imputation of Income – Reasonable Efforts

Child support and spousal support obligations are a function of the payor’s income. Given this, some payors attempt to conceal or undervalue the income he/she earns.

In those circumstances, the recipient of support may choose to bring a motion before the Court with respect to the imputation of income. In that case, the question is whether the payor is capable of earning more money and whether the payor is purposely under-earning with the intent to reduce their support obligations.

However, in a situation where the payor of support has not been in the workforce for many years and has, thus, made no reasonable efforts to secure employment, can a Judge rule in his/her favor with respect to the issue of imputation of income?

In the case of Toscano v. Toscano, 2015 ONSC 487, Justice Blishen dealt with similar circumstances and rules as follows:

“Ms. Toscano was 46 years old at the time of trial, is in good health and has a Business Administration diploma. She had work experience both before marrying Mr. Toscano and with Talos Homes during the marriage. I recognize that Ms. Toscano has been out of the work force entirely for at least 13 years, and that her education and work experience continues to decrease each year she remains inactive. However, Ms. Toscano has presented no evidence that she has made any effort to obtain employment or upgrade her business administration skills in order to present a plan for her own support. Given that both children reside with Mr. Toscano, I find it reasonable that Ms. Toscano make all reasonable attempts to obtain employment perhaps in conjunction with re-training. I will impute income of $40,000 and order Ms. Toscano to pay $579 per month in child support for the children pursuant to the FCSG.”

To learn more about imputation of income as well as the services provided by Krol & Krol, call 905.707.3370 today.

 

How do courts assess interim support?

When courts are faced with the task of assessing whether one of the parties to a matrimonial matter are entitled to interim support, two components will be analyzed; whether the applicant is in need of the support and whether the respondent has the ability to pay.

In the case of Knowles v. Lindstrom, 2015 ONSC 1408 Justice Penny outlines that:

“[t]he parties agree that ‘need’ in cases such as this relates not only to basic shelter and necessities but to a lifestyle that is commensurate with the lifestyle enjoyed during the relationship, provided the other spouse has the ability to pay. Thus, the accustomed standard of living during a relationship is the appropriate content in which a payee spouse’s need should be assessed.”

Justice Penny further explains that an applicant who presented a modest expense budget in his/her Financial Statement should not be penalized for failing to spend beyond their means or for failing to advance, as their monthly budget, lavish expenses they’re not actually incurring. In that regard, Justice Penny states:

“The applicant has presented a modest expense budget of approximately $76,000. As noted above, I do not think the applicant should be penalized for failing to spend beyond her means or for failing to advance, as her monthly budget, lavish expenses she is not actually incurring. By the same token, I agree with the respondent that while the parties’ lifestyle during the relationship is relevant to the context for establishing the applicant’s needs, it is within the court’s discretion to draw the line at certain types of lavish expenditures, such as private jets.”

To learn more about assessing interim support as well as the services provided by Krol & Krol, call 905.707.3370 today.

Are gifts included in income for support purposes?

In order to determine the quantum of child support for a payor in Ontario, one must refer to the Child Support Guidelines.

The case of Horowitz v. Nightingale, 2015 ONSC 190 referred to the Ontario Court of Appeal decision in Bak v. Dobell with respect to whether gifts should be included in income and whether the recipient of the gift should be imputed income.

In Bak v. Dobell, the Court of Appeal reasoned that gifts were not to be included in income. However, the Court did note that certain extraordinary gifts may call for the imputation of income. The Court stated as follows:

“Since the legislature did not include gifts within the ambit of imputed income, it can be presumed, in the normal course, that the legislature did not intend the receipt of gifts to be ‘appropriate circumstances’ in which to impute income. For this reason, usual gifts such as those given to mark a special occasion are not included as income  . . .

Although it seems the legislature intentionally did not include the receipt of gifts given in the normal course in presumptive income, or as an example of an appropriate circumstances under s. 19(1), a court will consider whether the circumstances surrounding the particular gift are so unusual that they constitute an “appropriate circumstance” in which to impute income.”

To learn more about gifts and imputing income as well as the services provided by Krol & Krol, call 905.707.3370 today.

Tillmanns v. Tillmanns – Imputation of Income

Tillmanns v. Tillmanns, 2014 ONSC 6773 deals with the concept of imputing income.

If a party to a matrimonial dispute earns less money than what s/he is capable of earning, a court has the discretion to impute income to that spouse.

Section 19(1) of the Child Support Guidelines permits the court to impute income as follows:

The court may impute such amount of income to a parent or spouse as it considers appropriate in the circumstances, which circumstances include,

(a)     the parent or spouse is intentionally underemployed or unemployed, other than where the under- employment or unemployment is required by the needs of any child or by the reasonable educational or health needs of the parent or spouse …

(b)     the parent or spouse is exempt from paying federal or provincial income tax;

(c)     the parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;

(d)     it appears that income has been diverted which would affect the level of child support to be determined under these guidelines;

(e)     the parent’s or spouse’s property is not reasonably utilized to generate income;

(f)     the parent or spouse has failed to provide income information when under a legal obligation to do so;

(g)     the parent or spouse unreasonably deducts expenses from income;

(h)     the parent or 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

(i)     the parent or spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

In Tillmanns, Justice Pazaratz explains the common theme that courts review in cases dealing with the imputation and attribution of income:

“All of these principles have a common theme: reasonableness. Parents are required to act responsibly when making financial decisions that may affect the level of child support available. They must not arrange their financial affairs so as to prefer their own interests over those of the children. Stewart (supra)”

In light of the above, in Tillmanns the Court ruled that the father’s decision to go back to school once he has lost his job/career was reasonable. The decision to take a break from earning a livelihood by going back to school and creating a better future for himself and his children should not be punished by attributing more income to his current financial statement.

