Child Support Guidelines: Imputed Income and Its Implications

What is Imputed Income?

Imputed income refers to attributing income to a parent, usually, the one paying child support, based on their earning capacity rather than their actual income. This concept often comes into play in situations where the parent is believed to be intentionally under-employed or unemployed.

The Statutory Framework for Determining Income

The Federal Child Support Guidelines provide a comprehensive framework for determining a spouse's annual income for child support purposes. The income is generally determined using sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency.

However, the guidelines do not require courts to blindly use the previous year’s total income as reported by the party. The determination can be based on the spouse’s annual income in the past taxation year, the estimated annual income of the current year, or an estimate of probable future income.

Section 17: Patterns of Income

Section 17 of the guidelines allows a court to consider patterns or fluctuations in a spouse’s income over the preceding three years. It permits a court to adjust non-recurring capital or business investment losses, offering a fairer determination of income.

Section 18: Attribution

While the terms "attribution" and "imputation" are often used interchangeably, they hold different meanings in this context. Section 18 of the guidelines allows a court to add all or part of pre-tax corporate income for the most recent taxation year to a spouse’s income. This section is particularly relevant when the spouse manipulates their income through a corporate structure to avoid child support obligations.

Section 19: Imputation

Section 19 sets out circumstances where income may be imputed. These include situations where a spouse is intentionally under-employed or unemployed, or where they divert income that would affect the level of child support.

Intentional Underemployment or Unemployment

Intentional underemployment or unemployment is a common issue that arises in the context of child support. According to section 19 of the Federal Child Support Guidelines, if a spouse is intentionally under-employed or unemployed, the court may impute income to them. The court considers various factors like the needs of a child of the marriage or any child under the age of majority and the reasonable educational or health needs of the spouse.

In the case of unemployment or under-employment the question of “Why aren’t you working?” or “Why aren’t you making more”?, whether asked of one’s own client or the opposite party, will prompt answers from the ridiculous to the tragic. Tendering admissible evidence to establish that the answer being given is in fact reasonable can be a challenge.

The case law on imputed income is rife with judicial comments and findings that the evidence tendered in support of the litigant’s position was wanting. The evidentiary standards applied in family law trial courts may vary. Family law lawyers may hear everything from a tongue in cheek “there are no rules of evidence in family law” to “we relax the rules of evidence in family law” to “the rules of evidence are the same in every courtroom.” Beyond the manner in which the rules of evidence may be applied, there is the perennial challenge of preparing the matrimonial case for negotiation, mediation, arbitration or trial under budgetary constraints.

Diversion of Income and Underutilized Property

The court may also impute income in cases where there is a diversion of income that would affect the level of child support or if the spouse’s property is not reasonably utilized to generate income. For example, if a spouse owns investments that are not earning any income such as vacant land, empty parking lots, or significant savings that are being held in a bank account rather than being invested in a prudent manner, income may be imputed.

The Onus and The Evidence

In a request under section 19 for the imputation of income, the burden of proof lies on the person requesting the imputation. It's their responsibility to provide evidence to justify this request.

When income is imputed, it is a determination of fact, not an estimate or a guess. If a party wishes to challenge the imputation of income in earlier proceedings, they have to provide substantial proof of a change in circumstances.

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