The following is an excerpt from our upcoming book entitled Represent Yourself in Court. For more information on the book email us at gbc@gclawyers.com.

Chapter 16
The law of child support

The information in this chapter is applicable in Ontario, B.C., Alberta, Saskatchewan, Manitoba, Quebec, P.E.I., Nova Scotia, Newfoundland, New Brunswick, N.W.T. and the Yukon under federal legislation and in some provinces under provincial legislation.

How is the amount of child support determined

In Canada the amount of child support is determined by the Child Support Guidelines. There are separate guidelines for each province in Canada as well as federal guidelines which apply in a divorce proceeding. The Guidelines are comprised of two parts: the Guidelines for determining child support and the Tables which set out child support amounts. The Tables set out how much a person must pay based on the number of children and the person’s income. Although the Guidelines do not always apply, they are always the starting point. If a person seeks to claim or pay an amount other than the amount set out in the Tables, they must fit within one of the exceptions, which we will discuss later. Because the exceptions are very strict, one can assume that the Tables will probably apply. It is fairly rare for child support to be fixed in an amount other than the amount set out in the guidelines.

What is income

Income from employment
The starting point is Line 150 of the standard Canada Income Tax Return which is described as Total Income. Whatever that amount was for the year prior to the preceding is the income amount that we start with for determining child support. Persons who are required to pay child support must produce their Income Tax Returns for the last 3 tax years. Parties must also provide proof of their current income including the amount earned to date during the year. The most common method to do this is to provide a current pay stub. Most pay stubs will show what a person has earned during the current year. If a party’s paystub does not provide that information then written documentation confirming this information must be supplied. From that amount one can calculate what the person would be expected to earn in the entire year and this amount may also be used in conjunction with the Total Income amount to determine a party’s income for the purposes of child support.

Income from unincorporated business
Some people are self-employed, operating either under a business name or through a corporation. In such cases, tax returns and pay stubs do not give an accurate picture of their income. The reason for this is that income tax laws permit self-employed people to deduct certain amounts from their income which, although perfectly acceptable from a tax perspective, does not provide an accurate picture of their income for support purposes. Persons who are self-employed are required to produce financial statements for the business for the last 3 years.

For example, in our fact situation Barbie is self-employed providing daycare in her home. She looks after children and the children’s parents pay her. When she calculates her income she deducts a number of expenses such as

- food
- car expenses such as gas, repairs and depreciation of her vehicle
- video rentals
- house expenses such as hydro, gas, cable and internet

These are all perfectly legal deductions for income tax purposes. However, there are two issues which arise in the context of child support. First, only expenses which are clearly related to earning income are taken into account when determining income for the purposes of child support. Therefore depreciation would not be considered because it is not an expense Barbie is incurring: her car is decreasing in value but not as a result of her business. Barbie pays utilities and taxes on her home but not as a result of her business therefore these expenses would not be considered either.

The second issue is that most people will include more of their expenses than are actually related to their business. For example, Barbie deducts all of her video rentals regardless of whether they are for the children or for herself. She claims much more of her car expenses than are actually related to her daycare business. The difficulty arises when one attempts to ascertain how much of the expenses that are claimed are related to the business: it is difficult or impossible to do so and we are left with somewhat of a guessing game. But if these things are pointed out to the judge he may disallow some of the expenses.

Another issue that arises when people are self-employed is the “under the table” income. Many people accept payment in cash and don’t report the income. Just about everyone who is seeking support from a person who is self-employed alleges that the other person gets paid under the table. While it is often taking place, it is almost impossible to prove without a forensic accountant which is prohibitively expensive. I’ve been involved in numerous cases where under the table income has been an issue but not once has it been accepted by a judge. You just can’t prove it. Sometimes the person will admit they do it to a certain amount but that’s about all you can hope for.

Income from an incorporated business
When a party owns an incorporated business the same issues will arise. When the company earns income, the income legally belongs to the company, not the party. The party may receive income from company. The company may also pay out amounts to the party and others in many ways. It pays salaries, it pays dividends and it pays expenses such as car payments and credit card payments. It also repays shareholder loans. These payments may be made not only to the party, but to the party’s spouse, girlfriend, children, parents and so on, all of which are perfectly legal from an income tax perspective. However, if a party operates a business as a corporation, the corporation could be paying out amounts to the other persons in a manner which artificially reduces the party’s income and the corporation’s income for child support purposes.

