Obtaining Reliable and Repeatable SSAG Calculations

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2. GATHERING INFORMATION (continued)

2.2 Income

2.2.2 Net Income

The Advisory Guidelines use the parties’ individual net disposable incomes to determine the maximum amount payable under the high end of the range of the without child support formula and to determine quantum under most of the with child support formulas. At its simplest, individual net disposable income is the total of a party’s income from all sources less income taxes and mandatory payroll deductions but adjusted to includeany benefits and tax credits available to the party, the payment of actual and notional child support, and the tax consequences of the payment and receipt of spousal support. SSAG §8.3.1

The Advisory Guidelines software will calculate net income based on the data provided by counsel for gross income, subject to a number of important adjustments at counsel’s discretion. As a result, it is critical that the data input to determine gross income are accurate as possible and that counsel are aware of the tax treatment of different kinds of income and the rules governing entitlement to the various tax deductions, benefits and credits.

The following are the general tax and source deduction rules applicable to the most common types of income:

Employment Income:

Employment income is subject to federal and provincial income taxes. The employee’s portion of EI premiums, CPP/QPP contributions and provincial health care premiums will be deducted at source by the employer.

Self-Employment Income:

Self-employment income, net of expenses and other work-related deductions, will be subject to federal and provincial income taxes. EI premiums are not deducted, however the earner must remit both the employee’s and employer’s CPP/QPP contributions, effectively doubling the rate normally payable.

NOTE: The expenses and other deductions which reduce self-employed persons’ taxable incomes should be subject to scrutiny for reasonableness under CSG ss. 18(1), 18(2) and 19(1)(g).

Dividend Income:

Dividend income received from Canadian and foreign companies is taxable. Income tax is payable on the grossed up amount of dividends received from Canadian companies. EI premiums, CPP/QPP contributions and provincial health care premiums are not deducted from dividend income.

NOTE: The actual amount of dividends received by a party is included in a party’s income for the purposes of the Advisory Guidelines, not the grossed up amount. CSG Sch. III, s. 5

Pension Income:

Pension income is received from private pension plans, public pensions such as CPP/QPP and government benefits including Old Age Security payments. Income tax is payable on pension income and is deducted at source. EI premiums, CPP/QPP contributions and provincial health care premiums will not be deducted.

“Other” Income:

Income qualifying as neither employment income nor self-employment income, such as scholarship or gratuity income, will be taxable at the party’s marginal tax rate. EI premiums, CPP/QPP contributions and provincial health care premiums will not be deducted.

As the Advisory Guidelines software will automatically calculate and deduct source deductions from a party’s income, it is important that the party’s income be accurately entered by type of income to ensure that the correct deductions are made.

Tax Deductions

Certain tax deductions may be available to either or both parties which will lower a party’s tax burden, affecting the party’s net disposable income for spousal support purposes:^[25]

Annual Union, Professional or Like Dues (Line 212):

This deduction is provided for in the Child Support Guidelines and should be automatically taken into account by the Advisory Guidelines software. CSG Sch. III, s. 1(g)

NOTE: The deduction of dues under the Child Support Guidelines and the Advisory Guidelines is frequently overlooked.

Child Care Expenses (Line 214):

This deduction is available where a party requires child care for a child under the age of sixteen to earn employment or self-employment income, attend school or carry on grant-funded research. Only the portion of this deduction relating to any children of the marriage should be included in a party’s net income. SSAG §6.3

Support payments (Line 220):

This deduction is available for the purposes of the Advisory Guidelines where a party is under a spousal support obligation from a previous relationship, a situation dealt with as an exception. SSAG §12.3

Carrying Charges and Interest Expenses (Line 221):

This deduction is provided for in the Child Support Guidelines and should be automatically taken into account by the Advisory Guidelines software. CSG Sch. III, s. 8

Certain other deductions should not be taken into account in the determination of income, including:

• Registered pension plan contributions (Line 207)
  

  NOTE: The non-deductibility of pension plan contributions under the Advisory Guidelines is frequently overlooked. SSAG §8.3.1.

• RRSP contributions (Line 208)

Non-Refundable Tax Credits, Income

Certain non-refundable tax credits may be available to either or both parties. The Advisory Guidelines require that all tax credits received in relation to a child of the marriage be reflected in the party’s net income,^[26] affecting the party’s net disposable income for spousal support purposes. These are:^[27]

Spouse Amount (Line 303):

A credit equal to the basic personal credit claimed for a party’s new spouse or common-law partner.

Eligible Dependent Amount (Line 305):

A credit equal to the basic personal credit which can be claimed for one child under the age of eighteen, or older if mentally or physically impaired and living with the party and the party does not have a spouse or does not claim the spouse amount.

Canada Employment Amount (Line 363):

A credit of $1,019 claimed by persons reporting employment income (Line 101) or other employment income (Line 104).

Amount for Children (Line 367):

A credit of $2,038 which can be claimed for each child under the age of eighteen except for any child claimed as an eligible dependent.

Infirm Dependents Amount (Line 306):

A credit of $4,095 which can be claimed for each child who is eighteen or older and mentally or physically impaired.

Disability Amount (Line 316):

A credit of $7,021 which can be claimed by persons who are mentally or physically impaired.

