Imputing Income to the Payor Spouse

The first step in calculating how much child or spousal support one ex-spouse must pay the other is to determine the paying spouse’s income.  The starting point for this is the amount reported on line 150 of the payor’s most recent tax return.  However, the determination does not end with line 150, since the income set out there may not always fairly reflect what a person should pay in support. 

Under Canadian family law, a payor spouse has an obligation to earn what he or she is capable of earning, and not just what is reported in their tax returns. The Federal Child Support Guidelines (the Guidelines) allow the courts to impute an income to a person in order to meet this obligation. In other words, the court can attribute a higher income to the paying spouse than what is listed on line 150. 

Where a payor is intentionally underemployed or unemployed or is using tax strategies to reduce his or her taxable income, the court may impute an income to the payor to ensure that he or she pays the appropriate level of support. In particular, section 19 of the Guidelines sets out the following non-exhaustive list of circumstances where the court may impute an income to a payor:

1. The spouse is intentionally underemployed or unemployed, other than where the under employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by reasonable education or health needs of the spouse.
2. The spouse is exempt from paying federal or provincial income tax.
3. The spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada.
4. It appears that income has been diverted which would affect the level of support to be determined under the Guidelines.
5. The spouse’s property is not reasonably utilized to generate income;
6. The spouse has failed to provide income information where under a legal obligation to do so.
7. The spouse unreasonably deducts expenses from income.
8. The 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.
9. The spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

Keep in mind, this list of circumstances in not exhaustive. Ultimately, the court has a broad discretion to impute income to a payor to ensure they meet their legal obligation to pay support commensurate to his or her earning capacity.