Determining Income Under
the Federal Child Support
Guidelines
A Refresher and Consideration of Common
Obstacles
Vivian Alterman, MBA, CA, CBV
Presented For The
York Region Law Association
May 6, 2011
ap Valuations Limited
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t: 416.596.9631
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Determining Income Under the
Guidelines
• Calculation of Annual Income
• Section 16 – Subject to sections 17
to 20, sources of income (Line 150
of ITA) adjusted by Schedule III
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Business Valuations: Litigation Support: Financial Consulting
1
Schedule III Adjustment
(Sections 1 to 14)
Typical adjustments include:
• Section 1 - Employment expenses
(i.e., dues and other expenses of
performing duties)
• Section 5 - Taxable dividends to
actual (eligible vs. non-eligible
dividends)
• Section 6 - Taxable capital gains to
actual (net of capital losses realized
in that year) – example…
ap Valuations Limited
Business Valuations: Litigation Support: Financial Consulting
2
Schedule III Adjustment
(Sections 1 to 14)
Typical adjustments include:
• Section 1 - Employment expenses
(i.e., dues and other expenses of
performing duties)
• Section 5 - Taxable dividends to
actual (eligible vs. non-eligible
dividends)
• Section 6 - Taxable capital gains to
actual (net of capital losses realized
in that year)
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Business Valuations: Litigation Support: Financial Consulting
3
Schedule III Adjustment
(Sections 6)
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4
Schedule III Adjustment
(Sections 1 to 14) – con’t
Adjustments include:
• Section 8 - Carrying charges (i.e., tax
shelter adjustments)
• Section 9 - Net self-employment income
(non-arm’s length payments)
• Section 11 - Capital cost allowance for
property
• Section 12 – Partnership or sole
proprietorship income
• Section 13 – Employee stock options with
a Canadian controlled private corporation
(CCPC)
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5
Modifications By The Court
(Section 17)
• Section 17 (1) - Pattern of income
– Non-recurring capital gains, RRSP
income? Can you double dip with your
child?
• Section 17 (2) – Non-recurring losses
• Non-recurring capital or business
investment loss
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Business Valuations: Litigation Support: Financial Consulting
6
Modifications By The Court
(Section 18)
• Section 18(1) – Shareholder, director
or officer
• Attribution of corporate pre-tax income
• What about corporate losses?
• Treatment of non-December fye?
• Section 18(2) – Adjustment to
corporation’s pre-tax income
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Business Valuations: Litigation Support: Financial Consulting
7
Imputing Income
(Section 19)
• Spouse is intentionally unemployed or
underemployed
• Spouse is tax exempt
• Non-resident spouse subject to lower
tax rates
• Spouse has diverted income
• Spouse does not reasonably utilize
property to generate income
• Spouse fails to provide information
• Spouse unreasonably deducts expenses
• Spouse earns income from sources
taxed at lower rates
• Spouse is a trust beneficiary
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Business Valuations: Litigation Support: Financial Consulting
8
Non-Resident Spouse
(Section 20)
• When a spouse is a non-resident of
Canada, his or her annual income is
determined as though he or she
were a resident of Canada
• No specific guidance on how to
calculate foreign payor’s income
• No Line 150 on foreign income tax
returns
• Work with foreign based accountant
to identify sources of income (US tax
return line 22 subject to
adjustments)
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Business Valuations: Litigation Support: Financial Consulting
9
Non-Resident Spouse
(Section 20)
• Lower or higher tax rates in foreign
jurisdiction
• Determine net disposable income
available to payor in foreign country
• Higher cost of living (i.e., private
health costs, property taxes etc.)
may impact net disposable income
• Gross amount up – what would
payor have to earn in Canada to net
same amount
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Business Valuations: Litigation Support: Financial Consulting
10
Non-Resident Spouse Income
Gross Up Calculation
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Business Valuations: Litigation Support: Financial Consulting
11
Vivian Alterman, MBA, CA, CBV
ap Valuations Limited
488 Wellington St. W., Suite 402
Toronto, ON M5V 1E3
t: 416.596.9631
f: 416.596.9630
e: valterman@apval.ca
w: www.apval.ca