Avoid These Worst High Net Worth Support Mistakes. Lorne MacLean KC, Fraser MacLean and the whole team at MacLean Law needs to warn the public to stop these blunders constantly occurring. There are two big mistakes that many clients, lawyers and experts make on guideline income:
- Failure to use the actual capital gain and wrongly using only the lower taxable gain, which is currently half of the real capital gain ( but may increase to 2/3 of the gain); and
- Correctly using the actual capital gain but not grossing up under section 19 of the Child Support Guideline (“CSG”) for the fact that currently half of the actual capital gain is taxed.
Smart Lawyers Do Step 1 to Avoid These Worst High Net Worth Support Mistakes
MacLean Law will help you Avoid These Worst High Net Worth Support Mistakes. Our Child Support Guidelines Schedule 3 helps savvy lawyers and clients get proper support. The CSG applies to both spousal and child support for correct income calculation but so many experts and lawyers let alone unrepresented clients leave money on the table for recipients. Our firm routinely corrects tax returns for payers to ensure they pay proper child and spousal support.
Capital gains and capital losses
6 Replace the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse’s actual capital losses in that year.
We have always been concerned that guideline income accountants and lawyers forget the gross up once you have doubled the tax return taxable capital gain figure. Often even represneted parties fail to Avoid These Worst High Net Worth Support Mistakes. Many accounting experts tell me they do not gross up the untaxed portion of capital gains at all UNLESS TOLD TO DO SO BY THEIR CLIENTS OR LAWYERS. The results for payors is wonderful but for recipients disastrous. I am so tired of free online calculators misleading clients and lawyers unfamiliar with the technical rules and law on proper calculation of guideline income for both child and spousal support.
Step 2 Most Clients Without Savvy Lawyers Will Miss The Critical Step 2 Correction
Assuming the unrepresented client properly doubles the taxable capital gain they and their children they are still not safe. You and your lawyer have to be more diligent and go to Step 2 to obtain a just spousal and child support result.
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
How Does it Work?
As an example let’s say the paying spouse’s tax return showed a capital gain of $100,000. This means the actual gain was $200,000 ( subject to Trudeau’s attempt to tax Canadians even more), So many lawyers and experts think they have corrected things properly at this point BUT THEY ARE DEAD WRONG.
$100,000 of the capital gain had zero tax deducted, what would a person have to earn to net $100,000 after tax? At a 54% marginal tax rate, the answer is $218,000.
Results of an Error on a $200,000 Taxable Capital Gain
- If you or a lawyer use taxable capital gain, you would only use $100,000 and lose big on monthly support payments;
2. If you or your lawyer used actual capital gain without giving up for tax-free portion, you would only use $200,000 and still lose substantially on monthly support;
3. But if you currently answered the CSG and SSAG skill-testing question, you would use all of the capital gain with upward gross ups to reflect unpaid taxes on gain to reflect what a salaried person would have to earn to net the same net income.
In this case you will be using $318,000 for true guideline income just on this gain and not counting other income compared to $100,000 for a difference of $218,000 of extra guideline income. The difference in the amount payable is substantial.
Avoid These Worst Vancouver High Net Worth Support Mistakes
I hope this article helps you Avoid These Worst High Net Worth Support Mistakes. There are so many other areas where failures to know the tricky rules on support mean people grossly overpay or suffer catastrophic losses for themselves and their children. Don’t be one of those losing spouses.
