Siskinds Partner Marie Tukara recently argued a motion on how dividend income should be included when calculating income for child support purposes. In this article she outlines the decision and looks at other recent cases on this matter.
In Rawluk-Harness v Harness, 2014 ONSC 2531, which I argued before Justice Mitrow, Justice Mitrow made an Order grossing up the dividend income when determining the income for child support.
This issue arose when I was arguing a motion for interim support in the Superior Court. The parties were married for 9 years and had two children. Both children resided with the mother (my client). The mother asked to increase the child support based on the father’s prior year’s income which was comprised of his dividend income. The husband derived his income from a publishing business, which was incorporated, and paid himself by way of a dividend as opposed to a salary from his corporation which was wholly owned by him.
The actual amount he received was $50,000 but for income tax purposes the taxable dividend was $62,500 which was comprised of the actual dividend and a 25% gross up ($12,500).
The husband was relying on section 5 of the Child Support Guidelines1 to adjust his line 150 income:
Replace the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse.
He wanted the court to include his actual dividend of $50,000 for the purposes of determining his child support obligation.
I asked the court to use a higher amount of income to determine support by asking the court to impute income specifically by way of section 19(1)(h) of the Child Support Guidelines.
Section 19 states that a court may impute income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:
“(h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax.”
Essentially by paying himself by way of a dividend he was getting a tax savings and if he had paid himself a salary to get the $50,000.00 he wanted he would have had to pay himself a higher salary.
Justice Mitrow reviewed sections 18 and 19(1)(h) of the Guidelines and the Court of Appeal decision in Riel v Holland2 and relied on the analysis in Austin v Austin3, that after applying section 5 of schedule III of the Guidelines in those cases where the corporation is wholly owned by the payor it is appropriate to adjust the payor’s income by applying a second step by applying section 19(1)(h). Justice Mitrow did state that this could be accomplished by including in the payor’s income the full amount of the taxable dividend rather than the actual dividend received. In this case I used a DIVORCEmate calculation to determine the gross up pursuant to section 19(1)(h) which amounted to $9250.00 which would then be added to his actual dividend of $50,000 but he also had a small amount of self- employment income rounded to $425.00 so the annual income for child support was $59,945.00. My client could not afford to engage a professional to calculate the tax savings and Justice Mitrow accepted the calculation I produced as it was in the range.
1 O Reg 391/97, Child Support Guidelines
2Riel v Holland, 2003 CanLII 3433 (ONCA)
3Austin v Austin, 2007 CanLII 46719 (ONSC)