DETERMINING THE INCOME OF THE SELF-EMPLOYED UNDER THE CHILD SUPPORT GUIDELINES

The purpose of this paper is to provide an overview of how income is determined for a self-employed person for the purposes of establishing child support under the Child Support Guidelines.

Like the pre guideline law on child support, the ability to pay is the guiding principle in determining child support. For a self-employed person the ability to pay may not be accurately reflected by using the total income line 150 on an income tax return. Therefore, the Child Support Guidelines in many ways either mandate the court specifically or give it discretion to adjust the self-employed person's income so that child support is determined based upon on the real ability to pay. As the Guidelines need to have an exact income figure for determining the table amount, as well as for the portion of extra ordinary expenses, precise calculations and findings of fact must be made both for the payor and in many cases, the payee.

If the case is one with only spousal support I would suggest that the same principles found in the Guidelines apply and can be argued to determine the ability to pay for spousal support determination. The Guidelines have therefore nicely pointed out ways to argue in spousal support cases as to what the real income is and therefore the ability to pay.

Because of the extensive subject matter and the limited amount of my retainer for writing this article, I am only able to provide an overview and limited discussion of the many issues. I will point out all of the sections I believe are relevant for the self-employed but I will only concentrate the discussion on some of the case law on the more common occurring adjustments.

The annual income for the table amount of child support is determined by first taking the Total Income amount as shown on line 150 of a personal income tax return. Adjustments to income can, and in some cases must be made, based on three main areas of the Guidelines.

(a) The definition section 2(3) of the Guidelines which requires that current information be used.

(b) The "Income" part in sections 15 to 20 of the Guidelines

(c) Schedule III of the Guidelines entitled "Adjustments to Income".

Section 2 (3) of the Guidelines

2(3) Most Current Information - Where for the purposes of these Guidelines , any amount is determined on the basis of specified information, the most current information must be used.

Though the Guidelines are specific about using line 150 on the tax return and have specific pattern of income rules, the courts have used section 2(3) to look at the current situation which might not be at all like the previous year or years [see Lee v. Lee (1998) N.J. No. 247, (Nfld. C of A)]. If a self-employed person is having a completely different type of year for whatever reason, evidence can be lead as to what the income prediction will be for that year. The evidence should be clear and fair. A car salesman who argued to pro rate his first seven months income was refused when it was disclosed that the major selling months are in the later months of the year (Rumpf v. Rumpf (1998), 82 A.C.W. S. (3d) 737 (Sask. Q.B.). This section would be used when a payor cashed in RRSP's in the previous year as that RRSP shows up as income on a tax return before line 150. Such was the finding in Wedge v. McKenna [1997] P.E.I.J. No.75 (P.E.I.T.D.) . A one time capital gain has been found to be not included in income [Anderson v. Anderson (1997) 32 R.F.L. (4th) 177 (B.C.S.C.)] On the other hand in Bell v. Bell (1998) 85 A.C.W.S (3d) 110 (B.C.S.C.) the court found the payor's income would be less than the previous year based upon what had happened to date that year. The income was also found to be lower than the previous year in Kitts v. Kitts (1998) 42 R.F.L. (4th) 167 ( B.C.S.C.)

SECTIONS 15 to 20 of The Child Support Guidelines

The following sections of the Federal Child Support Guidelines found in the Income sections which might affect the self-employed are as follows :

(a) Agreement (section 15(2))

(b) Pattern of Income (section 17)

(c) Shareholder, director or officer (section 18)

18 (a) keeping the income in the company, and

18 (b) under paying the value of the services

(d) Imputing Income (Section 19)

19 (d) diverted income

19 (e) property is not reasonably utilized to generate income

19 (f) failure to provide income information

19 (g) unreasonable expense deductions from income (regardless of whether tax deductable for income tax purposes (section 19 (2))

19 (h) significant portion of income from dividends, capital gains and losses or other sources that are taxed at a lower rate than employment or business income

Courts have also interrupted section 19 very broadly to include sources of money - whether income or capital which give an ability to pay child support.