Non-Refundable Tax Credits, Special Expenses

Certain non-refundable tax credits may be available to either or both parties in relation to the children’s expenses.^[28] In the calculation of a party’s individual net disposable income under the Advisory Guidelines, the credits received in relation to a child of the marriage will be applied to reduce the cost of any expenses qualifying as special expenses. (Any tax credits received in connection with expenses not qualifying as special and/or extraordinary expenses should be included in the calculation of a party’s net disposable income in the same manner as the tax credits discussed above.^[29]) These tax credits are:^[30]

Children’s Fitness Amount (Line 365):

A credit of up to $500 per child under the age of sixteen in relation to the registration of the child in an approved program of physical activity.

Disability Amount Transferred from a Dependent (Line 318):

A credit equal to the portion of the $7,021 personal disability amount unused by a disabled dependent.

Tuition Amount Transferred from a Dependent (Line 318):

A credit equal to the portion of the $5,000 personal tuition, education and textbook amount unused by a child.

NOTE: The transfer of this credit is at the election of the child. The amount transferred is the amount remaining after the child’s own tax burden has been reduced to zero and will not likely be calculable in advance of the end of a tax year.

Medical Expenses of Children (Line 330):

A credit for qualifying medical expenses of children under the age of eighteen.

Certain other non-refundable tax credits should not be taken into account in the determination of the cost of a special expense, including the following:

• Public transit amount (Line 364)
• Interest paid on student loans (Line 319)
• Personal tuition amount (Line 323)
• Medical expenses (Lines 330 and 331), where the expenses do not relate to a child of the marriage.
• Donations and gifts (Line 349), including donations made in relation to a child of the marriage.

Refundable Tax Credits

Certain refundable tax credits may be available to decrease a party’s income tax obligation, affecting the party’s net disposable income for spousal support purposes:^[31]

Working Income Tax Benefit (Line 453):

A credit of up to $1,044 available to persons with a dependent spouse or child who earned less than $22,105.^[32] A supplement of $261 is available to persons who also qualify for the personal disability non-refundable tax credit.

Employee GST/HST Rebate (Line 457):

A rebate of GST/HST paid on expenses deducted from employment and self-employment income.

Government Benefits

Certain government benefits may be available to either or both parties. The Advisory Guidelines require that any benefits received in relation to a child of the marriage be included in a party’s net income,^[33] affecting the party’s net disposable income for spousal support purposes. These are:^[34]

Canada Child Tax Benefit:

A non-taxable benefitpaid for all children under the age of eighteen in the amount of $1,307 per child, with an additional $91 paid for the third and each subsequent child. The benefit is phased out by 2% (one child) or 4% (two or more children) of family income above $37,885.

National Child Benefit Supplement:

A non-taxable benefitdirected at low income families, with $2,025 paid for the first child, $1,792 for the second and $1,704 for the third and each subsequent child. The benefit is rapidly phased out for family income above $21,287.

Universal Child Care Benefit:

A taxable benefit paid for all children under the age of six, regardless of family income. UCCB income is not included in the government’s calculation of family income for the purposes of the other child-related benefits.

NOTE: Although UCCB is excluded from a party’s income for the purposes of calculating the table amount of child support, 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

Child Disability Benefit:

A non-taxable benefit paid for children with a severe mental or physical disability in the amount of $2,395 per child. The benefit is phased out by 2% (one child) or 4% (two or more children in receipt of this benefit) of family income above $37,885.

GST/HST Credit:

A non-taxable GST/HST refund in the amount of $242 plus $127 per child under the age of eighteen paid on a quarterly basis. The refund is phased out by 5% of family income above $31,524.

NOTE: All of the GST/HST credit is to be included in party’s income, not just the portion relating to the children of the marriage. SSAG §6.3

Where the parties share the children’s time equally or near-equally and this circumstance comes to the attention of the Canada Revenue Agency, the CRA will rotate the CCTB, UCCB and the child-related portion of the GST/HST Credit between the parents on a six-month basis.^[35]

Other Benefits and Credits

The following general rules can be used to determine how other deductions, benefits and credits, including future federal benefits and current provincial and territorial benefits should be treated for the purpose of calculating a party’s net income under the Advisory Guidelines. SSAG §§6.3, 8.3.1

1. Credits relating to the special and/or extraordinary expenses of the children of the marriage, such as enrolment in sports, arts or music programs, will be applied to reduce the cost of those special expenses in the calculation of a party’s individual net disposable income.^[36]
2. Credits relating to the expenses of the children of the marriage not qualifying as special and/or extraordinary expenses, will be included in the calculation of a party’s individual net disposable income as any other credit.
3. Benefits and credits which result in a party receiving actual income rather than a tax reduction, such as the federal GST/HST credit or British Columbia’s climate action dividend, will be reflected in the party’s income.
4. Only the portion of children’s benefits and credits relating to children of the marriage should be taken into account.

Other Source Deductions

Source deductions in addition to the statutory deductions for income tax, EI premiums, CPP/QPP contributions and provincial health care premiums may be deductible for the purposes of the Advisory Guidelines if the deduction provides a direct benefit to any children of the marriage. Deductions apart from these, even those deductions an employer deems mandatory, will not be deductible under the Advisory Guidelines. SSAG §8.3.1

The following additional deductions will be applicable to the determination of net income under the Advisory Guidelines in the circumstances specified:

Extended health and dental insurance premiums:

Deductible only if the insurance covers the other party and/or a child of the marriage.

Life insurance premiums:

Deductible only if the beneficiary is the other party or a child of the marriage.

The following deductions will not be applicable to the determination of net income under the Advisory Guidelines:

• RESP, RDSP and RRSP contributions
• Pension plan and savings plan contributions
• Employee stock purchase plans
• Garnishments, repayment of loans and advances
• Gym, health club and social club memberships

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