Obtaining Reliable and Repeatable SSAG Calculations

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2. GATHERING INFORMATION

The accuracy and repeatability of the results returned by Spousal Support Advisory Guidelines software depend on:

1. a sound understanding of the different information required by the Advisory Guidelines formulas;
2. making careful and defensible decisions about the data entered into the Advisory Guidelines software; and,
3. accurately interpreting and inputting that data into the software.

Negligible errors will generally have a correspondingly negligible impact on the formula calculations. More significant discrepancies will arise from the gross under- or overstatement of a party’s income and, in more subtle ways, from the mischaracterization of a party’s income or the attribution of inapplicable tax benefits or credits to a party.^[6] Although careful use of the Advisory Guidelines software will go some way to addressing these concerns, a working knowledge of the various benefits, credits and deductions available to parents and the calculation of income under the Child Support Guidelines is essential.

This chapter will discuss the collection of information for the Advisory Guidelines formulas, including the calculation of income. As these data are essential to the results returned by the Advisory Guidelines software, counsel should consider canvassing problem areas with each other before contested court appearances and attempting to reach some consensus.^[7]

2.1 Calculation of Time

Apart from information about the parties’ incomes, the minimum data required by the Advisory Guidelines are the length of the parties’ relationship and the age of the recipient at separation. The with child support formulas will additionally require information concerning: the ages of the children, to calculate the tax benefits, credits and deductions available to the parties; the length of time until the youngest child starts full-time school; and, the length of time until the youngest or last child leaves school.

2.1.1 Length of Relationship

The information required is the length of the parties’ relationship from the date of marriage to the date of separation plus the length of any period of cohabitation prior to marriage. Prior periods of cohabitation should be included only if the cohabiting relationship was marriage-like or conjugal in nature. SSAG §3.3.5

Length of relationship may be expressed in whole years, in half-years or in smaller fractions. In most cases, the difference in calculations based on whole numbers versus fractions will be negligible. When calculating time in whole years, round down at fractions of six months or less and round up at fractions of seven months or more.

2.1.2 Age of Recipient

The information required is the age of the recipient at the date of separation. SSAG §7.1

Age may be expressed in whole years, in half-years or in smaller fractions. In most cases, the difference in calculations based on whole numbers versus fractions will be negligible. When calculating time in whole years, round down at fractions of six months or less and round up at fractions of seven months or more.

2.1.3 Age of Children

The information required is the ages of the children of the marriage,^[8] expressed in whole years, as of the date of the determination of spousal support.

The age of each child is important for the determination of net income under the with child support formulas as entitlement to the various tax credits, benefits and deductions terminates at different ages.^[9]

2.1.4 Youngest Child’s Entry into School

The information required is the number of years until the youngest child enters full-time school, expressed in whole years, as of the date of the determination of spousal support. SSAG §8.5.3

Depending on the particular regulations of the local school district, full-time school may begin in Kindergarten or Grade One. Entry into full-time school may be delayed for children born late in the year, usually in September or later months.

2.1.5 Youngest or Last Child’s Exit from School

The information required is the number of years until the youngest or last child finishes high school, assuming the child follows the local school district’s standard course of study and graduates with his or her present cohort. SSAG §8.5.3

Children who have skipped one or more grades or who drop out may finish school early; likewise the finish date may be delayed for children who have repeated one or more grades or taken extended absences from school.

2.2 Income

The Advisory Guidelines formulas use three calculations of income: gross income, largely income as determined using the Child Support Guidelines; net income, calculated taking into account income taxes and certain payroll deductions against gross income; and, individual net disposable income, net income calculated taking into account any available tax deductions, benefits and credits, the notional and actual amounts of child support paid, as well as the tax consequences of the payment and receipt of spousal support. The relevant time for the determination of income is the date of the initial spousal support decision, unless there has been a long period of separation before the initial order or agreement or there has been a significant post-separation increase in the payor’s income.^[10] SSAG §6.7

Counsel must enter each party’s income (generally the income reported by the party in his her most recent T1 General Income Tax and Benefit Return,^[11] subject to a number of exceptions to be discussed shortly) into the Advisory Guidelines software, making the adjustments permitted under the Child Support Guidelines, including the imputation of income where appropriate. The software may prompt for some or all of the adjustments allowed by the Child Support Guidelines and counsel must know which adjustments are appropriate in the circumstances of each case.

The Advisory Guidelines software will calculate net income and individual net disposable income based on the income information input by counsel, subject to any additional information the software may require about the tax deductions, credits and benefits available to the parties.^[12]

2.2.1 Gross Income

Gross income is calculated using the sources of income and the adjustments to income prescribed by the Child Support Guidelines at ss. 15 to 20 and Schedule III. The Guidelines’ starting point is the general rule that a party’s income for child support purposes is the party’s aggregate income from all sources listed under the heading Total Income in the T1 General Income Tax and Benefit Return, as reported at Line 150 and adjusted under Schedule III. CSG s. 16

Great care must be taken in entering a party’s income into the Advisory Guidelines software as the Line 150 sources of income variously:

1. invoke different statutory deductions, such as employment income which is subject to the deduction of Employment Insurance premiums and Canada Pension Plan or Quebec Pension Plans contributions, self-employment income from which no EI premiums are paid but is subject to twice the standard rate of CPP/QPP contributions, and “other” income which is subject to no deductions at all;
2. require different tax treatments, such as income reported in gross amounts (employment income, most notably), income reported net of expenses (as is the case for rental income and partnership income), income which is grossed up for tax purposes (dividend income) and income of which only the taxable portion is reported (capital gain income); and,
3. demand differing degrees of scrutiny, especially where income is reported net of expenses and those expenses are wholly or partially discretionary, such as self-employment income and rental income.

