If you are applying for child support, spousal support, or both, one of the most important pieces of information you need is the other party’s income.
Sometimes that is easy. Often, it is not. You may not have access to the other party’s tax returns. You may not know what they are currently earning. And even if you do have their tax returns, the income shown on the return may not necessarily be the income that should be used to calculate support.
The Court recognizes this problem and has processes designed to help obtain the financial information needed to determine support.
Both Alberta courts have a formal process for requiring the other party to provide financial information.
Court of King’s Bench: The process uses a Notice to Disclose Financial Information.
Alberta Court of Justice: The document is called a Request for Financial Information.
Although the forms and procedures are different, the basic idea is the same: the other party is served with a standardized list of financial documents that they are required to provide.
Those documents are intended to give us a reasonably clear picture of the other party’s income and financial circumstances. That gives us the information we need to begin determining the appropriate amount of child support, spousal support, or both.
For someone who earns a regular salary from an employer, determining income can sometimes be relatively straightforward.
But a tax return does not always tell the whole story. This is particularly important when the other party is self-employed, operates their own business, or owns or controls a corporation.
Income for tax purposes and income for support purposes are not necessarily the same thing.
A business owner may deduct expenses when calculating their income for tax purposes. Those deductions can make their taxable income appear significantly lower.
Some of those expenses may be entirely legitimate. But the fact that an expense is deductible for income tax purposes does not necessarily mean that it should reduce the person’s income for support purposes.
The child support rules specifically recognize this distinction. For example, when considering whether an expense deduction is reasonable for the purpose of imputing income, the Federal Child Support Guidelines provide that reasonableness is not determined solely by whether the deduction is permitted under the Income Tax Act.
You can read the Federal Child Support Guidelines here.
In some situations, the burden is also placed on the business owner to justify amounts that have reduced the income available for support. For example, Schedule III of the Federal Child Support Guidelines deals with certain payments made to non-arm’s-length persons when calculating net self-employment income. Those amounts are included back in income unless the spouse establishes that the payments were necessary to earn the self-employment income and were reasonable in the circumstances.
Read Schedule III of the Federal Child Support Guidelines.
An incorporated business creates another potential complication. The corporation may earn substantial income without paying all of that income to the owner personally.
If we looked only at the owner’s personal tax return, their income might therefore appear surprisingly low. That does not necessarily mean that the Court will use that lower number for support purposes.
Section 18 of the Federal Child Support Guidelines specifically addresses shareholders, directors and officers of corporations. Where the income determined from the individual’s personal income does not fairly reflect all of the money available to that person for the payment of child support, the Court may, depending on the circumstances, include all or part of the corporation’s pre-tax income or an amount reflecting the services the person provides to the corporation.
Read section 18 of the Federal Child Support Guidelines.
Section 18 also addresses certain salaries, wages, management fees, payments or benefits paid by the corporation to non-arm’s-length persons. Those amounts are generally added back to the corporation’s pre-tax income for this analysis unless the spouse establishes that the payments were reasonable in the circumstances.
When determining child or spousal support, the question is not always simply: “What income did they report on their tax return?”
The more important question may be: “What is their actual income for support purposes?”
The Court’s financial disclosure processes are designed to help answer that question. If tax returns are unavailable, there is a process for obtaining financial disclosure. If the other party is self-employed, their reported taxable income may require further analysis. If business expenses have reduced their income, those expenses may need to be examined. And if the other party controls a corporation, the corporation’s finances may also become relevant.
The goal is to obtain a sufficiently complete picture of the other party’s financial circumstances so that child support and spousal support can be determined using the appropriate income.
This article provides general information about Alberta family law and is not legal advice. The disclosure required and the way income is determined will depend on the circumstances of each case.