January 24, 2024 – Attributing Pre-Tax Corporate Income

“Pursuant to s. 16 of the CSG, the starting point in determining income for support purposes is the payor’s line 15000 of their TI general income tax return.

The CSG provide for other methods of determining income when s. 16 is not the “fairest determination of that income” (s. 17, CSG), does “not fairly reflect all the money available to the parent or spouse” (s. 18, CSG), or when a Court “imputes such amount of income to a spouse as it considers appropriate.” (s. 19, CSG)

Section 18 of the CSG states:

Shareholder, director or officer

            1. (1) Where a parent or spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the parent’s or spouse’s annual    income as determined under section 16 does not fairly reflect all the money available    to the parent or spouse for the payment of child support, the court may consider the situations described in section 17 and determine the parent’s or spouse’s annual    income to include,

(a)  all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or

(b)  an amount commensurate with the services that the parent or spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income.

By virtue of the use of the word “may” in section 18 of the CSG, the Court has discretion to add all or part of the corporation’s pre-tax income to a payor’s income if the payor’s annual income, as determined under section 16 of the CSG does not fairly reflect all money available to the payor for the payment of support.

In L.M.P. v. M.D.P, 2021 ONSC 3577 (Ont. Sup. Ct.) at para. 58, MacPherson J. reviewed the case law and concluded that the considerations and questions to take into account by the Court when determining whether to exercise its discretion to attribute pre-tax corporate income can be condensed as follows:

a.   Does the Respondent have control over dividend declarations?

b.   Is there a business reason for retaining the earnings?

c.   Should the Court exercise its discretion and attribute pre-tax corporate income?”

          Sloss v. Liscoumb, 2022 ONSC 1396 (CanLII) at 80-84