Spousal Support Advisory Guidelines July 2008

6. INCOME

The accurate determination of spousal incomes is critical to the proper application of the Advisory Guidelines. The Advisory Guidelines do not, and cannot, solve the complex issues of income determination that can arise in cases involving self-employment income and various forms of non-employment income. In the majority of cases, income issues are relatively straightforward and any disputes are limited in scope. Because the Advisory Guidelines generate ranges, and not specific amounts, absolute precision in the determination of income may not be as crucial as under the Federal Child Support Guidelines.

6.1 The Starting Point for Income Determination

The starting point for the determination of income under the Spousal Support Advisory Guidelines is the definition of income under the Federal Child Support Guidelines.

The Federal Child Support Guidelines provide an expansive definition of "income" for child support purposes, one that reflects and clarifies much of the pre-Guidelines law on income determination. Sections 15 to 20 of the Child Support Guidelines, along with Schedule III, create a framework for income determination. Prior to the release of the Spousal Support Advisory Guidelines, most courts used the same definition of income for both child support and spousal support purposes and that practise has continued since January 2005.

The Child Support Guidelines use a "gross" income measure, income before taxes and other deductions. This same gross income provides the basis for the calculations under all the formulas found in the Spousal Support Advisory Guidelines.

Some of the technicalities of Schedule III are sometimes forgotten in spousal cases. The income imputing provisions of section 19 are, if anything, even more important than in child support cases. In every spousal support case, two incomes are in issue. Income may need to be imputed to a payor spouse, but in addition a spousal support case may also require that an income be imputed to the recipient spouse, because of self-sufficiency issues. In these cases, income is imputed to the recipient under s. 19(1)(a), for under/unemployment. These imputing issues are considered at greater length in Chapter 13 on Self-sufficiency.

There are a few distinctive income issues that do arise in the spousal support context, addressed below.

6.2 Social Assistance Is Not "Income"

Under s. 4 of Schedule III to the Federal Child Support Guidelines, social assistance is treated as income, but only "the amount attributable to the spouse". This adjustment is required as social assistance is included in line 150 income. For spousal support purposes, any social assistance received by the recipient spouse has traditionally not been viewed as income, so that a recipient relying entirely on social assistance would be treated as person with zero income.[58] Turning to the payor spouse, a payor who receives social assistance is by definition unable to support himself or herself and thus has no ability to pay.[59]

For purposes of the Advisory Guidelines, section 4 of Schedule III does not apply. No amount of social assistance should be treated as income, for either the recipient or the payor.

6.3 The Child Tax Benefit and Other Child Benefits

Under the with child support formula, included in each spouse’s income are the amounts identified for various child-related government benefits and refundable credits: the Canadian Child Tax Benefit, the National Child Benefit Supplement, the GST credit (including any portion for the children), the refundable medical expense credit, the Child Disability Benefit, and the various provincial benefit and credit schemes.

Under the Federal Child Support Guidelines, these benefits and credits are not treated as income for table amount purposes: see note 6 to Schedule I. There is some controversy about their consideration for section 7 purposes, or for the determination of undue hardship under section 10, with a number of judges now including them.[60]

For lower-income custodial parents, typically the support recipients, these amounts are significant. As for payors, only low-income spouses obtain any of these, basically the GST Credit, and most of these low-income spouses will not be paying spousal support. In some circumstances, the custodial parent and recipient of these benefits and credits will also be the payor of spousal support.

We did consider backing out the child portion of these benefits, since the bulk of the benefits and credits are tied to the children of the marriage in the recipient spouse’s care, e.g. the Child Tax Benefit, the child portion of the GST Credit, and the various provincial programs. The logic of doing so would be similar to that applied in respect of the spouses’ child support obligations, i.e. to get at the remaining net disposable income available to the spouses as individuals.

In the end, we decided to include these child-related benefits in income under the with child support formula, for three reasons.

First, these benefits and credits reduce, sometimes dramatically, with increasing amounts of spousal support transferred to the recipient spouse, especially through the lower and middle income brackets. Including these benefits and credits in the recipient’s income gives a much clearer picture of the impact of spousal support upon the recipient’s actual net disposable income. Second, some fine lines would have to be drawn between child- and non-child related portions of these benefits and credits. A precise disentanglement would be complicated and for little practical gain. Third, for lower income recipient spouses, these amounts are sizeable, more than $7,000-$8,000 annually for two children. Their removal would produce significantly higher amounts of spousal support, which would cause significant hardship for payor spouses, especially those with lower incomes, unless the formula percentages were adjusted.

6.4 The Universal Child Care Benefit (UCCB)

The Universal Child Care Benefit (UCCB) came into effect in July 2006, after the release of the Spousal Support Advisory Guidelines. Under the UCCB, parents receive a taxable benefit of $100 per month for each child under the age of 6. For a custodial parent, the UCCB provides an additional source of taxable income, included in line 150 income.

