Non-recurring Gains and Determination of Income for the Purposes of Calculating Child Support
In many ways, the Federal Child Support Guidelines have simplified the determination of monthly child support payments and the proportion of extraordinary expenses each parent is responsible for paying (extraordinary expenses mean childcare expenses that you may incur due to work, disability, or educational requirements for employment if your child spends the majority of the time with you). That said, for payors of child support who do not earn a straightforward T4 income, the determination of income for the purposes of child support remains complex.
It is important to note that the determination of income for the purposes of calculating child support is set out in family law legislation and not by tax legislation or the Canada Revenue Agency. It is a common misconception that the same rules of income determination apply in both taxation and child support matters. For example, business expenses can be deducted for tax purposes, but the same business expenses may not qualify as a deduction for child support calculations. For example, if they have a personal benefit component.
What are non-recurring gains?
Non-recurring gains are essentially one-time corporate profits or other monetary gain that occur once, such as any capital gains from the sale of land or a business for example. The treatment of non-recurring gains in the determination of income for child support purposes is not clearly set out in the current legislation. Section 17 of the Federal Child Support Guidelines directs the court to set a fair and reasonable amount of income taking into consideration the past three years' income and any patterns of income, fluctuations in income and non-recurring gains.
The court has the discretion to elect the fairest treatment of the gain, and that could be done by averaging the three years of income prior to the gain, or removing part, or all, of the non-recurring gains, or taking whatever steps it determines are appropriate to arrive at an income figure that is fair for the purposes of child support.
What does the caselaw suggest about how the court uses its discretion?
The current body of caselaw, also known as jurisprudence, in Canada suggests that non-recurring gains have been applied in a variety of ways by the courts when determining a party’s income and it will always vary from case-to-case. Somewhat frustratingly, the only common theme in the jurisprudence is that the courts have not adhered to any common theme themselves and most of their reasons are not explained in detail – in other words, it depends.
However, there do seem to be some loose principles the courts have generally adopted when addressing non-recurring gains and the determination income:
- Whether or not non-recurring payments are included in the determination of income for the purposes of calculating child support is highly discretionary and context specific.
- When the non-recurring gain is included, it is only for the year in which the gain is received, meaning it is not used for the purposes of determining on-going or future support obligations.
- The choice made to re-invest or otherwise use the gain must be supported by evidence.
Factors considered by the court
When analyzing the specific circumstances of each case, the courts have made mention of several considerations, though no weight has been credited to any. Such considerations have included:
- Whether the gain was contemplated as part of any previous agreement or order.
- Will the gain affect future income?
- If it is not used but reinvested in ways that can generate future income it may not be fair to include it in the year received. - Is the gain the basis of a future retirement fund?
- Is the gain intended to/ was it used to improve current lifestyle?
- Using a gain for paying legal fees, debts, or for which the children have directly benefited are often excluded as income. - Would the gain have affected the day-to-day standard of living the family would have enjoyed had it remained intact?
- For example, if the family enjoyed an unusually high standard of income already, it may have not made an impact at all (instead seen as a means of providing security for future years). - Will the capital generated from a sale provide a source of income for the future
- Are the non-recurring gains received at an age when they constitute the payor's retirement fund, or partial retirement fund, such that it may not be fair to consider the whole amount, or any of it, as income for child support purposes?
- Is inclusion of the amount necessary to provide proper child support in all the circumstances?
- Would excluding the gain negatively impact the children?
- What is the degree of permanence or frequency of the income? How variable/ non-recurring is the income?
- Is the gain a return of capital invested in a property that has already been divided amongst the parties, in which case it would be a double dip to include the gain in the calculation of child support.
Ultimately, every party’s circumstance is unique, and the results are highly discretionary. Whether you are a payor or a recipient of child support, it is important to seek legal advice to ensure the appropriate income is determined for use in calculating child support, especially where non-recurring gains are at issue.
Our dedicated team of family lawyers at Crossroads Law are highly experienced in dealing with all the complexities of determining income for child support. We also have mediators who can assist in complex child support disputes. Contact us today to book your free 20-minute consultation.