SCHEDULE III of GUIDELINES

The sections in Schedule III of the Guidelines that might apply to a self-employed person are:

(a) Dividends from taxable Canadian Corporations (section 5)

(b) Capital gains and capital losses (section 6)

(c) Business Investment losses (section 7)

(d) Carrying charges (section 8)

(e) Net self-employment income (section 9)

(f) Additional amount (stub year - section 10)

(g) Capital cost allowance for real property

(h) Partnership income (section 12)

(i) Employee Stock Options (section 13)

Except for the sections on net self - employment income and partnership income there is no discretion in the court not to make the adjustments found in these sections.

SECTIONS 15 to 20 of Guidelines

Agreement

Federal Child Support Guidelines, Income, Section 15(2)

Where both spouses agree in writing on the annual income of a spouse, the court may consider that amount to be the spouse's income for the purposes of these Guidelines if the court thinks that the amount is reasonable having regarding to the income information provided under section 21.

As it is not possible to obtain a divorce without satisfying the court that one is paying child support as set out in the Guidelines, perhaps an agreement which considers a host of other issues is needed to convince the court when a self-employed person is involved that proper child support is being paid.

Pattern of Income

Federal Child Support Guidelines, Income, Section 17

(1) Where the court is of the opinion that the determination of a spouse's annual income from a source of income under section 16 would not provide the fairest determination of the annual income from that source, the court may determine the annual income from that source

(a) where the amount in respect of the source of income has increased in each of the three most recent taxation years or has decreased in each of those three years, to be the amount from that source of income in the spouse's most recent taxation year;

(b) where the amount in respect of the source of income has not increased or decreased as described in paragraph (a), to be the average of the amount received by the spouse from that source of income in the three most recent taxation years, or such other amount, if any, that the court considers appropriate; or

(c) where the spouse has received a non-recurring amount in any of the three most recent taxation years, to be such portion of the amount as the court considers appropriate, if any.

Non-recurring Losses

(2) Where a spouse has incurred a non-recurring capital or business investment loss, the court may, if it is of the opinion that the determination of the spouse's annual income under section 16 would not provide the fairest determination of the annual income, choose not to apply sections 6 and 7 of Schedule III, and adjust the amount of the loss, including related expenses and carrying charges and interest expenses, to arrive at such amount as the court considers appropriate.

A self-employed person's income is bound to fluctuate from year to year. Unless he or she pays oneself a salary, the income is not going to be exactly the same. With all due respect to the drafters of the Guidelines this section, because of section 2 (3) and its own wording, is basically useless unless I am missing something. A court simply has a lot of discretion to come up with an income figure that it feels appropriate. It does not have to be an average.

With respect to business losses, this section gives the court discretion not to allow the payor to argue his income is a lot less because a business loss was incurred, when that business loss is not an ongoing loss. In the case of Omah - Maharajh v.Maharajh [1998] 7 W.W.R 342 (Alta. Q.B.) where the loss was incurred with borrowed money, the court did not allow the full loss to be used in the calculation but used the $24,000 a year for five years, which was the blended interest and principal payments.

Shareholder, director or officer

Federal Child Support Guidelines, Income, Section 18

(1) Where the spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse's annual income as determined under section 16 does not fairly reflect all the money available to the spouse for payment of child support, the court may consider the situations described in section 17 and determine the spouse's annual income to include

(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or

(b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation's pre-tax income.

Section 18 therefore allows the court the discretion to add to income the retained earnings for that year. In the case of Stamoulos v. Pavlakis (1997) 32 R.F.L. (4th) 75 (B.C.S.C) the Judge made the following interesting comment about automatically adding the retained earnings.

"I do not interpret Sections17 and 18 of the Guidelines to say that they should be applied in a manner which will dictate the economic decisions which must be made in relation to the operation of the business, including the investments and re-investments of capital as opposed to its distribution to principles. I do not construe the Guidelines to mean that one can place the largest available shovel in the company store in order to increase income for Guideline purposes to a level which a person against whom an order is to be made does not himself enjoy."

"In my opinion, the adjustments contemplated by Sections 17 and 18 should be made sparingly and only in situations where one may infer that avoidance of obligations under the Guidelines was intended."

Also see Goldberg v. Goldberg (1998),132 Man. R. (2nd) 101 (Q.B.) There the court did not attribute all of the corporate income because there needs to be a cushion in the company for working capital.

Adjustment to Corporation's Pre-tax Income

(2) In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits, to or on behalf of persons with whom the corporation does not deal at arm's length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.

