How is income imputed for child support?

By Mercy Afrane

One parent may be required to pay the other child support after a separation or divorce. Both have a legal responsibility to provide financial support to their offspring and judges may refuse to grant a divorce if they are not satisfied that reasonable arrangements have been made for the children.

The amount of support that needs to be paid is determined by looking at either the Federal Child Support Guidelines for those who are married or the Alberta Child Support Guidelines for couples living common law.

In most cases, support is based on income, which can be determined by looking at their annual tax return or the financial records of any corporation they operate. However, in some situations, the parent receiving support may feel the other parent is intentionally unemployed or earning less than they are capable of in order to reduce their obligations.

In those cases, courts can impute or assign income to the under-employed parent. That means that their income will be higher than their tax return reflects, increasing their support obligations.

Until 2022, Alberta was the only province in Canada requiring evidence of an intention to evade or undermine child support obligations before income could be imputed. But in Peters v. Atchooay, the Alberta Court of Appeal set a lower threshold for imputation of income, making it more difficult for parents to avoid paying support that reflects their actual earning potential.

The focus of imputing income for support in Alberta is now based on a reasonableness test, prioritizing the child’s best interests. The burden of proof in imputing income also shifted with that decision. The parent opposing the imputation of income must now prove that their employment circumstances are reasonable.

When income can be imputed

Section 19(1) of the Federal Guidelines sets out a non-exhaustive list of circumstances in which the court may impute income. They include if the spouse:

• is intentionally under-employed or unemployed;
• is exempt from paying federal or provincial income tax;
• lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
• appears to have diverted income that would affect the level of child support;
• is not reasonably utilizing property to generate income;
• has failed to provide income information despite a legal obligation to do so;
• unreasonably deducts expenses from income;
• derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income; and
• is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

Three-part test

Alberta courts must apply a three-part test to determine whether income should be imputed.

1. Is the parent in question intentionally under-employed or unemployed? Did the under-employment or unemployment arise from factors out of that party’s control, such as lay-offs, reduced hours or termination without cause? Even so, “At some point, however, the continued under-employment or unemployment may become unreasonable for purposes of … making imputation of income available.”
2. Do the exceptions listed in section 19(1)(a) of the Federal Child Support Guidelines apply? If the court concludes that a parent’s unemployment or under-employment is voluntary, the next question is to determine if the reasons for that are included in the exceptions set out in Section 19. They are: the needs of a child of the marriage; the needs of any minor child; or the reasonable educational or health needs of the spouse. If the court determines that any of these exceptions apply, then the parent in question will not be considered under-employed or unemployed and income will not be imputed.
3. Should judicial discretion to impute income be exercised? If the under-employment or unemployment arises from voluntary choice and the listed exceptions to imputation do not apply, the court may exercise its mandate to impute income. However, “because this is discretionary, the question of whether to impute income (and if so, how much) involves determining if the voluntary under-employment or unemployment was reasonable, having regard to all the circumstances.”

Determining imputed income

The Peters judgment gives a “non-exhaustive list of principles” to guide the determination of whether to impute income. They include:

• Parents have a duty to seek employment if they are healthy and can work. Limited work experience or job skills do not justify a failure to pursue lower-skilled employment or employment in which the necessary skills can be learned on the job. “Parents cannot refuse to take reasonable steps to support their children simply because they cannot obtain interesting or highly paid employment. Nor can a high-earning or highly skilled parent refuse employment indefinitely by holding out for employment commensurate with their skills and previous level of earning, job title or seniority.”
• When determining whether to impute income on the basis of under-employment or unemployment, a court must consider what is reasonable in the circumstances. “Earning capacity is determined based on factors like age, education, experience, skills, and health of the payor, along with availability of work, the freedom to relocate, and other obligations.”
• A parent is required to act in a manner reflective of their parental obligations and cannot be excused from support obligations in furtherance of unrealistic, unproductive or non-remunerative career aspirations. “Parental self-fulfillment is a consideration but does not trump child support requirements.”
• The parties’ pre-separation agreements or social contracts have some weight in determining imputed income but are not determinative.
• Reasonableness is not fixed in time. The level of support that is reasonable at one point in time “will not necessarily remain static for the entire time the children are owed support.”
• The onus is on the party opposing imputation to prove on a balance of probabilities that their under-employment or unemployment was not voluntary, or that it is as a result of one of the listed exceptions.

Some leeway is given

Alberta allows parents to choose a reasonable career option that may not always provide the greatest income. As the Peters judgment notes, “Some leeway must be given to a parent to organize [their] working life in a way that promotes [their] own self-actualization. On the other hand, a parent must weigh in the balance [their] obligations to support a child and cannot unfairly disregard the needs of a child.”

Let’s say a parent has a high-paying job that requires them to travel extensively. In the interest of spending more time with their children, they could decide to take a lower-paid position that allows them to stay at home. The level of support they could pay would fall, but as long as that support was still “reasonable” in terms of supporting their children, they should be exempt from income imputing.

Information needed to calculate income

According to the federal government, the following information may be required to calculate income when it comes to determining child support, depending on the circumstances:

• Income tax returns and notices of assessment for each of the three most recent tax years.
• Recent statements of earnings or a letter from an employer stating their salary or wages.
• Financial statements for those who are self-employed or who control a corporation.
• Employment Insurance income.
• Workers’ Compensation or disability income.
• Any income social or public assistance programs.
• Copies of any applicable trust settlement agreements, along with the trust’s three most recent financial statements.
• Information about a corporation’s pre-tax income if they are a shareholder, officer or controller of a corporation.

Contact us for information

The team at Demas Schaefer Family Lawyers provides a full range of family law services including legal assistance to spouses and common-law partners during separation and divorce. Our lawyers have extensive knowledge of the legal process when it comes to child support and the imputing of income. Residents of northern Alberta can contact us for a free consultation.