Imputed Income and Child Support in Ontario: Underemployment

You may suspect that the other parent quit a job, cut their hours or runs a business that shows very little profit, mainly to lower child support. You may wonder whether a court can look past the number on paper.

This article explains when a court can impute income, which means treat a parent as earning more than they report, and where the limits are. It is general information, not advice.

What imputing income means

Under the federal Guidelines, income for child support is a spouse's annual income, which starts from Total income on the T1 General tax return and is adjusted under Schedule III. Imputing income means a court uses a higher figure than the one the parent reports. If you are not married, or you are married and not seeking a divorce, the rules that apply to you may be found in different Ontario law, so it is worth confirming with a lawyer which rules govern your situation.

When a court can impute income

A court may impute income on several grounds. Two of them are where a spouse is intentionally under-employed or unemployed, or where a spouse unreasonably deducts expenses from income, for example business write-offs.

• Intentional under-employment or unemployment, such as quitting a job or working fewer hours without a good reason.
• Unreasonable deductions, such as business write-offs.
• Earnings kept in a corporation: if a spouse is a shareholder, director or officer, the court may count all or part of the corporation's pre-tax income, or an amount for services the spouse provided.
• Payments to relatives: salaries, wages or fees paid to people the corporation does not deal with at arm's length are added back unless shown to be reasonable.

Fluctuating income is handled separately. If income varies, for example in seasonal work or self-employment, the court may consider the spouse's income over the last three years to find a fairer figure.

When income is not imputed

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

So a parent who returns to school for a reasonable purpose, who is ill, or who reduces work to care for a child is treated differently from a parent who simply stops working to lower support. Which category applies depends on the facts, and a lawyer can help you assess them.

How the issue is proved

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.

In Ontario court, proof includes three years of tax returns, notices of assessment and proof of current income. A person who was unemployed in the last three years must also file a Record of Employment or other proof and a statement of any benefits still owed, such as severance. Court forms include Form 13, a financial statement, with Form 13A, a certificate of financial disclosure.

Under the federal Guidelines, the other spouse may ask in writing, no more than once a year, for updated income documents, which must be provided within 30 days, or 60 days if the payor lives outside Canada and the U.S.. Ontario guidance also says the paying parent must give the other parent or caregiver proof of income, meaning the last tax return and notice of assessment or reassessment, every year, within 30 days of the original order or agreement date, unless they agree on another timeframe.

What to do next

• Collect your own three years of returns and notices of assessment.
• Write a timeline of job changes, hours and business activity, with dates.
• Ask in writing for the other parent's income documents.
• Keep records of any evidence about why work changed, such as medical or school records.
• Talk to a family lawyer before filing, because evidence and timing matter.

If an order already exists, a change in circumstances that would result in a different support amount can allow a variation. Forms include Form 15 to ask for a change without the other parent's consent and Form 15D where both consent. The online Child Support Service is not available where the order involved imputed income, or where the payor is self-employed or a partner or majority shareholder in a business.

Frequently asked questions