What Counts as “Income” for Child Support? – Top 5 Concepts
Readers of my blog will know that in Ontario, spousal and child support obligations are tied to “income”, i.e. if you are the spouse or parent with the support-paying obligation, then the more you earn, the more you will generally be required to pay.
But as we all know from poring over our individual income tax returns each year, there are many different sources of “income” that can go into a bottom-line amount. Plus, the nature of what constitutes your income can also vary depending on what type of support you are required to pay. Here are the top tips to know:
1. “Income” is not necessarily a static concept.
For the purposes of calculating any child support you must pay, your income is usually the equivalent to the “Total Income” you entered on line 150 of your T1 General income tax form. However, this figure is subject to modification in a number of specific cases – for example, if you have “non-recurring” business losses or capital losses, they are normally added to your income for the purpose of calculating child support. This prevents you as the paying parent from artificially inflating any such losses as a means to try to avoid paying higher child support. In contrast, any “non-recurring” income – which are one-time influxes, such as money you receive if you decide to cash in an RRSP during the tax year – will not count towards your income for child support purposes.
2. The court can make adjustments.
The federal Child Support Guidelines also empower a court to adjust upward the amounts you report as income, to reflect a more accurate picture in cases where income has been hidden or diverted inappropriately, or where you have been deliberately unemployed or underemployed in order to avoid paying the support you legally owe.
3. There can be other additions or subtractions.
Income can also take into account other sources beyond the usual ones such as employment salary and benefits. The exercise of any stock options you may receive through employment is also a consideration, for example, although the considerations are a little more complicated and may depend on the structure of your compensation package with your employer.
4. The court can also look at a pattern of income.
The court also has the power to determine your annual income by looking at the pattern of what you have earned for the past three years. That allows a court to average out any income fluctuations (whether downward or upward) that may have occurred in a given year.
5. Self-employment is a unique scenario.
If you are self-employed, then the considerations that go into determining what your true income is can become a little complex, since self-employed people often structure their compensation and benefits so as to minimize their taxable income. Income from self-employment can be adjusted by a court to reflect the amounts that should properly should be available to pay for child support. For example, this adjustment can involve scrutiny of the business expenses and deductions and transfers to non-arm’s length individuals (i.e. family and friends) to see whether they are reasonable. If they are not reasonable, then they may be added back to your income for child support calculation purposes. And note that what is “reasonable” for business and income tax purposes is not necessarily the same as reasonable for child support.
Do you have questions about what constitutes “income” for child support purposes? We can help.