“In a series of decisions, judges of the Superior Court have ‘grossed up’ a spouse’s income to take account of similar striking differences in tax consequences between salaried employees and persons in receipt of other forms of income: see Orser v. Grant, [2000] O.J. No. 1429 (QL) (S.C.J.); Moran v. Cook (2000), 2000 CanLII 22542 (ON SC), 9 R.F.L. (5th) 352 (Ont. S.C.J.); Sarafinchin v. Sarafinchin (2000), 2000 CanLII 22639 (ON SC), 189 D.L.R. (4th) 741 (Ont. S.C.J.); Manis v. Manis, [2000] O.J. No. 4539 (QL), [2000] O.T.C. 880 (S.C.J.); and Brans v. Brans (2000), 2000 CanLII 22471 (ON SC), 13 R.F.L. (5th) 335 (Ont. S.C.J.).
The leading case is Orser v. Grant in which Benotto J. analyzed the issue in this fashion, at paras. 10-13:
Gross-Up for Tax
Mr. Grant has arranged his financial affairs so that he paid only $7,362.31 in income tax, substantially less than he would pay were he a salaried employee. It means that he enjoys a net income after tax of $55,405.67.
The Child Support Guidelines base support on the payor’s gross taxable income. One of the objectives of the guidelines is to ensure “consistent treatment” of those who are in “similar circumstances”. Thus, there are provisions to impute income where a parent is exempt from paying tax, lives in a lower taxed jurisdiction, or derives income from sources that are taxed at a lower rate.
Where, as here, a parent arranges his or her affairs to pay substantially less tax on income, the income must be grossed up before the table is applied. This is the only way to ensure the consistency mandated by the legislation.
Here, I have been asked to use a 36 [per cent] average tax rate. This is reasonable. If I apply that gross-up to his net after tax income, his gross income would be over $85,000. Thus, Mr. Grant would have to earn this gross amount to net $55,405 for himself. This greater amount is what the table amount of support should be based on.
(Emphasis added)
Benotto J.’s analysis was explicitly adopted by Speigel J. in Moran v. Cook, Sachs J. in Sarafinchin v. Sarafinchin, Lane J. in Manis v. Manis and Greer J. in Brans v. Brans. It was also followed by Rooke J. in Lavoie v. Wills (2000), 2000 ABQB 1014 (CanLII), 13 R.F.L. (5th) 93 (Alta. Q.B.). [page426]
Subject to observing that s. 19 of the Guidelines defines certain specific circumstances in which income may be imputed and sets out the criteria to be metin those circumstances, I agree with the general approach adopted in these cases. Section 1(d) of the Guidelines states that one of the objectives of the Guidelines is “to ensure consistent treatment of spouses and children who are in similar circumstances”. An interpretation of ss. 18 and 19 of the Guidelines that would impute the same income for child support purposes to two parents, one earning a salary of $128,000 and paying tax of $48,000 and the other receiving business income of $128,000 and paying tax of $5,000, would be remarkably out of step with the “consistent treatment” objective of the Guidelines.”