Imputing Income Part I

A General Overview

By Danielle Sawh

Why is Income Important?

The amount of child and/or spousal support that is owed by a support payor is determined by the payor’s income. The starting point for determining that income is Line 150 of the payor’s T1 Income Tax Return. However, in some cases, this may not be the fairest picture of a payor’s income for support purposes.

What is “Imputing Income”?

Section 19 of the Child Support Guidelines gives the Court permission to impute income to a payor in order to calculate the amount of support owing. “Imputing” income is another way of saying “assigning” or “attributing” income to a person, whether or not the person is actually earning this amount of money.

Under Section 19, the Court may impute income in the following circumstances:

(a) the parent or spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of any child or by the reasonable educational or health needs of the parent or spouse;

(b) the parent or spouse is exempt from paying federal or provincial income tax;

(c) the parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;

(d) it appears that income has been diverted which would affect the level of child support to be determined under these guidelines;

(e) the parent’s or spouse’s property is not reasonably utilized to generate income;

(f) the parent or spouse has failed to provide income information when under a legal obligation to do so;

(g) the parent or spouse unreasonably deducts expenses from income;

(h) the parent or spouse 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 or that are exempt from tax; and

(i) the parent or spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

This list is not exhaustive. A Court has the authority to impute income “as it considers appropriate in the circumstances”. For example, the Court may impute income to a party under Section 19(a) if the party engages in reckless behaviour or professional misconduct which affects their income-earning capacity (Rose v Prill, 2024 ONSC 4210).

Some other common examples that are not seen in the list above are: a party who receives regular gifts from their parent; a party who received a personal benefit from a third party in lieu of charging the third party for their services; and a party who has a client or corporation pay personal expenses of that party that are not business-related.

The courts apply the same principles in determining whether to impute income in both child support and spousal support cases. In spousal support cases, the recipient’s income is a factor in determining the amount of support paid and the Court’s ability to impute income applies equally to the payor and the recipient spouse (AE v AE, 2021 ONSC 8189).

If a Court decides to impute income, the Court will also decide whether to apply a gross-up to that imputed income to take into account any tax advantage the party may have received by organizing their finances in the manner they did. This gross-up is intended to place the party on the same footing as a salaried employee and to remain consistent with the Guidelines objective of ensuring consistent treatment of spouses and children in similar circumstances (AE v AE, 2021 ONSC 8189).

Who Must Prove Income?

The party who is asking the Court to impute income has the burden of establishing an evidentiary basis to support an imputation of income. Once that party produces their evidence at trial, the burden shifts to the other party to satisfy the Court of their income level, and to prove that income should not be imputed to them (AE v AE, 2021 ONSC 8189).

The courts have held that every party in a support case must disclose the evidence necessary to allow the other party and the court to undertake a proper assessment of their income for support purposes. The party whose income is in question cannot simply make bald assertions regarding their income – they have an obligation to proactively disclose evidence regarding their income, including evidence supporting their claim that income should not be imputed to them. If the party whose income is in question does not disclose information in response to reasonable questions raised by the other party, the trial judge may draw an adverse inference against them and may impute income on the basis of the party’s failure to provide this information (AE v AE, 2021 ONSC 8189). The Court may infer that the failure of the payor to properly disclose mitigates the obligation of the recipient to provide an evidentiary basis to impute income (Rose v Prill, 2024 ONSC 4210).

How Does the Court Decide?

The amount of income that the Court decides to impute to a party is discretionary and dependent on the facts of the case. The Court must choose a figure that is rational and reasonable based on the evidence before it and ultimately must make a decision that is consistent with the Guidelines objectives of establishing fair support based on the financial means of the parties in an objective manner that reduces conflict, ensures consistency, and encourages resolution.

There is a wealth of case law addressing specific scenarios in which a Court has imputed income for the purposes of determining support. Stay tuned for future articles exploring a variety of these cases.

If you have any questions regarding income or support, please contact Danielle Sawh at dsawh@sorbaralaw.com.