The UCCB required amendments to the Federal Child Support Guidelines, effective March 22, 2007 (SOR/2007-59). The UCCB is not included in income for table amount purposes, under s. 3 of Schedule III. By reason of a new s. 3.1, the UCCB is included in parental incomes for purposes of section 7 expense sharing, but only for those children for whom section 7 expenses are requested. Any UCCB for another child is not to be included in a parent’s income. The UCCB is also considered as income for section 10 undue hardship calculations.

Consistent with our treatment of the Child Tax Benefit under the with child support formula, the UCCB for a child who is a child of the marriage will also be included in the income of the custodial parent in determining spousal support.

6.5 Benefits for Children Other Than Children of the Marriage

Spouses may be receiving child-related benefits for children other than "children of the marriage", children of prior or subsequent relationships. Under the Federal Child Support Guidelines, these benefits are generally not treated as part of income for child support purposes at all, thus avoiding the issue. With the 2007 UCCB amendments, section 3.1(b) specifically does exclude any UCCB for a child for whom a section 7 expense is not requested.

Under the with child support formulas in the Advisory Guidelines, these benefits are included for "children of the marriage", for the reasons explained above.

Child-related benefits received by a spouse for children other than "children of the marriage" should not be included in income for spousal support purposes, under either formula.

This is consistent with our general approach to child support obligations towards other children, discussed at greater length below in Chapter 12 on Exceptions. As the exclusion of these benefits for other children is consistent with the definition of income under the Federal Child Support Guidelines, no further adjustments need to be made to income under the Spousal Support Advisory Guidelines.

6.6 Non-Taxable Incomes

There are a number of sources of income that are received on a non-taxable basis, most commonly some disability payments, workers’ compensation, and income of aboriginal persons earned on reserve. For child support purposes, this income has to be "grossed up" to approximate the equivalent taxable employment income, under s. 19(1)(b). For spousal support purposes, the same grossing-up is required by the without child support formula, while the net or non-taxable amount can be used for the basic with child support formula.

A complication does arise in the spousal support setting, as spousal support is deductible for the payor and taxable for the recipient. The Advisory Guidelines formulas generate "gross" amounts of spousal support on the assumption that the payor will be able to deduct the support and the recipient will pay tax upon it. What if the payor spouse has only non-taxable income, so that he or she cannot get the benefit of the tax deductibility?

If the payor receives a mix of taxable and non-taxable income, then the payor can get the full benefit of the deduction so long as the spousal support paid is less than the taxable portion of his or her income. The problem only arises where that is not the case, where the payor’s income is entirely from non-taxable sources. To be clear, we are speaking here only of income sources that are legitimately non-taxable, as opposed to income illegally earned "under the table" and hence not taxed.

In our view, where a payor spouse has an income entirely or mostly from legitimately non-taxable sources, then an exception must be created, under both formulas, to take into account the reduced ability to pay of the payor spouse, who can’t deduct the support paid, and the needs or loss of the recipient spouse, who still has to pay taxes on spousal support and only receives after-tax support. This exception is discussed in more detail in Chapter 12.

6.7 Time for Determining Income

The proper time for determining income under the Advisory Guidelines is both a theoretical and a practical issue. Spousal incomes will inevitably change between the date of separation and the date when interim matters are resolved, and then again by the date of the trial or trial settlement. In Chapter 14, we consider the difficulties that can arise when the payor’s income increases, or the recipient’s income decreases, at the stage of variation and review. Here we focus upon income determination at the interim and initial stages.

The without child support formula gives theoretical emphasis to the marital standard of living, as measured by the spouses’ incomes at or near the date of separation. The marital standard of living during cohabitation ought not be affected by a substantial post-separation increase in the payor’s income. The with child support formula is not tied so tightly to living standards and incomes at separation, as ability to pay issues loom larger where both child and spousal support have to be paid. Under both formulas post-separation increases in the recipient’s income are relevant given the obligation to pursue self-sufficiency.

The "timing" issue often proves to be a minor one, as not much time passes between separation and interim arrangements, and not much more to the initial divorce order. More importantly, payor incomes do not usually increase that much in the intervening period. Further, where income must be determined for both child support and spousal support, there are practical pressures to use the same income for both purposes, in the interests of simplicity and consistency. The formulas provide ranges for amount, and adjustments can be made through selecting a particular amount within the ranges. Finally, we do not wish to create an unduly technical approach that might encourage litigation over income issues.

The Advisory Guidelines start from the practical position that the relevant time for determining the incomes of the spouses is the date of the hearing or the date of the agreement, at both interim and initial stages.

There will be two situations where there may need to be some adjustment to this general approach:

In these situations, it may be necessary to look more closely at the post-separation income changes, applying the principles set out in Chapter 14.