To learn more about imputing income, call 905.707.3370 today.

How is child support determined when a spouse receives his/her income as a dividend?

According to section 5 of Schedule 3 of the Child Support Guidelines, when a spouse determines his/her income for the purposes of determining child support payments, the spouse must “[r]eplace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.”

In Rawluk-Harness v. Harness, 2104 ONSC 2531, the husband was receiving his income as a dividend from a corporation he solely owned. Although he was receiving an actual dividend of $50,000 plus a 25% gross up for a total taxable dividend of $62,500, he relied on Section 5 of Schedule 3 of the Guidelines to shield the grossed-up portion of his dividend from being included in his income for child support payments.

His wife argued that it was unjust to allow him to elect to receive his income as a dividend rather than a salary, yet not include the grossed-up portion of his dividend in his income for child support purposes to reflect the portion of taxes he was saving.

In his ruling, Justice Mitrow conveyed that in these particular cases where the husband owned the whole of the corporation, the process by which one would go about calculating his/her income for child support purposes includes an additional step. After analyzing Section 5 of Schedule 3 of the Guidelines, one must apply section 19(1)(h) of the Guidelines which states that, “The court may impute such amount of income to a parent or spouse as it considers appropriate in the circumstances, which circumstances include …. the parent or 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.”

The dividend income calculated for child support purposes from a payor that wholly owns the corporation, should include the full amount of the grossed-up dividend.

To learn more about how dividends affect child support as well as the services provided by Krol & Krol, call 905.707.3370 today.

How are post-separation income increases treated for support purposes?

At the outset, it is important to note that child support, pursuant to the Child Support Guidelines, is supposed to be recalculated on a yearly basis.

On the issue of child support payments, the child is entitled to benefit in the payor’s post-separation increases income in the form of increased child support payments. In situations where there is an existing order and/or agreement, one would bring an application to vary the existing order and/or agreement. If the application to vary the existing order is granted, then the amount will be adjusted in accordance to the new income of your former spouse.

The issue of a payor’s post-separation income increase and spousal support is less clear. Lawyers and judges alike continue to grapple with this issue.

While this question usually arises during a review, it can also arise during the time of the initial order.

The following are some general principles applicable to this issue:

1. It would be incorrect to suggest that the Spousal Support Advisory Guidelines dictate that the parties’ incomes at the time of separation is the only relevant income in determining spousal support.

2. It is also incorrect to suggest that the Spousal Support Advisory Guidelines dictate that the spouses’ post-separation incomes always ought to be used in determining spousal support.

3. Some factors to be considered on this issue are the length of the marriage, the immediacy of the increase (1 year vs. 10 years after separation), and whether spousal support is compensatory or non-compensatory (since non-compensatory spousal support would present a less compelling argument that the payor’s post-separation increase should be shared).

In situations where there is an existing order and/or agreement, and there has been a material change in circumstances, one would bring an application to vary. If the application to vary the existing order is granted, then the amount of spousal support will be adjusted in accordance to the new income of your former spouse.

For more information on what you are entitled to in the event that your spouse’s income increases, contact Krol and Krol at 905.707.3370.

What is the relevant law if my spouse quit her/his job to pay less child support?

The amount of child support that a parent is obligated to pay is determined by numerous factors as outlined in the Child Support Guidelines in Ontario. These factors include but are not limited to:

  • The child’s or children’s needs;
  • The income of both parties;
  • The custody arrangements.

Some individuals believe that by quitting their job, or deliberately reducing their income they can minimize or completely eliminate their obligation to pay child support.

If a parent believes that the other parent is purposely avoiding payments in this way, they are within their rights to bring their case to the Court’s attention.  If the Court believes that the parent is deliberately minimizing or lying about their income to avoid child support payments, the Child Support Guidelines in Ontario empower Courts to impute income to that parent. This means that a Court will estimate what the parents’ income should be and create a support order accordingly.

Situations whereby the court is empowered to do so, under the Child Support Guidelines include, but are not limited to circumstances whereby a Court believes that a payor parent is:

  • Intentionally under-employed or unemployed;
  • Failing to disclose all of their income information;
  • Taking unreasonable deductions from their income;
  • Failing to be honest when it comes to what they are earning;
  • Hiding money;
  • Purposely taking on a job that is not suitable for them;
  • Failing to reasonably look for suitable work;
  • Failing to provide good reason for quitting a job;
  • Taking a job with a lower salary on purpose that does not match up to his or her level of experience and or education.

For more information on child support payments and obligations, contact Krol & Krol at 905.707.3370.