Children Come First: A Report to Parliament Reviewing the Provisions and Operation of the Federal Child Support Guidelines - Volume 2

• Previous Page
• Table of Contents
• Next Page

4. Section-by-section review of the Federal Child Support Guidelines and the Divorce Act (cont'd)

Section 10: Undue hardship

Background

The undue hardship provision recognizes that, sometimes, a parent or child can suffer undue hardship if the parent pays the table amount, or the table amount plus special expenses. This section permits courts to set a different amount.

There are three distinct steps to determining the amount of child support when a parent claims undue hardship.

1. The parent making the claim must show that paying the table amount would cause undue hardship for the parent or child.
2. The parent claiming undue hardship has to show that his or her household standard of living is lower than that of the other parent.
3. If the first two steps are cleared, the court decides on a new support amount. Courts may (but do not have to) change the table amount of support.

Step 1: Demonstration of undue hardship

To help courts and parents decide whether undue hardship would result if the table values were ordered, subsection 10(2) lists five circumstances that may cause a parent or a child to suffer undue hardship. They are:

• unusually high debts from supporting the family before the parents separated or resulting from earning a living;
• unusually high expenses associated with access to a child;
• a legal duty under a judgment or order to support another individual;
• a legal duty to support a child, other than the child of the marriage, who is under the age of majority or who, owing to illness, disability, or other cause (including education), cannot support himself or herself; or
• a legal duty to support a person who cannot get the necessaries of life due to illness or disability.

Because the list is not exhaustive, other circumstances could give rise to a claim for undue hardship.

Paragraph 10(2)(A): Debts

In some circumstances, the debt load of a parent may lead to a finding of undue hardship. If this leads to a changed support amount, the court may decide that, when the debt is paid, the amount payable will change again. This allows courts to grant temporary relief so the parent can pay the debts without requiring another court appearance after the debt is paid.

Paragraph 10(2)(B): Access expenses

Access expenses may be unusually high because of the extensive time a parent spends with the children or because the parent otherwise has large expenses related to access, such as airfare. On the other hand, if the paying parent spends little or no time with the children, the receiving parent may be the one with extra costs, such as babysitting fees.

Paragraph 10(2)(C): Judgment or agreement to support another individual

A person may already have to support a spouse or children from prior relationships. Although the table amounts are presumed to apply in these circumstances, this section of the Guidelines recognizes that a pre-existing requirement to pay support to others may cause a parent or a child to suffer undue hardship, particularly those in lower income families.

Paragraph 10(2)(D): Legal duty to support another child

The legal duty to support other children (in a second family, for example) can cause undue hardship if the parent also has to pay the table amount. These other children may be the parent's biological children, adoptive children, or stepchildren.[226] These commitments may reduce the financial resources available for the children involved. This provision provides financial relief and promotes equitable treatment of all children whether they are natural children, adoptive children, or stepchildren.

Paragraph 10(2)(E): Legal duty to support an ill or disable person

A parent may face undue hardship because he or she must support somebody, such as a previous spouse, who is ill or disabled.

Step 2: Comparison of the household standards of living—subsection 10(3)

For a parent who would suffer undue hardship if the table amount were ordered, the next step is to show that his or her household does not enjoy a higher standard of living than does the other parent's. This ensures that the child support amount is not reduced when the child lives with a parent whose standard of living is lower still. Under subsection 10(4) of the Federal Child Support Guidelines, one way to compare standards of living is to use the Comparison of Household Standards of Living Test, found in Schedule II.

Step 3: Determination of the amount of support

Once the first two steps have been cleared, the courts have broad discretion to determine the appropriate amount of support. If a court uses this discretion to order a different amount, it must record its reasons for doing so, per subsection 10(6).

Intent

The undue hardship provision is not meant to be used often. There is a strong presumption that paying parents are able to afford the table amounts because the tables represent reasonable amounts in average family circumstances. In addition, the Guidelines specifically permit a departure from the table amounts in special circumstances, such as when parents share custody, or when the paying parent earns over $150,000 annually.

Section 10 balances the Guidelines objective of consistency with the need for a fair standard of support in exceptional cases.

Application

Courts have narrowly interpreted each element of the undue hardship test. Case law overwhelmingly confirms that the requesting parent must establish undue hardship and must demonstrate that the other parent is not even worse off.[227] Even when a parent meets the requirements of the first two steps, courts may exercise their discretion by refusing to order a different amount of support.[228]

Step 1: Demonstration of undue hardship

A parent will not necessarily clear the first step simply by showing the existence of one or more of the enumerated circumstances that may give rise to undue hardship.[229] The claiming parent must also show that the circumstances personally affect him or her and that they do in fact cause undue hardship.[230] Separation generally causes both parties to suffer financial hardship, thus hardship alone will not give rise to a change in the support order.

