Income and support obligations

For the purposes of determining a payor's support obligations (assuming he or she has any), income is not just money they "bring home".  For both child and spousal support, it is the gross income of the payor which is used to determine the extent and amount (we call this "quantum") of their payments.

The Federal Child Support Guidelines (and their provincial counterpart) give judges broad powers to "tag" various forms of income for support purposes. For example, if you are a business owner, you should not assume that it is only the income on which you are taxed by CRA which will determine how much support you pay. As I tell my clients often, in this area of the law "what is good enough for the tax man may not be good enough for a family law judge" meaning that over time, family law in Ontario has carved out special rules relating to income for support purposes. Areas which are vulnerable to consideration under the heading of "income" include (but are not limited to) salaries paid to non-arm's-length parties, personal expenses deducted (even if such a deduction is accepted by CRA), earnings left in the company and not drawn out without a valid explanation and bonuses. In certain circumstances, even cashed RRSPs can be considered income for support purposes.

If you would like more information, I suggest you consult a lawyer in your area but in any event, as a first source, you should turn to the specific wording of the Child Support Guidelines and their companion Schedules.

The ebb and flow of the tide...

Child/Spousal Support and CRA

Periodic child support payments, unlike spousal support, are made in Ontario on a tax-neutral basis. This means that they do not form part of the income of the recipient and are not deductible to the payor. 

The preceding statement must be approached with some caution because there are some payments made by parents, effectively being child support, which do have tax consequences. For example, daycare expenses can have tax consequences to the payor, and favourably so. Depending on the age of the child, either all or some of those expenses may be deductible for tax purposes. Again, depending on the child's residential arrangements, a parent may deduct those expenses (while the other parent does not) and in such a case, the deduction may affect the way the amount owing by the non-deducting spouse is calculated in the first place. By way of a simple example, if the annual cost of daycare is $5,000, in calculating at what proportion the parents will share the expense, one must consider which parent will take the tax deduction and in what amount.

Periodic spousal support, on the other hand, is taxable as income in the hands of the recipient and tax-deductible to the payor. A different tax treatment applies to lump sum spousal support payments.