In addition, there is another issue of what we call retained earnings. Retained earnings refers to income that has been received by the company but which the company holds on to rather than paying it out to the owner. If the company were to do this, it would not be reflected in the income of the party. One needs to look at the financial statements of the company to find out whether the company has retained earnings. Not all retained earnings would be considered to be income because it is reasonable for a company to keep funds in the bank account to cover the normal day-to-day operations or contingencies of the company. There is no set formula for determining what amount of money is reasonable for a company to maintain in its accounts in the way of retained earnings. The reason for this is that the greater the company’s cash flow needs are, the more money it needs to have in the bank for operating purposes. The amount of the company’s cash flow needs would depend in part on the type of business it is involved in. Some types of businesses would need to have considerably more money on hand than others.

Parties who own or control corporations are required to produce financial statements for the corporation for the last 3 years. They are also required to provide a statement setting out all amounts that have been paid to persons with whom the company does not deal at arms length, who are persons who would normally deal with the company if not for the fact that they have some connection with someone in the company. Any such payments could be added to the company’s income and perhaps ultimately the party’s income unless the party can show that the payments were reasonably necessary for the operation of the company.

So how do you dissect all this information in a child support proceeding? Two problems: first, you have to get all kinds of information from the company such as bank statements, cancelled cheques, ledgers and invoices. This is fairly easy if the support payor owns the company because most judges will order that information that has some bearing on party’s income be produced. It gets much more difficult if someone other than a party, such as a spouse, parent or friend of the party, owns the company. You are not automatically entitled to information from anyone who is not a party in the proceeding; you have to convince a judge that the information is necessary to determine the support issue. Second you have to understand financial matters relating to a company which even many lawyers don’t.

Other types of income
Numerous issues arise as to whether different types of income are considered income for child support purposes. The following are some of the types of income that you might encounter:
- welfare payments such as Ontario Works benefits are not considered income for support purposes.
- pension income such as Canada Pension or retirement pensions are considered income.
- RRSP withdrawals may be considered income but not always.
- dividends are considered income and child support is calculated at a higher rate due to the fact that dividends are taxed at a lower rate. Thus we “gross up” the amount, which means we use a higher amount than the actual amount of the dividends when calculating support in order to take into account the lower tax rate.
- income tax refunds are not income.
- child support that is received from other parties is not considered income.
- spousal support that is received may be considered income for child support purposes.
- annuity payments are considered income.
- proceeds from the sale of property may be considered income if it received in the nature of a business, such as where a person buys houses and renovates them and sells them.
- income from tenants and boarders is considered income.
- money received as a result of gambling may be considered income. Money won from a slot machine or a lottery is not income. Winnings from horse racing could be income if the person has knowledge of horse racing and wins on a regular basis.
- money received from friends for fixing their cars or houses is considered income.
- inheritances and gifts are not considered income.

Variations in income
If a party’s income has changed significantly recently, it may be necessary look at the reasons for the changes in income and the history of the party’s income. The Guidelines state that if Income Tax Returns do not give an accurate picture of the party’s income, the court may look at the party’s income over the last three years to determine an income amount in light of any fluctuations or patterns in the party’s income.

What can be claimed other than child support
In addition to the amounts set out in the Tables, the Guidelines state that courts may order other amounts to be paid on account of children, referred to as section 7 expenses. Section 7 of the Guidelines states that the court may order a party to pay for certain expenses relating to children. The most common expenses that are considered are

- daycare and babysitting required due to the parent’s employment, education, training for employment, illness or disability
- children’s activities
- medical and dental expenses not covered by insurance
- college, university and other education related expenses

These expenses are to be shared between the paties in proportion to their incomes. For example, if Ken earns $20,000 and Barbie earns $30,000, Barbie would pay 60% of the cost and Ken would pay 40%.

The amount to be shared is the net cost after taking into account any tax benefits or other subsidies applicable to the expense. For example, Ken takes his child to the dentist and the dentist charges $100. Ken’s insurance pays $60 of the cost. The remaining $40 would be shared by Barbie and Ken with Barbie paying 60% ($24) and Ken paying 40% ($16).

It is much more difficult to calculate a party’s contribution to babysitting and daycare. The same principles apply as in the example above, however it is not easy to calculate the tax benefits, etc. that a person receives as a result of paying daycare. When a person pays day care expenses, he or she is entitled to claim those expenses on his or her income tax return which results in a reduction of the amount of income tax that the person has to pay. It will also result in an increase in the person’s Child Tax Benefit payment. You need to know the net change in income tax of the person paying the expense as well as the amount of additional Child Tax Benefit that the person will receive as a result of paying the expense in order to calculate the net cost of the expense. The only way to figure out the total amount of these benefits would be to recalculate the person’s income tax return without these expenses being claimed. Even if one were to do this one would still not know the change in the person’s Child Tax Benefit. Lawyers generally use special computer programs to calculate these amounts. Contact us at gbc@gclawyers.com and we will do these calculations for you for a small fee and send you printed calculations that can be used in court.

