Determining Income Under the Federal Child Support Guidelines A Refresher and Consideration of Common Obstacles Vivian Alterman, MBA, CA, CBV Presented For The York Region Law Association May 6, 2011 ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 488 Wellington St. W., Suite 402 Toronto, ON M5V 1E3 t: f: e: w:

Determining Income Under the Guidelines ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 11 Calculation of Annual Income Section 16 – Subject to sections 17 to 20, sources of income (Line 150 of ITA) adjusted by Schedule III

Schedule III Adjustment (Sections 1 to 14) Typical adjustments include: Section 1 - Employment expenses (i.e., dues and other expenses of performing duties) Section 5 - Taxable dividends to actual (eligible vs. non-eligible dividends) Section 6 - Taxable capital gains to actual (net of capital losses realized in that year) – example… ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 22

Schedule III Adjustment (Sections 1 to 14) Typical adjustments include: Section 1 - Employment expenses (i.e., dues and other expenses of performing duties) Section 5 - Taxable dividends to actual (eligible vs. non-eligible dividends) Section 6 - Taxable capital gains to actual (net of capital losses realized in that year) ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 33

Schedule III Adjustment (Sections 6) ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 44

Schedule III Adjustment (Sections 1 to 14) – con’t Adjustments include: Section 8 - Carrying charges (i.e., tax shelter adjustments) Section 9 - Net self-employment income (non-arm’s length payments) Section 11 - Capital cost allowance for property Section 12 – Partnership or sole proprietorship income Section 13 – Employee stock options with a Canadian controlled private corporation (CCPC) ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 55

Modifications By The Court (Section 17) Section 17 (1) - Pattern of income – Non-recurring capital gains, RRSP income? Can you double dip with your child? Section 17 (2) – Non-recurring losses N on-recurring capital or business investment loss ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 66

Modifications By The Court (Section 18) Section 18(1) – Shareholder, director or officer Attribution of corporate pre-tax income What about corporate losses? Treatment of non-December fye? Section 18(2) – Adjustment to corporation’s pre-tax income ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 77

Imputing Income (Section 19) Spouse is intentionally unemployed or underemployed Spouse is tax exempt Non-resident spouse subject to lower tax rates Spouse has diverted income Spouse does not reasonably utilize property to generate income Spouse fails to provide information Spouse unreasonably deducts expenses Spouse earns income from sources taxed at lower rates Spouse is a trust beneficiary ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 88

Non-Resident Spouse (Section 20) When a spouse is a non-resident of Canada, his or her annual income is determined as though he or she were a resident of Canada No specific guidance on how to calculate foreign payor’s income No Line 150 on foreign income tax returns Work with foreign based accountant to identify sources of income (US tax return line 22 subject to adjustments) ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting 99

Non-Resident Spouse (Section 20) Lower or higher tax rates in foreign jurisdiction Determine net disposable income available to payor in foreign country Higher cost of living (i.e., private health costs, property taxes etc.) may impact net disposable income Gross amount up – what would payor have to earn in Canada to net same amount ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting  10

Non-Resident Spouse Income Gross Up Calculation ap Valuations Limited Business Valuations: Litigation Support: Financial Consulting  11

Vivian Alterman, MBA, CA, CBV ap Valuations Limited 488 Wellington St. W., Suite 402 Toronto, ON M5V 1E3 t: f: e: w: