Income Section - Employment Income

This is what the Spousal Support Calculator says...

If the party is employed (ie. receives a T4 slip), input the appropriate gross annual income prior to deductions, including any taxable benefit amounts that are or will be subject to income tax (T1, Line 101; T4 slip, Box 14).

According to the CSG, annual income is determined using Line 150 ("Total income") of the T1 General form, adjusted in accordance with Schedule III and ss. 17, 18 and 19 of the CSG. This is commonly referred to as "Guidelines Income".

The most current information is to be used (CSG, s.2(3)). However, a court will use last year’s income to determine income for CSG purposes under CSG, s. 16, in the absence of any evidence that things have changed significantly, at least on an interim motion. See: Bortolotto v. Bortolotto, 2002 CarswellOnt 1717 (Ont. Master). See also: Suto v. Suto, 2002 CarswellBC 1905 (B.C.S.C.) and Mooney v. Mooney, 2002 CarswellBC 1933 (B.C.S.C.).

Note that the SSAG use the same definition of annual income as under the CSG, with some exceptions.

CSG, Guidelines Income Cap:
When a child support payor's Guidelines Income is over $150,000 (CSG, s.4), if the court considers the table amount of child support based on the full Guidelines Income to be inappropriate, the court may apply the table amount of child support for the first $150,000 of income, and use its discretion to determine the appropriate amount of additional child support based on the balance of the income, plus special/extraordinary expenses, if any.

SSAG, Guidelines Income Ceilings, Floors and Exceptions:
For the SSAG, when a spousal support payor's Guidelines Income is over $350,000, the formulas should no longer be automatically applied to divide income beyond that threshold. Instead, the court will have to exercise discretion in fixing the amount of spousal support. Similarly, when a spousal support payor's Guidelines Income is under $20,000, no spousal support is payable unless an exception is made (ie. payor spouse has significantly reduced expenses). Where a spousal support payor's income is between $20,000-$30,000, there is also the possibility of an exception to the formulas to eliminate a “cliff effect” of the floor of $20,000. In these cases, it might be necessary to depart from the lower end of the range, depending on the payor’s circumstances and his/her ability to pay.

TIP: There is a built-in conversion feature that will automatically convert weekly, bi-weekly, and monthly amounts into annual figures. For example, input 1000w for weekly income of $1,000, press enter and the software automatically multiplies the number by 52, and results in $52,000; For bi-weekly income of $1,000: input 1000b (results in $1,000 x 26 = $26,000). For monthly income of $1,000, input 1000m (results in $1,000 x 12 = $12,000).

MY REBUTTAL

First it is critical to identify whether this is "Employment Income for an Employee" or "Employment Income for a Corporate Owner".

Employment Income for an employee

Box 14 includes the following amounts:

(1) Employee Base Pay
(2) Employee Bonus
(3) Box 30 Board and Lodging
(4) Box 31 Special Work Site
(5) Box 32 Travel in a Prescribed Zone
(6) Box 33 Meical Travel Assistance
(7) Box 34 Personal Use of an employers automobile
(8) Box 36 Interest Free and Low Interest Loans
(9) Box 38 Security Options Benefits
(10) Box 40 Other Taxable Allowances & Benefits
(11) Box 70 Municipal Officers Expense Allowance
(12) Box 71 Status Indian Employee

(1) Employee Base Pay

If an employee is on a semi-monthly or monthly payroll then base pay will be accurately reflected in Box 14.

This is not the case for an employee on a bi-weekly or a weekly payroll. Most employers now use the calculation / 365 * 14 for bi-weekly and / 365 * 7 for weekly. This is to account for the occasional 27 and 53 pay period years. So for the 26 pay period and 52 pay period years, income will be understated in Box 14and for the 27 pay period and 53 pay period years, income will be overstated in Box 14.

(2) Employee Bonus

Employees have the ability to defer (this means the bonus was earned in one tax year but paid in another) Deferred bonuses must be paid in the next tax year after deferral. An assessment needs to be made whether Box 14 includes two bonuses, one bonus or no bonus and an app[ropriate adjustment be made.

In addition, bonuses can fluctuate wildly from year to year. I am of the view that the "target bonus" should be used rather than the actual bonus paid. Absence of a target bonus I would support an average of the past 3-5 years bonuses to get a reasonable figure.

#3 - #11 with the exception of #9

I am ok with these being income inclusions and they should reflect the proper annual amount. Most common is #10 Box 40 Taxable Allowances & Benefits

#9 Box 38 Security Options Benefits (a.k.a. Stock Options

First of all, you need an explanation of a stock option. A stock option means an employee has an option to purchase a stock at a set price. When an employee exercises a stock option it means they are purchasing it at a set price and immediately selling it at the higher price.

I don't support this being included in income as it certainly does not reflect income for that particular year and its basically impossible to determine how many years it reflects. My best suggestion is that if stock options are an issue, there should be some agreement about how they are to be shared and should be excluded for child and spousal support purposes.

#12 Box 71 Status Indian Employee

I'll deal with this later in the section non taxable income.

Bottom Line - Box 14 of the T4 may or may not reflect an individuals income for year.

Employment Income for a Corporate Owner

The Spousal Support Guidelines are absolutely abysmal in dealing with corporate owners. First of all, corporate owners are exempt from EI but pay double CPP so the spousal support calculator won't take the right EI and CPP deductions.

Secondly corporate owners have a deferral option similar to an employee bonus. What needs to be assessed is Schedule 125 of the Corporate T2 (Income Statement) to see what owner salary was expensed.

Another issue is that frequently corporate year ends are not calendar year ends (ie December 31) so in that case the T1 salary might be totally irrelevant as it is based on what was paid in a calendar year whereas the corporate expensed salary is based on the non calendar year.

The guidelines say income should be based on Line 150 with adjusments in Sections 17, 18 and 19. Is anyone getting an idea yet that Line 150 is completely irrelevant in determining annual income for an individual? This will become even clearer in future posts I will make.

I have no comment on their calculations when an income is over 150,000 or 350,000 or under 20,000 however I assume by discretion they mean guessing which means they will probably do the wrong thing.

Well that was just the first line of the Spousal Support Calculator.

Unbelievable, eh?