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.
