Child Support for Self-Employed Parents and Business Owners in Ontario

When a parent is paid by an employer, income is usually easy to see. When a parent runs a business, the tax return may show much less than the parent actually has available, and that raises fair questions on both sides.

This article explains how Ontario courts approach income for self-employed parents and business owners, what documents are needed, and what to do if your income changes.

Where income starts

Income for child support is the spouse's annual income under sections 15 to 20 of the Guidelines. It starts from Total income on the T1 General tax return and is adjusted under Schedule III. For a business owner, that means the tax return is the starting point, not the finish line.

If income varies, for example in seasonal work or self-employment, the court may consider the last three years to find a fairer figure.

Retained earnings and corporations

If a spouse is a shareholder, director or officer of a corporation, the court may count all or part of the corporation's pre-tax income as that spouse's income. It may instead count an amount for services the spouse provided, up to the corporation's pre-tax income. This can capture earnings kept in the company.

Salaries, wages or fees a corporation pays to people it does not deal with at arm's length, such as family members, are added back to its pre-tax income unless shown to be reasonable.

Write-offs and imputed income

A court may impute income where, among other grounds, a spouse is intentionally under-employed or unemployed, or unreasonably deducts expenses from income, such as business write-offs. Imputing means the court treats the person as earning a figure higher than their tax return shows.

There is an exception. Income is not imputed for under-employment or unemployment that is required by the needs of a child, or by the spouse's reasonable educational or health needs.

Disclosure and ongoing updates

A spouse whose income is in issue must provide personal income tax returns for each of the three most recent tax years. A self-employed spouse must also provide three years of financial statements and a breakdown of payments to non-arm's-length persons.

On written request, no more than once a year, the paying spouse must provide updated income documents within 30 days, or 60 days if living outside Canada and the U.S..

If income drops, any change in circumstances that would result in a different order, such as a drop in the payor's income after a job loss, counts as a change of circumstances for variation. Only a judge can change the amount owed through the Family Responsibility Office, and arrears keep building under the existing order until it is changed.

What to do next

• Collect three years of personal tax returns and notices of assessment.
• If you own a business, gather three years of financial statements and records of payments to family or related parties.
• Keep records that show why business expenses were reasonable.
• Do not rely on the online Child Support Service if the payor is self-employed, earns cash income, or is a partner or majority shareholder in a business, since it is not available then.
• Speak with a family lawyer, and often an accountant, to work out a defensible income figure.

Frequently asked questions