“In quantifying retroactive spousal support, the ranges of support generated by the SSAGs have to be adjusted to account for the fact that the ranges are based on a payor making periodic payments that are presumed to be taxable in the hands of the recipient and tax deductible by the payor.
In Vanasse v. Seguin, 2008 CanLII 35922 (ON SC), [2008] O.J. No. 2832 (Ont. S.C.) [Vanasse], the court reduced the amount of retroactive spousal support owed by 30% as it would not be taxable in the recipient’s hands. Similarly, in Bargout v. Bargout, 2013 ONSC 29, 35 R.F.L. (7th) 391 [Bargout], the court followed the approach in Vanasse and reduced the retroactive amount found owing by 30%, based on the fact the recipient would not pay tax on the retroactive spousal support award. In Thompson v. Thompson 2013 ONSC 5500, the court wrote, at para. 75, that with respect to:
The quantification of retroactive spousal support, the range that is generated by the SSAG must be adjusted because these ranges are based upon periodic ongoing payments which are presumed to be taxable in the hands of the recipient and tax deductible by the payor. A retroactive award must be “nettled down” to account for its non-taxable status in the recipient’s hands, and its non-tax deductible status in the payor’s hands.
In Patton-Casse v. Casse, 2012 ONCA 709 (CanLII), the Court of Appeal considered how to quantify retroactive lump sum spousal support. McDermot, J. reasoned that since an order for retroactive spousal support is not deductible to the payor, the payor would pay more by way of lump sum than he would have, had the amounts been paid periodically and deductible in his hands (at para 22).
The appeal judge had to consider the fact that Patton had a lower marginal tax rate than Casse, and therefore, the value of Casse’s lost deduction exceeded that of Patton’s tax savings. As a result, the appeal judge recognized that there were no way to adjust the lump sum retroactive award in a way that would place both parties in the same position they would have been in had the payment been deductible and taxable. In taking a balanced approached, McDermot, J. considered both parties’ tax positions and awarded $177,000 of retroactive spousal support by using a 25% reduction in the support arrears.
The case law I have referenced (see: Vanasse; Bargout; Lalonde v. Lalonde, [2009] W.D.F.L. 297 (Ont. S.C.); Patton-Casse v. Casse, 2011 ONSC 6182, 8 R.F.L. (7th) 393; and Korkola v. Korkola, [2009] W.D.F.L. 1380 (Ont. S.C.)) demonstrate that the court has reduced the retroactive lump-sum payable for spousal support arrears, taking into consideration the approximate marginal tax rate of the payor, as opposed to adjusting the lump-sum payable based upon the Divorce Mate provisions for the “net” or “after-tax” amounts or “Net Disposal Income” NDI amount. As noted, the SSAG’s software, Divorce Mate, addresses after-tax amounts for periodic support ordered rather than retroactive lump-sum payments.”