Several issues arise respect to claims for contribution to college and university expenses. The first is that the amount to be used under the guidelines is the net cost to the party. The child is entitled and in fact is required to claim expense on his tax return. If the child does not have sufficient income such that the expense would not result in a reduction of his income tax that he is required to pay, a parent may claim the expense and may receive an income tax refund as a result. Any resulting income tax refund would be deducted from the expense prior to calculating the other party’s contribution. Again, it is difficult to calculate the resulting refund. As well, the child is expected to work during the summer to help pay for the costs and to contribute from any other funds he may have. There is no set formula to determine how much a child should contribute to his own post secondary expenses.

The second issue is that a child may be entitled to student loans, depending on the income of the parents. The question that arises is whether a child is required to obtain student loans and if so how much. The courts will look at parties’ incomes in deciding whether the child should be required to seek loans. There is no set amount that the parents must earn before the child is relieved of applying for loans but generally speaking the more the parents earn the less the child is expected to borrow. Any student loans that the child obtains are deducted from the expenses before calculating the parties’ contribution.

The third issue is how long a parent is expected to contribute to a child’s post-secondary expenses. The courts will always consider the expenses related to a first degree or diploma to be a reasonable expense. Expenses related to subsequent educational programs will not automatically result in a party having to contribute. Courts will generally require parents to contribute to subsequent post secondary expenses if it can be shown that the pursuit is reasonably required to enable the child to become self-supporting.

The fourth issue is that in addition to contributing to post-secondary expenses parties are also required to pay the Table of child support. If Ken’s child continues to reside with Ken while attending university then Barbie would be required to pay the Table amount as well as her contribution towards the university expenses. If the child lives away from Ken’s home while attending university and returns for holidays and perhaps summer, Barbie will be paying for accommodation and food as part of the university expenses. Because accommodation and food are expenses which are included in the Table amount, Barbie would be paying twice if she pays the full table amount and also pays for these expenses as part of the cost of post-secondary education. The courts will take this into account and will generally only require Barbie to pay a portion of the table amount such as one half or two thirds.

In order for a party to be required to pay child support for a child who is over 18 and attending high school or college or university, the child should be enrolled in a full-time program as defined by the educational institution he is attending and attending all of his classes. However, if this is not the case, the parent would not necessarily be excused from contributing to the expense. The court would look at the reasons why the child is not enrolled full-time. The child may need to work part-time to pay for his education or the child may suffer from physical or mental health issues, either of which would excuse him from having to attend full-time. The child should also be performing reasonably well academically unless there is a reason why he is not.

Proving expenses
The party claiming the contribution towards children’s expenses must provide evidence as to the details and costs of the expense. Receipts showing proof of payment should be provided. Additional Information should also be provided if the nature of the expense or the cost is not obvious. For example, if a child requires a tutor, confirmation from the child’s school that she requires tutor should be provided. If a child requires orthodontic work, confirmation from the orthodontist as to what work is required and the cost of the work should be provided.

The Guidelines also state that expenses must be reasonable. This means that there must be some benefit to the child which warrants the expense and the expense must be reasonable in relation to the benefit. Playing organized sports clearly benefits children and the associated costs, perhaps a couple hundred dollars per year, are easily justified in light of the benefit. Conversely, paying thousands of dollars per year for a private skating coach would not be justified if a child does not have particular skills or abilities.

The guidelines state that expenses must be consistent with the spending pattern of the parties prior to the separation. Generally, the higher the parties income, the greater the likelihood that the court will allow a claim for contribution to expenses. Parties with low to moderate incomes are less likely to spend money on children’s expenses than parties with higher incomes. A low income family would not send their children to private school regardless of the benefit to the children and therefore the court will not order a party with low income to contribute to such expense. High income families are more likely to send their children to private schools and in fact may have been sending their children to private school prior to the separation in which case the court would be more likely to require a party to contribute to the expense.

When do the Table amounts not apply
There are several situations where the Table amounts do not apply. The most common of these is the situation where parties have shared custody of one or more children, where each parent has one or more children or where a party claims he or she will suffer undue hardship.

