Navigating the complexities of child support payments amidst a separation can feel overwhelming. As a parent, it’s crucial that you understand your rights and obligations under family law throughout the process while ensuring a stable and supportive environment for your children.
In Alberta, child support payments are regulated by the Federal Child Support Guidelines for former married couples, and the Alberta Child Support Guidelines for former adult interdependent couples. These guidelines rely heavily on the income of both parents in order to make a determination on the child support owed.
In this post, we will explore how income is determined for the purposes of child support calculations in Alberta.
What Constitutes Income?
Both of the Provincial and Federal Child Support Guidelines apply a relatively general definition of income; they say that a parent’s annual income consists of the number in the “Total Income” line 150 of an annual T1 form. This number is comprised of income from many sources, some of which can include:
- Employment income (includes salary, wage, bonuses, and other forms of compensation from employment)
- Commissions
- Pensions
- Government assistance (child benefits, social assistance, disability, workers compensation, federal supplements)
- Investment income (includes taxable dividends, interest, and rental income)
- Taxable capital gains
- RRSP income
- Self-employment income
- Income from trusts
If a parent is a shareholder, director, or officer of a corporation, this number may need to be adjusted with consideration given to the pre-tax income of the corporation and amounts commensurate with the parent’s work for the corporation.
If a self-employed parent is having a difficult time determining what their total income should be set to for the purposes of calculating child support, an accountant may help sift through claimed deductions. Deductions for tax purposes look different than deductions for child support purposes. Business expenses and deductions for child support are held to a higher standard in that they must have been necessary for the proper operation of the business.
If the T1 line 150 number seems unfair, courts may look at someone’s income over the past three years and determine a pattern of income that is reasonable.
In some situations, the court may impute an income to a parent, meaning they would set that parent’s income at a higher amount than what they disclosed their income to be. Section 19 of both Child Support Guidelines lists situations in which the court would consider imputing income:
- A parent is intentionally under-employed or unemployed, besides staying home to take care of the children or reasonable health or educational reasons
- A parent is exempt from paying federal or provincial tax
- A parent lives in a country which has lower tax rates than Canada
- It seems that income is being diverted to impact child support
- A parent’s property is not being reasonably used to generate income
- A parent failed to disclose income they were legally obligated to disclose
- A parent unreasonably deducts expenses
- A parent makes a significant portion of their income from dividends, capital gains, or other sources that are taxed at a lower rate than employment or business income, or are exempt from taxes altogether
- A parent is a beneficiary under a trust and receives/will receive income from the trust.
Imputing income is completely at the discretion of the judge. In making a child support order, the judge can use any income that they believe to be reasonable based on the evidence before them.
Is Child Support Based on Current Income or Past Year’s Income?
Child support calculations are always based on the most recent annual income of both parties. Acknowledging that neither parent will be certain of their current year’s annual income upon separation, parents will typically be asked to make an estimate based on their previous year’s income, their most recent paystubs, and their projected income for the remainder of the calendar year.
Does Child Support Change Every Year?
Child support payments should be paid on the most recent financial information available to the parents.
If the respective incomes of either parent increases or decreases significantly, the parents will usually need to recalculate the amount owed. While recalculating child support can be time-consuming, it is the most honest way to ensure that each parent is fulfilling their obligation to financially support their children proportionately with their actual earnings.
There are many ways to recalculate income. Some of the most common are:
- Triggering amount: In a child support agreement, parents can add a clause identifying an income amount at which point a recalculation would be triggered. For example, if one parent regularly makes $80,000 in a year, the trigger for recalculation could be if that parent is now making over $100,000 or under $60,000.
- Annual recalculation: This requires both parents to provide complete updated financial information on an annual basis, similar to the disclosure provided for the original child support agreement. There is a recalculation program that can assist parents with this process as long as neither parent is self-employed. If they are, then the recalculation program is unable to assist and the parents will either need to agree to a new amount between themselves, or consult legal counsel in order to negotiate a new child support payment amount.
Recalculation only results in a new child support amount payable – all other terms of any existing court order would remain in effect. This means that there is no need for a new child support order every time income is recalculated unless there is a disagreement between the parents relating to the recalculation.
If either parent believes that there has been a significant change in the circumstances of the other parent such that child support payments should be recalculated, they should begin by discussing this with the other parent. If the parents can’t agree to a newly recalculated amount, either parent can make an application to the court.
Is Child Support Based on Household Income?
Child support payments are based on the income of the parents – this doesn’t include income of a new partner. Unless a new partner is found to be in loco parentis (“in the place of a parent”), there is no obligation that they offer financial support for the child. A new partner’s income is irrelevant when determining child support.
Who Needs to Disclose their Income?
According to the Government of Canada, both parents will need to disclose their income if:
- There is a shared parenting arrangement in place
- There are section 7 “special and extraordinary” expenses to be shared
- There is a claim of undue hardship
- For the paying parent, undue hardship requires both that (a) it is difficult to pay the required amount, and (b) the paying parent’s household’s standard of living is lower than the other parent’s standard of living
- For the receiving parent, undue hardship requires both that (a) it is difficult to support the child(ren) on the amount of child support received, and (b) the receiving parent’s household’s standard of living is lower than the other parent’s standard of living
- There is a child at or over the age of majority and child support is being calculated differently than if that child were a minor
- Either party makes more than $150,000.00 per year
- Either party has been acting in the place of a parent to the child of their partner
In these situations, both parents are obligated to pay child support. Instead of exchanging money both ways, it is more common to simply have the higher paying parent pay the offset. In the absence of any of the above listed situations, only the paying parent’s income must be disclosed.
What are My Obligations to Disclose My Income?
According to the Government of Canada, if a parent is required to disclose their income, they must provide the following:
- Their income tax returns for the most recent three tax years
- Their notices of assessment and reassessment for the most recent three tax years
Sometimes additional pieces of documentation may be required depending on the circumstances. These can include:
- The most recent pay stubs or a letter from the parent’s employer, which includes information about their salary
- Financial statements if the parent is receiving self-employment income or controls a corporation
- Information about employment insurance, worker’s compensation, disability, or other social assistance
If the parents are also working out property division as a part of their separation, those income disclosure requirements will be substantially more than what is required to determine child support. A child support order alone won’t require information about other property.
Once the parents have disclosed their income and a determination is made for the purposes of calculating child support, they will need to continue to update this financial information to ensure that the child support amount is based on an accurate representation of their most recent income.
What Happens if I Don’t Disclose My Income?
It is nearly impossible to calculate child support amounts according to the Child Support Guidelines without income disclosure.
If a parent is unwilling to disclose their income, there is always the option not to pursue legal action. This could be beneficial if one parent believes that the pursuit would be more expensive than the award.
Alternatively, a court can take steps to obtain a parent’s income information or, as mentioned previously, can impute an income onto a party. Additionally, if a court believes that a parent has been unreasonable by not disclosing their income, they can order that parent to pay the legal costs that the other parent incurred in seeking disclosure. In extreme cases, a court can hold a parent in contempt of court, which could lead to fines and imprisonment.
How Kirk Montoute Dawson LLP Can Help You Understand How Child Support Works in Alberta
If you have recently separated from your former spouse or are considering what child support could look like post-separation, please contact one of the family law lawyers at Kirk Montoute Dawson LLP for advice or representation. One of our lawyers would be happy to review your specific circumstances and provide you with guidance and next steps based on your individual situation and the child support laws which apply to you.
Written by Kyrie Bouscal