In Van Gool,[231] the British Columbia Court of Appeal confirmed the high threshold required by this section. Madam Justice Prowse, for the court, said in paragraph 51:

Since the basic tables were designed to be a "floor" for the amount of maintenance payable, rather than a ceiling, it is not surprising that the authorities have held that the threshold for a finding of undue hardship is high. Hardship is not sufficient; the hardship must be undue, that is, exceptional, excessive, or disproportionate in all of the circumstances.

Other courts have interpreted the word undue to mean excessive, extreme, unreasonable, unjustified, and improper.[232]

Paragraph 10(2)(A): Debts

Each element of this provision has been interpreted very restrictively. Judges have only reduced child support because of debt in exceptional circumstances, an approach that is consistent with cases considered before the introduction of the Federal Child Support Guidelines.

Paragraph 10(2)(B): Access expenses

The courts have very narrowly construed each element of the phrase unusually high expenses in relation to access, which appears in paragraph 10(2)(b). For example, in the case of Williams v. Williams,[233] the paying parent's costs to travel between Nova Scotia and the Northwest Territories to exercise access were not held to be unusually high. In a limited number of cases, courts have concluded that access expenses are unusually high in light of the extensive access that a paying parent exercises, not necessarily because of any single large payment such as airfare.[234] Few courts have accepted a lack of access as a circumstance that may cause undue hardship for the receiving parent.

The courts are more likely to lower the amount if it was the custodial parent who decided to move.[235] The comments of the court in the case of Marlow v. Berger[236] illustrate this judicial point of view:

In this case, the father chose to move to Toronto for employment purposes. That is not to be held against him but he cannot use it as a sword to obtain relief as he has asked. In this court's view, the phrase unusually high access costs relates to, among other things, circumstances beyond the control of the payor or a consensual decision made for the benefit of the child.

Paragraph 10(2)(C): Judgment or agreement to support another individual

Few parents have sought a finding of undue hardship on this basis and, as such, this provision has had very limited application.

Paragraph 10(2)(D): Legal duty to support another child

Under the Guidelines, the majority of undue hardship claims have been based on this section and most applications have been unsuccessful. Courts have very strictly construed each element of this provision.

A parent's legal duty to support a second family does not in itself create undue hardship.[237] The parent seeking relief must establish not just the existence of an obligation to another child, but also indicators of unusual financial pressure.[238] One has to show that supporting other children significantly contributes to one's financial difficulties.[239] There must also be a legal duty to support the children, not only a moral duty.[240] Many judges have refused to grant relief in part because the paying parent's second spouse has decided not to work, thereby lowering the paying parent's family income.[241] As a result, many claims have been dismissed because the applicant couldn't show undue hardship.[242] In addition, the mere fact that the applicant's standard of living is lower than that of the other spouse does not automatically result in undue hardship, even if this lower standard is due in part to the applicant's legal duty to support another child.

In Van Gool,[243] the court confirmed this, deciding that the parent seeking relief must show that the obligation makes paying the table amount an undue hardship. The person claiming undue hardship must provide cogent evidence that the costs incurred for the other child are beyond those associated with most children.

Paragraph 10(2)(E): Legal duty to support an ill or disable person

Very few cases have been determined on the basis of this provision and, as such, it has had very limited application.

ther circumstances

Case law establishes that the subsection 10(2) list of circumstances is not exhaustive and that other factors may be considered.[244] However, courts are reluctant to expand the scope of undue hardship beyond the circumstances listed in subsection 10(2).[245] Courts are especially cautious if the receiving parent wants to increase the table amount because other circumstances have caused undue hardship; very few such cases have been successful.[246]

Step 2: Comparison of the household standards of living—subsection 10(3)

The parent asking for the change may have a lower household standard of living than that of the other parent. But this does not in itself lead to a finding of undue hardship.[247] Case law overwhelmingly confirms that courts must compare the parents' household standards of living only after finding undue hardship.[248] Thus, this provision limits the number of successful claims for undue hardship.

Some courts rely on the optional Comparison of Household Standards of Living Test, found in Schedule II.[249] When courts did not use this test, they instead considered a wide variety of factors, including the parents' relative capital positions, debt, child care, and the financial contribution of the parent's spouse, if any.[250]

Step 3: Determination of the amount of support

Courts have exercised broad discretion to determine the appropriate amount of support in undue hardship cases.[251] There is no one way to do this.[252] In some cases, even when both steps one and two were cleared, courts exercised their discretion not to change the table amount.

