What Financial Documents Can I Ask For?
Section 21 of the Federal Child Support Guidelines outlines the financial obligations of both parents in applications for a child support order. Subsection 21 (1)(d) specifically addresses what self-employed spouses must provide in addition to their personal disclosure obligations.
A spouse who is self-employed must provide the financial statements of their business or professional practice, and a statement showing a breakdown of all salaries, wages, and management fees. They must also account for any payments or benefits paid to individuals or corporations who are not dealt with at arm’s length. A useful guide to dealing “at arm’s length” can be found here.
Common Situations Where Income is Imputed
Tax Deductions
One of the most common situations in which courts will impute income to self-employed spouses is if the spouse unreasonably deducts expenses from their income. Even situations where the deductions are reasonable under the Income Tax Act, they may not be for the purposes of determining support. As such, the court may add those deductions back to your income, and calculate support based on the higher amount. When examining a self-employed spouse’s business expenses, the court will adopt a perspective of balancing the business necessity of the expense against the alternative of using the funds for child support.
Whenever a court “adds back” money to someone’s income, they will also usually “gross up” the amount to reflect the fact that no income taxes was paid on it.
Income Diversion
Another situation in which courts will impute income is when it appears that a spouse has diverted income which would affect the level of child support payable. This might happen where a spouse has diverted part of their income through a professional corporation for tax purposes, or where a self-employed spouse maintains most of their income within the business, and is only paying themselves a nominal salary. If it appears to the court that, by doing so, the spouse’s income is lower when calculating child support, they may impute some of that income back to that spouse.
Failure to Provide Adequate Disclosure
Courts may impute income where it is found that a spouse has failed to provide income information when under a legal obligation to do so. As we discussed earlier, self-employed spouses are under an additional disclosure obligation to provide financial documents related to their business. If the self-employed spouse fails to do so, or provides information that is insufficient to discharge their obligation, the court may impute income to that spouse.