Lorne MacLean, Q.C. is the highly rated founder of MacLean Family Law which was just pronounced Vancouver’s top family law firm by Top Choice Awards.
Mr. MacLean handles the high asset family property and high income cases that involve businesspersons, stockbrokers, doctors, dentists and other professionals and their spouses in downtown Vancouver and South Surrey BC.
Mr. MacLean handles business asset division, professional practice division and deals extensively with high asset family and excluded property cases. Mr. MacLean recently won a precedent BC Court of Appeal decision where a stockbroker’s book of business was held to be family property for the first time in an Appellate court. Mr MacLean can be reached at the South Surrey office at 604-576-5400.
South Surrey High Income and Imputed Income Support Lawyer Explains Non Recurring Income
In cases of business owners, and other self employed professionals or executives a number of benefit plans are often provided and these spouse’s also have the ability to control their income. These special circumstances may lead a court to use a higher figure than what the person’s tax return shows. In addition certain types of income are taxed at a lower rate than a salary would be. The BC spousal support Judge hearing a case with “non-recurring and preferentially taxed income can do justice by adding some or all of this income to the payor’s tax return income which means child or spousal supper would be higher. This ability to use a higher income to reflect these tax preferred payments ( or to fix a underemployed person’s income at what they could really earn) is called “imputing income”
BC Court of Appeal Deals with Surrey Imputed Dividend Income Case
Dividend income may or may not be imputed to a paying spouse when calculating child support payments depending on whether the money was actually available to be used the paying spouse.
Depending on the characterization of the dividends, a court may determine that they do not represent a resource to pay child support.
In a recent decision in the BC Court of Appeal, Brown v Brown, 2014 BCCA 152, the court had to determine whether non-recurrent dividends were available to a paying spouse to contribute towards child support, or, if not, whether they were analogous to income that would normally be included in income pursuant to the Child Support Guidelines.
The parties had three children and were divorced in 2002. The Respondent father had being paying child support in accordance with agreements and court orders.
In 2011, the Claimant mother filed an application to vary the amount of child support and sought retroactive child support for the years 2008 and 2009, based on dividend income acquired by the father, which she argued should be imputed to his annual income.
Certain Dividends Were Unavailable to Paying Spouse and They Were Not Included As Income To Increase Support
The Respondent father was a senior manager with a construction company. In 2008, the company created a retirement package for senior management employees wherein the employees acquired shares in the company, which they were required to pay for out of future dividends on the shares themselves. The employees would only receive a financial benefit from the shares upon the sale or liquidation of the company. Pursuant to the Share Purchase Agreement, the shares could not be sold to anyone other than the principal of the company, Mr. Purdey.
In 2008, the Respondent purchased 3% of the shares of the company from Mr. Purdey. The purchase price was $900,000 with the Respondent paying $10,000 as a down-payment and a promissory note for the remaining $890,000. The promissory note had an interest rate of 4% and was to be paid down from dividends on the shares and from the Respondent’s entitlements under the company profit-sharing plan. The Respondent had to direct the company to pay the net amount of his dividends and profit-sharing entitlements to Mr. Purdey. Conversely, the Respondent was entitled to receive from the dividends and profit-sharing entitlements an equal amount to his personal income tax liabilities resulting from them.
In 2009, a considerable amount of dividends were paid on the shares, which went to pay down the purchase price of the shares and to pay the taxes resulting from the dividend income. Although the dividends were considered income for tax purposes, it was not discretionary income as the Respondent was required to apply it entirely to the debt for the purchase of the shares.
For the years 2008 and 2009, the Respondent received a total of $327,012.45 in dividends from his acquired shares; however, the dividends, net of taxes payable on them, were paid to Mr. Purdey in accordance with the Share Purchase Agreement.
The Claimant argued that the dividends should be considered part of the Respondent’s guideline income as the Respondent voluntarily chose to receive them when he took the share purchase offer.
Section 16 of the Child Support Guidelines defines how a spouse’s annual income is determined:
- Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.
Rules For Imputing Income Explained By South Surrey High Income and Imputed Income Support Lawyer
In order to determine the fairness of imputing the dividend income to the Respondent, the court reviewed ss. 17(1) and 19(h) of the Child Support Guidelines:
Pattern of income
17. (1) If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.
Imputing income
19. (1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:
(h) the 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; an
The Honourable Mr. Justice Groberman concluded that s. 19(1)(h) had no merit
in this case:
24. In the case before us, Mr. Brown has received income that is unusual in certain respects. Most obviously, the income is not directly available to him. Mr. Brown has not, in any real sense, received money, nor has he acquired an asset that can be pledged or otherwise used to immediately obtain funds.
25. Ms. Brown’s contention that s.19(1)(h) of the Guidelines applies in this case must be rejected. The favourable tax treatment applicable to dividend income, capital gains, and certain other forms of revenue can mean that people who receive their incomes primarily from those sources will have more after-tax resources at their disposal than would otherwise be the case. The objective of s. 19(1)(h) is to allow a court to impute income so that those enhanced resources are available for the benefit of supported children.
With respect to s. 17(1), Mr. Justice Groberman summarized the difference between employer contributions and employee contributions to a pension plan:
38. The characterization of the dividends as analogous to employer contribution to a pension plan recognizes the fact that the dividends are not part of Mr. Brown’s ordinary remuneration. But for the existence of the share purchase scheme, Mr. Brown would receive no dividends. The dividends are, therefore, more closely analogous to employer contributions to a pension plan than to employee contributions.
40. The same characterization would not apply to other amounts that Mr. Brown is required to pay into the share purchase scheme. His $10,000 down-payment came from his ordinary income. As well, any future company profit-sharing entitlements that Mr. Brown is required to pay into the scheme would have come to him as part of his terms of employment, whether or not he chose to enter into the share purchase scheme.
41. While it is true that neither the down payment nor future profit-sharing entitlements are amounts that are available to Mr. Brown to pay child support, they are amounts that he has chosen to apply to the scheme. More importantly, because they are part of his ordinary remuneration, they are analogous to employee contributions to pension plans, not employer contributions. Employee contributions are included in line 150 income, and are not deducted from it to determine Guideline income.
The court ruled that the employer contribution type dividends should be excluded from the Respondent’s Guideline income; however, the down-payment and any future payments coming from the company profit-sharing plan should be included.
If you have questions concerning how child support is calculated in accordance with you or your ex-spouse’s income, contact our office toll-free to schedule a consultation with one of our highly knowledgable child support lawyers at 1 877 602 9900.
Romney Burkett
Legal Assistant/Paralegal Student
