Aperture: The Finer Points of “Income”
A few weeks ago, we wrote about More on the Ins-and-Outs of “Income” and how Ontario family law treats some of the more specific sources of income in the hands of a paying spouse, for the narrow purpose of calculating child and spousal support.
Perhaps because RRSP contribution time just passed, and federal Income Tax time is looming on the horizon, we are prompted to revisit some of the finer points of that concept. Here are some additional principles for you to know:
1. Recurring capital gains and losses are usually treated as income for the purposes of calculating support; they can be offset by capital losses in some circumstances. The court will also assess them, using financial records, to confirm that the amounts are reasonable. Note however that capital gains and losses are not treated identically, and there are special rules as to how each are dealt with. One-time capital gains, on the other hand, are usually treated as one-off occurrences which are excluded from income. However, a court must be satisfied that the capital gain was indeed a one-time event, and will usually consider the paying spouse’s pattern of income for the previous three years.
2. Income fluctuations and non-recurring income is generally considered by a court on a situation-by-situation basis, since they represent an irregularity in the paying spouse’s income pattern. With this in mind, a court will try to determine to determine a more reasonable “baseline” or establish pattern of income that should be used in calculating the support owed, generally by using a simple averaging calculation applied over the previous three years.
Common examples of non-recurring income include:
• Redeeming an RRSP. In contrast to how this is treated for federal Income Tax purposes (where it is conclusively included as “income” for the tax year), a one-time redemption of an RRSP will generally not be considered part of the paying spouse’s income for child or spousal support purposes.
• Stock options. The regular exercise of stock options will be treated differently, but a one-time redemption will generally not be included as income for support purposes, but it depends on several factors.
• Personal injury or other damages awards. The outcome will depend on the nature of the damages award: If they arise from a personal injury action and are intended to compensate for pain and suffering, then they are generally excluded; if they are paid to compensate for loss of income, then they are usually included in income for support purposes.
Have questions about what constitutes “income” for support purposes? Feel free to contact us for fact-specific advice that is tailored to your situation.