Child Support in Ontario Family Law
By Mason Morningstar - 5 Minute Read
In some ways, child support is the simplest and most certain legal issue separating couples will face; in other ways, it can become surprisingly complex. However, most parents can assume with near certainty that, if they are separating, child support will be owed. The complexity can creep in when one or both parents’ incomes are difficult to calculate, usually as a result of being self-employed, or due to some form of deferred compensation like restricted share units, stock options, etc.
T4 Employee
The simplest scenario is this: the child resides primarily with one parent (more than 40% of the time). The parent who has the child less often is called the “payor”. The payor is a regular T4 employee (i.e. they are not self-employed), and they have no employment expenses that are deducted from their income. In other words, their income is what it is. Assume that this person earns $150,000 per year.
There is a government-sanctioned child support calculator that can be found here, which is a function of the Child Support Guidelines. The calculator will provide an amount that must be paid on a monthly basis, according to the payor’s income and the number of children involved. In this case, the payor would owe $1,299 per month. With very few exceptions, every payor in Ontario who has one child, and an income of $150,000, will pay the recipient $1,299 per month. This amount is called the “Table amount” of child support.
T4 Employee – Shared Parenting, or the 60/40 Rule
Child support is often (but not always) calculated differently when parents have a shared parenting schedule (where their schedules are divided by at least 60%/40% of the time). In this situation, both parents become “payors” to one another, so it is necessary to calculate both of their incomes. Assume one parent earns $150,000, while the other earns $300,000.
The calculator will again determine the amount owed:
$150,000: $1,299/month
$300,000: $2,379/month
Practically, the simplest solution here would be for the higher income-earner to pay a set-off amount to the other. However, the Income Tax Act requires both parties to actually pay one another so they may benefit from the eligible dependant tax credits.
Additionally, determining whether somebody has met the 40% threshold is not always a simple task – there is no consensus in our case law as to the appropriate method to count time, and some parents have become creative when arguing either side. As well, even if somebody does hit the 40% threshold, they are not automatically entitled to receive child support – this is only the start of the analysis.
Self-Employment
Determining a payor’s income becomes more complicated when they are self-employed. The definition of income found in the Guidelines differs dramatically from the one found in the Income Tax Act, which mostly affects self-employed payors.
Self-employment allows for flexibility and control over one’s declared income for tax purposes. Where somebody’s business is unincorporated, all of their income and expenses are reported through their personal income tax returns, which makes the task of determining their income for child support purposes simpler and often more transparent (unless there is unreported income). Where somebody operates through one or multiple corporations, there are often tax planning initiatives that operate to reduce personal taxable income. This tax planning could be acceptable to the CRA, but should be scrutinized for family law purposes.
In either situation, adjustments to a self-employed person’s reported income are almost always necessary to comply with the broader definition of income in the Guidelines. Adjustments are then subject to an income tax gross-up. More information can be found here, but suffice it to say that self-employment brings complexity to child support.
However, once the payor’s income is calculated in accordance with the Guidelines, the next step is to plug that figure into the child support calculator to determine the monthly amount owed.
Income Over $150,000
Section 4 of the Guidelines provides that, where a payor’s income is over $150,000, the court may deviate from the Table amount. A lot of complex litigation and case law has developed on this issue. One takeaway is this: judges will not seriously consider this section unless a payor’s income is significantly higher than $150,000. Depending on the jurisdiction, the payor’s yearly income should generally be around the $1 million mark for this section to be triggered (though this is a loose, general rule).
Additionally, courts are more likely to consider this section where a payor’s income has increased dramatically sometime after separation. In this case, a court might find that the children were never privy to a lifestyle that can now be afforded with this new income, and as a result, requiring the payor to pay a significant amount of child support will result in a wealth transfer to the other spouse. That said, if the court is inclined to vary the Table amount, there is no requirement that the amount be decreased; the court can just as well increase the amount owed to what they deem fair in the circumstances.
Special or Extraordinary Expenses
Parents may be responsible for contributing to “special or extraordinary expenses” for the child (often referred to as “section 7 expenses”), in addition to the monthly Table amount. Some examples of these expenses are as follows:
· Daycare or childcare fees, especially when the parent needs to go to work or school;
· Medical and dental insurance premiums paid by the other parent for the child;
· Other health expenses such as prescriptions, eyeglasses, counselling, etc.;
· School and educational programs that the child requires, like tutors or private school fees;
· Post-secondary education expenses; and
· Costs of extracurricular activities, like sports.
The parent who requests contribution to these expenses must show that they are reasonable and necessary. The law also considers whether the expense in question is consistent with the family’s spending pattern before separation, or whether they intended to spend those future amounts while they were still together.
Once the expense in question has been agreed on or accepted by the court, parents will generally be required to share the cost of the expense in proportion to their incomes. Where parents earn the same income, they will split the cost equally. Where one parent earns more than the other, they will pay a higher percentage of the expense. For example, if the mother earns $70,000 while the father earns $30,000, then the mother will pay for 70% of the special or extraordinary expenses, and the father 30%.
Is Child Support Taxable?
No. The parent receiving child support does not pay tax on it; conversely, the payor cannot deduct it from their taxable income. However, it is possible to claim a tax deduction for legal fees incurred to obtain child support from an ex-partner.
As always, none of the above is legal advice; it is information only. If you have questions about your situation, speak to a knowledgeable family lawyer for assistance.
Written by Mason Morningstar, Toronto Family Lawyer