The purpose of this clause is to deal with the common situation where a self-employed person income splits with a person not at arm's length - probably the new spouse. If the amount paid to the new spouse is not reasonable then the payor is deemed part of that spouse's salary. It is quite common to income split not to avoid paying child support but to reduce taxes. There are cases that have held that salaries paid to a spouse or even children will be added back in for guideline purposes.

In the case of Needham v. Needham [1998] B.C.J. No. 202 the court added on income to the husband because it believed the amount of money paid to the common law spouse was "in excess of that which is strictly necessary for the services that she no doubt provides to the company".

The way this section reads the onus rests on the payor to justify these non arms length payments however in the case of Stamoulos v. Pavlakis the court held that this onus is triggered only when there is some evidence of unreasonableness. I do not think this is what was intended. It is very difficult for the payee spouse to be able to establish unreasonableness. The onus justifiably should be with the payor to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.

The purpose of this clause is to deal with the common situation where a self-employed person income splits with a person not at arm's length - probably the new spouse. If the amount paid to the new spouse is not reasonable then the payor is deemed part of that spouse's salary. It is quite common to income split not to avoid paying child support but to reduce taxes. There are cases that have held that salaries paid to a spouse or even children will be added back in for guideline purposes.

spouse, who is probably income splitting, to prove his or her case.

Imputing Income

Federal Child Support Guidelines, Income, Section 19

(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:

(d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;

(e) the spouse's property is not reasonably utilized to generate income;

(f) the spouse has failed to provide income information when under a legal obligation to do so;

(g) the spouse unreasonably deducts expenses from income;

(h) 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;

(2) Reasonableness of expenses - For the purposes of (1) (g) the reasonableness of the expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act

The way the beginning of this section has been drafted has allowed courts not to be restricted by the set out circumstances. Courts have taken a broad approach to income to go back to the old "ability to pay" theory and therefore included obvious capital amounts as income. In the case of Razavi v. Aavani [1998] B.C.J. No. 1885 (S.C.) the court took into account student bursaries and student loans though that was not the finding in Vierling v. Boudreau (1997) 160 Sak.R.81 (Q.B). The case of Jackson v. Jackson (1997) 35 R.F.L. (4th) 194 (Ont.Gen. Div) included capital payments from a trust as income. One should therefore be able to argue that draws which may exceed income should be taken into account. Or a corporation that is controlled by a payor of support has a lot of cash in it, but perhaps not income for whatever reason, should pay higher support because of an ability to pay. The court in Risen v. Risen [1998] O.J. No. 3184 made the comment that though the list in section 29 is not exhaustive, the source should bear some resemblance to the list.

Subsections (d) and (f) have been used to impute income when the lifestyle of the payor does not fit the declared income. Such was the case in Biamonte v. Biamonte (1997) 36 R.F.L. (4th) 349. So when the payee testifies that a lot of business was conducted under the table when he or she was living with their spouse which resulted in a higher life style than the income would dictate, a court using this section can set the amount of support it wants.

A major section of section 19 is (g) which is modified by 19 (2). There are a lot of deductions that a self-employed person is allowed for tax purposes that are really personal expenses and not business expenses. The person would have had these expenses anyway but is allowed a tax deduction. In Da Costa v. Da Costa (1997), 74 A.C.W.S. 88 (B.C.S.C.), the court added back to income, expenses related to telephone and utility expenses as well as automobile expenses. In Omah - Maharajh v. Howard [1998] 7 W.W.R.342 (Alta Q.B.), the court also added back in automobile expenses, but also expenses related to a computer, travel and convention expenses. Not the total amount of these expenses was always added back into income but a substantial portion was. In the case of Cornelius v. Andres (1998),36 R.F.L.(4th) 436 (Man.Q.B.) expenses for meals and parking tickets were added back in as an adjustment to income.

Attached as Schedule "A" to this paper is a list of types of expenses assembled by Ron Sullivan a C.A. that are often personal in nature but deducted as business expenses. It is a good checklist when dealing with a self-employed payor.

Another area of unreasonable expenses occurs in cases of business losses, especially farming losses, that set off against the main source of income. When there is no reasonable prospect of earning income from these sideline businesses but they are really a hobby, the courts will not allow the loss to be taken against income. See Adams v. Loov (1998), 40 R.F.L. ( 4th) 222 and Clark v. Kubek (1998), 37 R.F.L. (4th) 244 ( Alta. Q.B.).