Shared custody generally refers to the situation where a child spends equal amounts of time with each parent. Once again, there is no easy method of calculating support in this situation. A starting point might be to simply offset the amounts that each would pay the other. If Ken is required to pay $350 per month to Barbie for the child that is living with her, and Barbie is required to pay to Ken $220 per month for the child that is living with him, Ken, who owes the larger amount, pays the difference between the two amounts to Barbie, namely $350 - $220 = $130.

There are often situations where even though the parties do not have the children with them equal amounts of time, the time-sharing arrangement approaches something equal. Section 9 of the Guidelines states that if a spouse exercises access or has physical custody of the child more than 40% of the time over the course of the year then the table amount will not apply. The Guidelines state that in this situation the child support amount is to be determined by taking into account
a. the amounts set out in the applicable tables for each of the spouses;
b. the increased cost of shared custody arrangements; and
c. the conditions, means, needs and other circumstances of the spouse and of any child for whom support is sought.

This is another area where it is difficult to predict how a court might deal with a support scenario. The Supreme Court of Canada has stated that in an application under section 9 the table amounts under the guidelines do not automatically apply and that the appropriate amount of support is determined based on the factors set out in section 9. However, in many cases where the situation has been dealt with by the courts, the parties did not present evidence as to the additional costs and other matters referred to in paragraphs b and c and court simply set off the table amounts against each other.

When dealing with a section 9 scenario one also needs to determine how much of the time the child spends with each parent. Arguments have been made that the determination should be based on the number of days, the number of hours, that time when the child is in school does not count, that time when the child is in day care does not count and so on. Some of the principles that have been enunciated by the courts dealing with the issue are as follows:

1. There is no rule as to whether days or hours should be calculated as one may be more appropriate in some circumstances than the other.
2. A parent cannot change the percentage of time that he has a child with her by unilaterally keeping the children longer than is provided for in the agreement or order. The calculation must be based on the schedule in the agreement or the order.
3. The time when the child is in school should be attributed to the parent who is responsible for the child during that time, with the presumption that it is the parent with whom the child has his primary residence.

If each parent has one or more children then the set-off of Table amounts applies. If for example Ken has one child with him and Barbie has two children with her, child support is calculated as follows:

1. Calculate the amount of child support Barbie would pay to Ken for the child he has with him. For example $320 per month.
2. Calculate the amount of child support Ken would pay Barbie for the children she has with her. For example $250 per month.
3. Subtract the lesser amount from the greater amount and the parent pays that amount. $320 - $250 = $70. Ken pays Barbie $70 per month.

There are situations where a person is required to pay for support even though she is not the natural or adopted parent of that child. In the legal world we say that the person is in loco parentis which means she is in the place of a parent. In such situations where the biological parent is already paying support for the child, the parent who is not the biological parent would likely not be required to pay the Table amount and would pay something less. There is no set formula for determining how much she would pay. If the biological parent is not paying support and is not likely to pay support, the party who is in the place of a parent would likely be required to pay the full Table amount.

If a person is in a particular situation where it would be extremely difficult or unfair for him to pay the amount set out in the Table he can seek to pay a lesser amount based on undue hardship. Keep in mind that many people would be subject to hardship by having to pay the Table amount and therefore there must be special circumstances that would cause particular hardship. A party who is claiming support can also claim more than the Table amount based on the argument that receiving only the Table amount would cause undue hardship.

The Guidelines provide that the following circumstances may result in undue hardship:

(a) the parent or spouse has responsibility for an unusually high level of debts reasonably incurred to support the parents or spouses and their children during cohabitation or to earn a living;
(b) the parent or spouse has unusually high expenses in relation to exercising access to a child;
(c) the parent or spouse has a legal duty under a judgment, order or written separation agreement to support any person;
(d) the spouse has a legal duty to support a child, other than a child of the marriage, who is,
(i) under the age of majority, or
(ii) the age of majority or over but is unable, by reason of illness, disability or other cause, to obtain the necessaries of life;
(e) the parent has a legal duty to support a child, other than the child who is the subject of this application, who is under the age of majority or who is enrolled in a full time course of education;
(f) the parent or spouse has a legal duty to support any person who is unable to obtain the necessaries of life due to an illness or disability.

Even if the court finds that the party claiming undue hardship satisfies the tests, the table amount will still be ordered if the household of the party has a higher standard of living than the household of the other party. In addition to looking at the usual factors to determine standards of living, the court may also apply the formula which is prescribed by the Guidelines. This formula is extremely complicated and one would require specialized software in order to compare household standards of living. Contact us at gbc@gclawyers.com and we will do these calculations for you for a small fee and send you printed calculations that can be used in court.