Imputing Income

The Federal Child Support Guidelines set out income determination rules for calculating child support. These rules, with a few exceptions, also apply when calculating income for spousal support.

According to the Guidelines, a spouse’s income is determined by line 150 on his or her Income Tax Return, subject to applicable adjustments. However, the Guidelines also recognize situations where a party’s income, for the purposes of calculating support, should be set at a different value.

Courts have the authority to determine a spouse’s income for the purposes of calculating support. Income can be “imputed” to either a support payor, a support recipient, or, in some cases, both spouses. Section 19 of the Guidelines sets out circumstances in which a court may impute income.

Imputing income

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:

1. the spouse is intentionally under-employed 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 the reasonable educational 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 child support to be determined under these Guidelines;
5. the spouse’s property is not reasonably utilized to generate income;
6. the spouse has failed to provide income information when 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; and
9. the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

When imputing income, the Court does not need to make a finding that a spouse is acting in bad faith or in an effort to avoid a support obligation (See leading case, Drygala v. Pauli).

Recent cases dealing with this issue include Moul v. Moul and Pey v. Pey.

In Moul v. Moul, Labrosse J. imputed an income of $40,000.00 per annum to a 56-year old accountant who had retired and was helping at his new wife’s winery. While the support was ultimately reduced on account of material changes (including the payor’s PTSD), it was not terminated because Labrosse J. found that the payor was unreasonably unemployed:

“The Applicant has chosen to go from full time work to non-remunerated work while spending time and energy on the vineyard and the winery. He has not provided any evidence of his inability to work part-time.”

The judge also imputed an income to the support recipient in this case.

Pey v. Pey demonstrates the level of scrutiny that a spouse’s actions in relation to employment can face. Shelston J. imputed an income of $110,000 to the husband, who was unemployed at the time of trial. He found that the husband had not done everything possible to seek employment, and that he had misled the court by failing to include a $64,000.00 asset on his financial statement.

It should be noted that the burden of proof is on the party claiming that the other is underemployed. However, the party whose income is in question must demonstrate overall reasonableness of behaviour.

Spouses with support obligations should consider obtaining legal advice before making any career changes that will materially impact their income. Mann Lawyers’ family law lawyers routinely negotiate and litigate on these issues.

This blog post was written by Mary Cybulski a member of the Family Law team.  She can be reached at 613-566-2073 or at mary.cybulski@mannlawyers.com.