When it comes to determining child support or spousal support upon separation or divorce, our expert family lawyers know how important it is to use the correct income. Generally, the Line 150 income is used to calculate child support. However, if your ex-spouse is the shareholder of a personal corporation, the calculation of child support may be different, and you may be able to impute further income on them. Section 18 of the Federal Child Support Guidelines states that where a spouse is a shareholder, director or officer of a corporation, the court may attribute part or all of the corporation’s pre-tax income to the spouse.
How does the court determine income of the payor who owns a company?
Recently, the British Columbia Court of Appeal (the BCCA) in Quinton v Kehler, 2020 BCCA 254, clarified how to calculate income of the payor parent, when he owns a corporation under section 18 of the Federal Child Support Guidelines. The lower court determined that the respondent’s Guidelines income for child support purposes should be based on his total income as set out in his Line 150 income from his T1 General Tax Returns. This was based on section 16 of the Guidelines. The appellant argued that the respondent was the sole shareholder of a professional corporation and the amount of his income as determined under section 16 did not fairly reflect all the money available to him for the payment of child support. The appellant further argued that the judge ought to have included all of the pre-tax income of the respondent’s professional corporation in the respondent’s income under section 18 of the Guidelines. After reviewing the case law, the BCCA extracted the following legal principles:
- The Guidelines should be interpreted in light of their stated objectives, including the ability to calculate child support in an objective manner that ensures consistent treatment of spouses and children who are in similar circumstances.
- Under a section 18 approach, the corporate income method is likely to be the fairer method of determining income of an individual who wholly controls a corporation. This method allows a court to include all income available for child support an intact family would utilize.
- Where that approach is appropriate, pre-tax corporate earnings, not retained earnings or earnings after payment of taxes, are the starting point for an assessment of Guidelines
- Where a company is wholly owned by the payor, the onus is on the payor to provide evidence that his pre-tax corporate earrings are not available to him.
The BCCA noted that if pre-tax corporate earnings were not considered to be available for the payment of child support, the Guidelines income of unincorporated partners and incorporated partners would be set at different levels, which would result in the inconsistent treatment of incorporated and unincorporated spouses. The BCCA concluded that the Guidelines income in this case should be calculated pursuant to section 18 and set at the corporation’s pre-tax earnings plus salaries, wages and benefits paid to the respondent. If your case involves complicated corporate structures or personal corporations that require an in-depth or detailed analysis of financial documents, please contact us to book an initial consult with one of our experienced family lawyers.