In some cases, particularly when the circumstance that causes undue hardship is a legal duty to support another child, per paragraph 10(2)(d), courts have refused to reduce the table amount. Instead, they have somewhat reduced the payments to the receiving spouse because of special or extraordinary expenses, per section 7.[253] Courts are clearly reluctant to order less than the table amount because they view the table values as a minimum base or a floor for support.

In many cases where distance produces extensive access expenses, parents and judges instead agree to apportion the cost of those visits between the parents. Sometimes referred to as a separate civil order, this option is used in place of the undue hardship provision.

Issues

Step 1: Demonstration of undue hardship

The undue hardship provision balances the Guidelines objectives of consistency and of a fair standard of support. However, many people feel that the very strict interpretation of this section has been unfair to children and paying parents who live far from each other. These parents may only be able to pay the table amounts by reducing their access, contrary to the children's interests.

Paragraph 10(2)(B): Access expenses

The table values attempt to balance paying parents' average access costs and hidden costs incurred by receiving parents. Hidden costs include loss of career advancement opportunities and lost overtime. Thus, usual costs of access, such as meals, transportation, and entertainment, are borne by the paying parent as a normal pattern of spending and are contemplated by the guidelines amounts.[254]

By including unusually high access expenses as a possible cause of undue hardship, the Guidelines implicitly recognize that children may benefit from meaningful contact with both parents. This provision therefore promotes the principle that children should have as much contact with each parent as is consistent with their best interests.[255]

Extensive access

In a small number of cases, the extent and quality of access, or the lack of it, may cause undue hardship.

Applications to reduce support because of extensive access have generally succeeded only when the paying parent proves that paying the table amount would interfere with the quality of time that the children spend with the paying parent or would threaten the children's relationship with him or her. For example, in Petrocco,[256] the paying parent's annual income was $40,000, whereas the custodial parent's annual household income was nearly $300,000. In granting the application for undue hardship, Justice Métivier notes at paragraph 20:

In this case, the access parent's role and importance may be detrimentally affected by an inability to offer the children a reasonable level of activity and comforts relative to that enjoyed in their primary residence. The payment of support at the Guideline level will interfere with the ability of the mother to provide such activities and comforts.

In Baranyi v. Longe,[257] Justice Wright reduced the support amount from $236 to $50 per month for two children so that the father could continue to have extensive access and to maintain a second bedroom for the children.

Lack of access

The undue hardship provision was intended to be available to either the paying or the recipient parent. However, there have been very few cases where the recipient parent has successfully sought an increase from the table amount on the basis of undue hardship. This may be so because the listed circumstances in subsection 10(2) appear to be available only to paying parents to reduce the support order. In addition, some courts are reluctant to increase support under this section out of concern that the undue hardship provision may become an indirect way of getting spousal support.[258]

But the support recipient can claim undue hardship in some circumstances. For example, the paying parent may exercise little or no access, thereby increasing not only the receiving parent's regular costs, but also his or her hidden costs.[259] While this approach has not usually worked,[260] Scotcher v. Hampson[261] suggests that a failure to exercise access could give rise to a claim for undue hardship, if this increases the receiving parent's costs. In Scharf,[262] lack of access visits led to an increase in child support. There, the parents each had custody of one of the two children. Justice Métivier found that the mother suffered undue hardship and reduced the amount she was required to pay in part because the other parent had irregular access.

Paragraph 10(2)(D): Legal duty to support another child

For many years, courts and parents have struggled to determine the appropriate approach for determining child support when a parent has to support other children. The issue is complicated because the court must often decide between the competing interests of two (or more) sets of children. Courts are often faced with the difficult task of distributing limited resources between two or more households.

Many people think that financial hardship caused by subsequent family obligations should rarely reduce the child support amount. Paying parents, it is said, should fulfill child support obligations ahead of other, subsequent obligations, even if those obligations are to other children. That is to say that a parent should not be excused from a child support obligation because he or she chooses to have further children. This first families first approach has been adopted in many cases and is illustrated in the following comments from the case of Jackson v. Holloway:[263]

A separated spouse with a child support obligation enters into a new family unit knowing he or she has an obligation and is expected to organize his or her affairs with due regard to that obligation. A general or generic reference to the overall expenses of a new household will not give rise to a claim of undue hardship.

Other courts suggest that while every child has the right to support, the parent's subsequent family should be given a chance to succeed financially and shouldn't suffer because of the prior child support obligation.