The other area of unreasonable expenses relates to capital cost allowances on personal property. The Guidelines are very specific that one adds back into income capital cost on real property but is silent on capital costs on other types of assets. Courts however have used the unreasonable expense section to add back into income some capital costs taken on automobiles [Paynter v. Sackville (1998), 162 Sask R.319 (Q.B.)] and skidoos [Addison v. Dornian (1998), 36 R.F.L. (4th) 355 (Man Q.B.)].

SCHEDULE III OF THE GUIDELINES

Dividends from Taxable Canadian Corporations

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The gross up is 133% as only 75% of the capital gain is included. Again this is not an accurate reflection of ability to pay as it is not taken into account that no tax is paid on that other 25%. If the capital gain was not reoccurring every year, the definition section of current information would be used to argue against including the capital gain.

Of course as previously stated, a payor can argue that the previous capital gain will not be reoccurring so should not be included.

Business Investment Losses

Federal Child Support Guidelines, Schedule III, Section 7

Deduct the actual amount of business investment losses suffered by the spouse during the year.

Because only 75% of the business loss can be claimed for income tax purposes, the full amount may be deducted for guideline purposes. This is unfair to the payor (as opposed to the case of dividends and capital gains) because income tax is determined on only 75% of the loss.

Carrying Chargenter v. Sackville (1998), 162 Sask R.319 (Q.B.)] and skidoos [Addison v. Dornian (1998), 36 R.F.L. (4th) 355 (Man Q.B.)].

SCHEDULE III OF THE GUIDELINES

Dividends from Taxable Canadian Corporations

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account.

Federal Child Support Guidelines, Schedule III, Section 8

Deduct the spouse's carrying charges and interest expenses that are paid by the spouse and that would be deductible under the Income Tax Act.

Net Self-employment Income

Federal Child Support Guidelines, Schedule III, Section 9

Where the spouse's net self-employment income is determined by deducting an amount for salaries, benefits, wages or management fees, or other payments, paid to or on behalf of persons with whom the spouse does not deal at arm's length, include that amount, unless the spouse establishes that the payments were necessary to earn the self-employment income and were reasonable under the circumstances.

A similar provision to this section is found in section 18 of the Guidelines.

Additional Amount

Federal Child Support Guidelines, Schedule III, Section 10

Where the spouse reports income from self-employment that includes the self-employment income for the 12 months ending on December 31 of the reporting year plus an additional amount earned in a prior period, deduct the amount earned in the prior period,

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The net of reserves.

This provision is necessary for many lawyers and other self-employed persons who now, thanks to a change in the law in 1995, must include in their income 10% of their stub year income. Again though it is a break for the payor, it does not accurately reflect ability to pay because tax is being paid on income one does not have.

Capital Cost Allowance for Property

Federal Child Support Guidelines, Schedule III, Section 11

Include the spouse's deduction for an allowable capital cost allowance with respect to real property.

As there is no actual outflow of cash the depreciation on real property is added back in, though again the payor is still better off because no tax is paid on this amount.

Partnership Income

Federal Child Support Guidelines, Schedule III, Section 12

Where the spouse earns income through a partnership, deduct any amount included in income that is properly required by the partnership for purposes of capitalization.

There is discretion here because of the word "properly". I am not sure why this section couldP>

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The not also help the incorporated self-employed person who has to use income to finance perhaps the buying of the business though this section only deals with partnerships.

Employee Stock Options with a Canadian-controlled Private Corporation

Federal Child Support Guidelines, Schedule III, Section 13

(1) Where the spouse has received, as an employee benefit, options to purchase shares of a Canadian-controlled private corporation and has exercised those options during the year, add the difference between the value of the shares at the time the options are exercised and the amount paid by the spouse for the shares and any amount paid to acquire the options to purchase the shares, to the income for the year in which the options are exercised.

Disposal of Shares

(2) If the spouse has disposed of the shares during the year referred to in subsection (1), deduct from the income for that year the difference determined pursuant to that subsection.

