What’s involved with Child Support in Canada?
Parents are responsible to provide for their children’s financial needs. When parents separate or divorce that obligation remains and the federal and provincial governments have passed legislation and regulations that structure and enforce the payment of child support. The Federal and Ontario governments have enacted virtually identical Child Support Guidelines. These are a mandatory scheme to calculate and impose the payment of child support. The federal version only applies to couples who have been married and are seeking a divorce or are already divorced. The provincial version applies to unmarried couples or those who are separating but choose not to divorce. The Child Support Guidelines were designed based on typical spending patterns in Canadian families. They set fixed amounts of child support for all families at comparable income levels. In most cases the amount of child support is not tailor- made to the particular situation of individual families.
There are two components to child support in most cases:
- The monthly payment: It is assumed that the children’s primary caregiver will contribute financially to the children’s needs simply because they live together. The non residential parent is required to pay a fixed amount of child support based on his or her income and the number of children. These amounts are set out in Tables which are part of the Guidelines. The non-residential parent is required to pay the Table amount monthly and it is adjusted annually, up or down, depending on the payor’s most current income. The Table amount is an after tax figure. That means that the recipient parent is not required to pay tax on the support and the payor parent does not receive any tax break for paying the support.
- Special and Extraordinary Expenses: The Table amount is meant to cover a child’s regular expenses including housing, the need for a family car or other transportation, clothing, food, regular activities such as house league sports or music lessons, pocket money and so on. Children may have special and extraordinary expenses beyond these which are dealt with under s. 7 of the Guidelines. They are often referred to as “s. 7 expenses” and they may include private school, extraordinary extra- curricular expenses, medical and dental expenses, child care and post-secondary expenses. These expenses are to be shared by both parents in proportion to their respective incomes.
If the children share their time between the two parents’ homes so that they are not with either parent more than 60% of the time there is no primary residential parent. In that case, there is discretion in calculating the monthly payment. The Guidelines require consideration of the Table amount that each parent would owe the other if the children did have a primary residence and also consideration of the children’s expenses, and the financial circumstances of both parents and the children. Special and extraordinary expenses are still shared by the parents in proportion to their incomes in these cases.
If a parent has a very high income the monthly Table amount may be reduced. The Guidelines state that this may happen if the income is over $150,000/year but effectively there will not be an adjustment unless the payor parent’s income exceeds $1,000,000/year.
If the payor parent’s household has less income per capita than the recipient parent’s household then it may be possible to seek a reduction in the child support owing based on a claim of undue hardship. The Guidelines have a specific formula to calculate these household income ratios.
Guidelines child support payments are based on income levels. This is quite straightforward for a parent who is a salaried employee. The Tables were designed based on the incomes of salaried employees. Applying them to self-employed parents or those whose income is derived from dividends, capital gains, share options or even bonus income is more complicated. The starting place is always the parent’s personal income tax return but income for child support purposes is not identical to the way income is calculated by the Canada Revenue Agency. For child support purposes the parent’s income must be adjusted to the equivalent of a salaried employee. It is also possible to impute income to a parent who may be under employed or hiding income to avoid support obligations. The calculation of income may be sufficiently complex that the parents require the advice and assistance of accountants or certified business valuators.
None of this can happen without financial disclosure. Both parents will need to produce their personal tax returns for at least the preceding three years, financial statements for any companies that they control, corporate tax returns, and any other documents or information that is needed to calculate the income for child support purposes. The parents will be required to continue to make this disclosure annually as long as child support is payable.
If a parent has paid less support than the Guidelines required it is possible that he or she may be required to make a retroactive child support payment to catch up on the shortfall. Whether such a payment is required depends on a number of discretionary factors. To avoid such a situation it is better to make disclosure on a regular basis and adjust the child support annually.
Child support is payable as long as the children are dependant. This at least includes a first university degree or college diploma in most cases and may extend beyond that if a child pursues further education or has special health or educational needs. The obligation to support a child who is unable to become independent because of a physical or mental disability could potentially be lifelong, although the child’s own financial resources including provincial disability pensions will be taken into account.