Income Adjustments under the Child Support Guidelines

After each party’s income from all Line 150 income sources has been entered into the Advisory Guidelines software, counsel should apply any relevant adjustments required by Schedule III of the Child Support Guidelines. The most common adjustments are these:

• s. 1 allows the deduction of certain employment expenses from a party’s income, including (d) sales expenses, (f) travel expenses, (f.1) motor vehicle travel expenses, (g) dues and (h) motor vehicle costs;

• s. 3.1 requires that any Universal Child Care Benefits be excluded from a party’s income;

  NOTE: UCCB is excluded from a party’s income for the purposes of calculating child support, however the Advisory Guidelines require that any UCCB payments relating to children of the marriage be included in a party’s income for the calculation of spousal support. The Advisory Guidelines software should make these distinctions. SSAG §6.4

• s. 4 requires that the potion of any social assistance benefits paid in respect of persons other than the party be excluded from the party’s income;

  NOTE: Although the portion of any social assistance payments relating to a party are to be included in the party’s income for the purposes of calculating child support, the Advisory Guidelines require that all social assistance benefits be excluded from a party’s income for the purposes of the calculation of spousal support. SSAG §6.2

• s. 5 requires the actual amount of dividends received by a party to be included in a party’s income, not the grossed up amount (the grossed up amount is reported as Line 150 income);^[13]

• s. 6 requires the actual amount of capital gains received by a party, net of the actual amount of any capital losses, to be included in a party’s income, not just the taxable portion (only the taxable portion is reported as Line 150 income);^[14]

• s. 8 allows the deduction of carrying charges and interest expenses from a party’s income;

• s. 9 allows sums paid to non-arm’s-length parties or companies to be included in the income of self-employed persons;^[15] and,

• s. 11 requires that capital cost allowance deductions for real property be included in a party’s income.

Once any adjustments under Schedule III have been made, ss. 17 to 20 of the Child Support Guidelines allow for the further refinement of a party’s income. Many of these additional adjustments are discretionary and will require the prior agreement of the parties or the direction of the court:

• s. 17(1) allows a party’s income to be calculated as the average of his or her income over the three most recent tax years, rather than be fixed as the party’s current income, where the party’s income fluctuates from year to year or includes non-recurring income;

• s. 17(2) gives the court the discretion to discount non-recurring losses, or ignore them altogether, in determining a party’s income;

• s. 18(1) allows the court to adjust a party’s income where his or her reported income does not reflect all of the income available from the corporation, and to include in the party’s income the corporation’s pre-tax income or an amount commensurate with the value of the party’s services to the corporation;

• s. 18(2) allows the court to include some or all payments made to non-arm’s-length entities in a party’s corporate income;

• s. 19(1) allows the court to impute income to a party in a number of circumstances, including where (a) a party is intentionally underemployed or unemployed, (b) the party is exempt from paying federal or provincial income taxes or both, (c) the party lives in a country with lower effective tax rates than those prevailing in Canada, (e) the party’s property is not reasonably used to general income, (g) the party unreasonably deducts expenses from his or her income,^[16] or (h) a significant portion of the party’s income derives from untaxed sources or sources taxed at a lower rate than employment income; and,

• s. 20 requires the income of non-residents to be calculated as though the party were a resident of Canada.

Averaging Income

The income averaging provisions of the Child Support Guidelines apply to the determination of income under the Advisory Guidelines for both the payor and the recipient of spousal support. Under s. 17(1) of the Guidelines, the income of a party with a fluctuating income (such as a realtor, farmer or commissioned salesperson)^[17] or a party who is in receipt of non-recurring income (such as from a severance payment or bonus, or the exercise of stock options)^[18] may be determined in light of the party’s income over the previous three years.^[19]

Imputing Income

The income imputing provisions of the Child Support Guidelines also apply to the determination of income under the Advisory Guidelines, and are perhaps more important in spousal support cases than in child support cases as income can also be imputed to the recipient of spousal support to address self-sufficiency issues. SSAG §§6.1, 13.2

Section 19(1) provides a list of the circumstances in which income can be imputed to a party, including in circumstances in which a party chooses to earn less than he or she is capable of earning or refuses work when capable of working,^[20] a party unreasonably deducts expenses from his or her income,^[21] a party fails to reasonably use property to generate income^[22] or a party has income which is taxed at a lower rate than employment income.^[23] The factors itemized in s. 19(1) are not exhaustive, and income has been imputed based on other factors such as lifestyle or career choice, earning history and the availability of student loans.^[24]

Non-Taxable Income

As one specific example of imputing income, non-taxable income (for example, the income of aboriginal persons earned on reserve and disability benefit income) may be grossed-up for the calculation of spousal support under the without child support formula as it is grossed up for the calculation of child support under the Child Support Guidelines. A party’s grossed-up income is the amount of gross, taxable income the party would be required to earn in order to have an income net of taxes equivalent to the non-taxable income. CSG s. 19(1)(b); SSAG §6.6

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