Child Support Guidelines: Does Income Splitting Change Your Income for Child Support Purposes?

• 
  Katrina Wiegers
  Lawyer

For our third week on the child support guidelines series we will be discussing income splitting. We have previously discussed how income over $150,000 and severance packages can impact the guideline amount. This week we will assess how income splitting can impact payors and recipients in Child Support Guidelines: Does Income splitting change your income for child support purposes?

What is Income Splitting?

Income splitting is a financial strategy where an individual distributes their income among family members. This is often done by transferring a portion of income to a spouse or family member in a lower tax bracket, thereby minimizing the total tax liability for the family unit. While income splitting is a common practice in tax planning, it can be scrutinized when determining child support. In these cases, courts may examine whether income splitting is being used to artificially reduce income to lower support obligations.

Issues can arise when a parent remarries or partners with someone else, especially when income splitting is used to reduce the amount of taxable income for the purpose of support payments. Let’s explore two key scenarios: one where the recipient parent re-partners and income splits to reduce taxes, and another where the payor parent does so.

Scenario 1: The Recipient Parent Remarries and Income Splits

When the recipient parent (who receives child support) remarries or cohabits with a new partner, many may assume this will affect the child support amount. However, the law in Ontario is clear: changes in the recipient parent’s living situation, such as remarriage or new employment, generally do not result in a change to the child support amount, as determined by the Child Support Guidelines.

When considering child support for a primary parent even if the recipient parent’s income increases, it does not directly impact the Table amount of child support that the payor parent is required to contribute. However, if there is an increase in the recipient parent’s income, it could

affect the apportioning of Section 7 expenses (extraordinary expenses for the child, such as medical costs or extracurricular activities). These expenses are divided proportionally between the parents based on their incomes.

Thus, while the recipient parent’s new partner may be able to financially support the household, the payor parent remains obligated to pay child support. The courts have held that the presence of a new spouse or partner does not relieve the payor of their responsibility to support their children. This means that child support obligations continue regardless of the recipient parent’s new partner.

Scenario 2: The Payor Parent Remarries and Income Splits

In contrast, a common issue arises when the payor parent (the one making child support payments) remarries and engages in income splitting with their new spouse to reduce their taxable income, ultimately lowering their child support obligations. While income splitting is common for tax purposes, it is not acceptable when it comes to calculating child support obligations.

The courts have consistently looked through these arrangements, especially if it creates hardship for the children or the recipient parent. Income splitting in these cases typically involves the payor transferring or splitting their income with their new spouse to reduce the amount of taxable income they report, thereby reducing the amount of child support they owe.

In the case of Eagle v Eagle (2004), the father attempted to reduce his taxable income by overpaying his new spouse for work performed at his business. The court found this to be income splitting and attributed part of the spouse’s income back to the payor, increasing the amount of child support owed. This case highlights the obligation to support children is not negotiable, and attempts to reduce that support through income splitting will often be scrutinized.

Conclusion

It is clear that there can be different treatment of income splitting by courts where there are different circumstances. To understand how the law applies to your unique circumstance, contact a lawyer at McKenzie Lake Lawyers. It’s important to understand how income splitting could impact your case and to seek professional legal advice to navigate these complexities.

If you require assistance with any Family Law matter, speak to a Family Lawyer at McKenzie Lake Lawyers LLP by calling (519) 672-5666.