Generally, the employment income of the payor parent determines child support payment amount. The Federal Child Support Guidelines Table for divorce cases filed under the Divorce Act of Canada outlines the amounts based on payor parent’s income. Also the Alberta Child Support Guidelines covers family law cases filed as per Family Law Act of Alberta.
Child Support Payment for An Employee Payor Parent
If the payor parent is an employee, the income on line 150 of their income tax return is used to determine child support payment. In this case, the Federal or Alberta Guidelines Table outlines the child support payment amount according to the number of children of the parties.
How To Calculate Total Income Of A Self-Employed Payor Parent
It is more challenging to calculate income for child support payment purposes when a payor parent is self-employed. There are some court considerations that can make the income amount stated on line 150 of a payor parent’s tax return inaccurate. In majority of such cases, the line 150 income amount is no longer accurate in showing how much is available to pay child support.
During a divorce that involves self-employed parties, the divorcing parties have to decide how to divide their business. In making this decision, the parties require a thorough evaluation of their business.
The Court Decides Reasonable Business Expenses
Generally, the Income Tax Laws of Canada permits deduction of business expenses from a person’s total income.
However, the court may not accept all business expenses deducted in a tax return as reasonable and proper deduction from total income in determining child support payment.
Fort this reason, it is the duty of a self-employed payor parent to provide full financial disclosure to other parent. This means the payor parent bears the burden of proof – to show that business expenses deducted in the tax return are reasonable and proper for child support payment purposes.
For calculation of income for child support payment purposes, a business expense could be considered unreasonable even though it is is permitted under the Income Tax Act.
A payor parent receives benefits from deducting their expense from total income. The court will look into these various benefits and review whether the expense was for the payor parent’s personal benefit and use. Vehicle, cell-phone, travel, and entertainment expenses are some of such expenses that fall under this category.
The court has the power to add back unreasonable expenses the self-employed payor parent claimed to their total personal income.
Burden Of Proof For Self-Employed Payor
There have been real cases where the court impute payor parent’s income by adding back deducted expenses. For example, the Court of Appeal in Alberta recently granted an order in Cunningham v. Seveny, 2017 ABCA 4, for the same reasons discussed in this article. The court deemed some of the claimed expenses were for the personal benefit of the payor parent.
Therefore, it is in the best interest of a self-employed payor parent to provide proper financial disclosure. This includes, but not limited to, explanations of expenses, benefits, management fee, and salaries. Otherwise, the court can take adverse action by presuming that the self-employed payor parent did not provide proper evidence because it was against his own case.
Start With Guideline Income
A professional accountant’s opinion can be useful for proper review of financial statements of the self-employed payor parent’s business. The accountant will help find out the correct “guideline income” to calculate monthly child support payments.
Spousal Support Payment Income Calculation
A party seeking an order for spousal support can use the same method discusses above to calculate a payor spouse’s income.
For legal advice and representation in child support related matters, we recommend you consult an Alberta family lawyer. A family lawyer can bring or defend a child support claim on your behalf, and make submissions to the court. Contact us for more information on what a family lawyer can do for you.
Satish offers professional legal advice and experience drawn from a multicultural background. He has spent his years in practice supporting clients through their family law, business law, real estate law, immigration law and wills and estates matters. He is able to find innovative solutions for his clients thanks to his rich, diverse background, which allows him to examine clients’ legal problems from a variety of different perspectives.