Hiring a top* Calgary Vancouver Imputed Income Tax Support lawyer helps ensure the proper calculation and correct use of incomes for child and spousal support determinations by BC and Alberta Courts. You need to be very aware that not all incomes are created equally. In today’s blog, founder Lorne N MacLean, QC explains the types of incomes that must be adjusted to avoid calculation disasters in spousal support and child support cases.
Calgary Vancouver Imputed Income Tax Support 1-877-602-9900
Employment income presents little problem for spousal support and child support calculations but it is now taxed at just above 50% at the higher earning levels. Human nature dictates that people will try to earn income that is not taxed at such a horrific level. What about income that is not taxed at all? Here are 5 types of income that must be corrected to avoid a big support mistake.
- People who may work for cash such as home renovators, restaurant servers, mechanics and others need to have their income discovered and then “grossed up” so it is treated like an employee who pays full tax.
- People who work overseas often pay reduced tax and no tax at all on certain types of income.
- Capital gains income earned from the sale of stocks and real estate investments that are not primary residences only pay 25% maximum tax instead of 50%.
- Some business owners improperly run personal expenses such as their vehicle, cell phone, trips, gas, and entertainment expenses through their company to pay no tax on it and to reduce their income improperly.
- Other people may hoard large investment portfolios or real estate holdings that are appreciating dramatically in value but which are not sold to create taxable income.
Calgary Vancouver Imputed Income Tax Support – CSG Section 19 Designed to Create Fairness
The creators of the Child Support Guidelines and the Spousal Support Advisory Guidelines are aware of non-taxable cash and low or untaxed income issues that need to be corrected to ensure fair child and spousal support. The paying spouse gets a nasty surprise, however on non-taxable income that is grossed up for spousal support (not for non-deductible child support) because there is no corresponding spousal support deduction available because there is no taxable income on the tax return to deduct spousal support from! Make sure your lawyers know this when someone is grossing up your income!
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:
- the spouse is exempt from paying federal or provincial income tax;
- the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
- 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; and
- the spouse’s property is not reasonably utilized to generate income;
- the spouse unreasonably deducts expenses from income;
Calgary Vancouver Imputed Income Tax Support – New Case Explains How To Correct Tax-Free Income
In the recent decision of Tancowny v. Tancowny, 2018 ABCA 307 the Court of Appeal grossed up tax-free disability income so it was comparing “apples to apples” on the husband’s application to reduce support.
[6] Justice Yungwirth ordered a reduction of monthly spousal support from $4,275 to $3,462.75 commencing January 1, 2017. The chambers judge grossed up Mr. Tancowny’s non-taxable long-term disability income of $87,350.52 by 38% to arrive at a taxable equivalent of $120,543.72. This grossed-up number is roughly 81% of $148,800.00, the agreed upon pre-tax income for 2015. In other words, there was a 19% reduction in Mr. Tancowny’s taxable income. In analyzing para. 15 of the consent judgment, the chambers judge said: “by use of the word[s] ‘gross income’ there is an implication that this is before a tax deduction.” She held that it is reasonable and appropriate to gross up the appellant’s tax-free disability income so that it can be compared on an “apples-to-apples” basis to the income he was earning at the time of the consent judgment.
[7] The appellant’s position is that his gross income dropped by 41.3% from $148,800 to $87,350.52, so spousal support should be reduced by the same percentage from $4,275 per month to $2,509.43 per month. The appellant says the chambers judge erred by not dividing tax deductibility between the parties. The appellant’s approach is to compare his non-taxable long-term disability income from 2016 and onward to his before-tax taxable income in 2015 of $148,800. The appellant also says the chambers judge erred in treating his vacation pay in 2016 as income for the purpose of adjusting spousal support.
[8] In October 2015 when the formula in para. 15 of the consent judgment was established, the appellant was receiving short-term disability income of $148,800, gross taxable income. The appellant’s income thereafter decreased. To properly calculate the corresponding decrease in spousal support, the income amount to be compared must have the same character as the new income amount (taxable or non-taxable). The tax-free long-term disability income must be grossed up and then compared to the 2015 gross taxable income. As the chambers judge said, in this way what is compared is “apples to apples”, and the parties’ “cash in pocket” is equalized. The result is the same percentage drop in “cash in pocket” money available to the appellant and in spousal support payable to the respondent, as contemplated by the consent judgment.
Calgary Vancouver Imputed Income Tax Support – Don’t make A Rookie Math Error
If you have a Calgary Vancouver Imputed Income Tax Support dispute we warn you not to make a rookie math mistake in correcting tax-free income when you gross it up.
The safest thing to do is hire one of our top* Calgary Vancouver Imputed Income Tax Support lawyers to properly calculate the right amount for you.
For tax-free income of $100,000, what do you do to correct it the what an employee paying the tax would earn for spousal and child support purposes? Assuming a tax rate of 33.3 % many people wrongly multiply 100,000 X 1.333 to = $133,300 as the proper support. In fact, the correct approach is to instead divide by the reciprocal tax rate of .667 = $149,925. At the 50% tax level, $100,000 of tax-free income is the same as $200,000 of taxable income!
Don’t Guess – Call Us Now To Get It Right 1-877-602-9900.
Calgary Vancouver Imputed Income Tax Support disputes are tricky and some of the gross-ups also involve a loss of a spousal support deduction. Don’t guess call our top-rated* Calgary Vancouver Imputed Income Tax Support now toll free at 1-877-602-9900.