APPEALS

Like every other area of family law, it is hard to appeal a court' s determination of the finding of a self-employed person's income. Unless it is unreasonable or the evidence is clearly misconstrueP>

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The d, the appeal court will not overturn a trial court's determination of income Benvie v. Mills (1997) 34 R.F.L. (4th)313 ( N.S.C.A.).

CONCLUSIONS

The Child Support Guidelines recognize that the total income on one's income tax return is not a fair indication of a person's ability to pay. The Guidelines provide that many adjustments have to automatically be made. There are also many adjustments that though not mandatory, will be made with the court's discretion so to come to a true figure of income to determine child support under the Guidelines.

Because the scheme of the Guidelines needs an exact figure for income for table and extraordinary calculations, the Guidelines dictate exactly how to add and subtract from income certain specific situations. Sometimes those adjustments are not completely fair because they do not adequately deal with the tax consequences of the adjustment.

The Guidelines still leave an enormous amount of discretion to Judges in many ways to determine income when it comes to the self-employed. Judges have interpreted the Guidelines to give them more discretion than was probably intended.

The Guidelines do a good job of pointing out areas where the income tax act does not faiP>

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The rly reflect one's ability to pay for support purposes. Those principles can be used as well to determine a fair ability to pay spousal support.

An expert could be used in many cases to help determine a self-employed person's income for the issues of unreasonable expenses and hiding income.

One must be careful to arrange his or her corporate affairs properly for guideline purposes. As it presently stands though capital to fund a partnership can be taken into account capital to fund a corporation cannot.

In my opinion when the Guidelines get revised (and it is suppose to be an ongoing process) I would suggest the following:

(a) Rather than speculating what the income might be to determine support the scheme should be like the income tax system. Support would be paid based upon the previous year's income with an adjustment made after the tax return is completed at the end of the year. This would avoid arguing about what the income might be. It would ensure the proper amount is paid when the income changes during the year because of loss of employment or a raise in pay. There would be no pattern of income arguments. As it is now if there is a capital gain, one simply argues it is not a reoccurring one and therefore support is never paid based on it. There wouP>

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The ld be a reduction of discretion which was a clear and necessary aspect of the Guidelines.

(b) The many discretionary aspects of the determination of self-employed persons should be reduced. State clearly what expenses will be found to be unreasonable and how they are added back into income. The income tax laws over the years have done that with respect to personal expenses such as automobile, food and business losses.

(c) Be a little more sophisticated with the adjustments that have tax consequences. Yes, the Guidelines state to use the actual amount of the capital gain and the actual dividends received but the ability to pay is greater because of the tax consequences.

(d) Allow some discretion or make fairer rules like those present for funding partnerships for funding a company.

Income under the Guidelines is not a simple issue. A lawyer who does his or her work can effect a court's determination of income by making all the arguments for adjusting the income which the Guidelines allow for.

LAWRENCE S. PASCOE, SEPTEMBER 1999

ACKNOWLEDGMENT OF REFERENCES

1. Determining Income Under the Child SP>

Federal Child Support Guidelines, Schedule III, Section 5

Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.

As these dividends are grossed up the actual amount of the dividends (80% of what is on the income tax return) is actually used. The fact that a tax credit is given has not been properly taken into account. In my opinion, this adjustment is a mistake because the dividend tax credit already gives the payor a greater ability to pay so by having the payor only include the actual amount received, an extra amount is available to the payor.

Capital Gains and Capital Losses

Federal Child Support Guidelines, Schedule III, Section 6

Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.

As capital gains are not taxed like regular income, the actual amount of the gain is added back in but no accounting for the fact that tax is not paid on it is taken into account. The upport by V. Jennifer Mackinnon (Quicklaw Surtash Database and the 8th Annual Institute of Family Law, 1999

2. Child Support Guidelines Service by T.W. Hainsworth (Canada Law Book)

3. Update Case Law Under Child Support Guidelines by Justice David R. Aston, Family Law Quarterly published by Carswell, Volume 16.2

4. The Child Support Guidelines Highlights and Insights by Professor Nicholas Balla, 8th Annual Institute of Family Law, 1999

5. Ron J. Sullivan, C.A., C.B.B., C.F.E. of Sullivan Business Valuations and Litigation Services

SCHEDULE "A"

Possible unreasonable or discretionary expenses:

Methods of altering net income:

The above represents a partial list of some of the more common approaches to altering expenses and revenue.

© Lawrence S. Pascoe