As a result of these two judicial approaches to the difficult issue of second families, the outcome of any given case is difficult to predict, thereby undermining the Guidelines objective of consistent treatment of parents.

Step 2: Comparison of the household standards of living—subsection 10(3)

Although courts have applied this second step as intended, research suggests that courts and parents have not been using the optional Comparison of the Household Standards of Living Test in Schedule II. Many legal observers, parents, and judges have criticized the test as being too complicated, too long, and too difficult to apply. For a detailed discussion of the Comparison of Household Standards of Living Test, please see the review of Schedule II.

Step 3: Determination of amount

Because families may live in so many different circumstances after separation, judges have broad discretion to determine the amount of support when they find undue hardship. As such, results are difficult to predict.

Recommendation

Section 11: Form of payments

Background

Even before the Federal Child Support Guidelines, the Divorce Act gave courts the power to order periodic or lump sum support, or both. This section was intended to establish the court's jurisdiction under the Guidelines to order periodic or lump sum support if necessary.

Payment of orders

The courts have wide discretion: an order may be for a lump sum, for a definite or indefinite period, or for a period lasting until a specific event occurs. The court can also "impose such other terms, conditions or restrictions in connection therewith as it thinks fit and just."

Although the child support Guidelines propose monthly orders, there may be rare instances where it is in the best interests of children for the courts to make lump sum orders. Although the Guidelines will help the courts determine the levels, the courts should continue to have wide powers to determine how orders should be paid.

Application

Issue

Courts have traditionally been reluctant to order lump sum child support.

Case law

In McLaughlin v. McLaughlin,[264] the court held that support ordered under the Guidelines could be paid in periodic installments other than monthly. In Lobo v. Lobo,[265] Gibney v. Gibney,[266] and M.R. v. S.R.R.,[267] the court ordered lump sum child support.

In Lobo,[268] the court found that, in light of the paying parent's record of poor money management, his refusal to seek alternative employment, his demonstrated willingness to risk his family's security for remote possibility of gain, and his unwillingness to sell real estate investments in the face of foreclosure action against the matrimonial home, it was proper to order lump sum child support.

In Gibney,[269] as the father had substantial assets, the court found it appropriate to order a lump sum payment to pay for the children's extraordinary expenses.

In M.R.,[270] the paying parent had a recent history of unemployment and illness and a long history of borrowing money from his mother to defray ordinary household expenses. The court found that those were ample reasons for ordering lump sum support from his only cash asset: proceeds from the sale of the matrimonial home. The court ordered lump sum child support based on the appropriate monthly child support table amount for approximately 30 months.

In Koyama v. Leigh,[271] the court, after reviewing the various "needless difficulties" created by the paying parent during litigation, ordered lump sum child support using the money being held in a maintenance security fund.

From a review of the case law, it appears that the practice of ordering lump sum payments is more common in cases where there are special expenses.[272]

Amendment

This section has not been amended.

Recommendation

No amendments to this section are recommended.

Section 12: Security

Background

This section lets the court order that the amount payable be secured or paid in a way specified by the court. This power existed in the Divorce Act before the Federal Child Support Guidelines were introduced.

Application

Issue

This section has generally been applied as intended.

Case law

In Davids,[273] Assinck v. Assinck,[274] and Lonergan v. Lonergan,[275] the court ordered that child support be secured against various assets, including the matrimonial home, in case the paying parent defaulted.

Amendment

This section has not been amended.

Recommendation

No amendments to this section are recommended.

Section 13: Information to be specified in an order

Background

This section specifically sets out what elements are to be included in a child support order. It ensures that the basic information used to determine the child support amount is included in the order. This information helps parties vary child support orders, as spouses know the various components that make up the child support amount.

Application

Issue

Section 13 of the Guidelines is not always respected by those preparing child support orders. According to the Survey of Child Support Awards,[276] only 32 percent of cases contain all five items (see box below).

Paragraph 13(e) details the special or extraordinary expenses to be included in a court order. This paragraph indicates that a judge can include a proportion of a special expense rather than the amount in the court order, when the judge cannot determine the amount in advance. However, maintenance enforcement programs cannot enforce a proportion of an unknown amount. Also, section 7, which deals with special or extraordinary expenses, does not refer to a proportion of a special expense but to the actual amount of the expense.

Case law

In Lee v. Lee,[277] the court stated that an order would not be void if it did not comply with section 13 of the Guidelines, if the required information was identified and available from materials in the court file.

In several cases, the courts have ordered a percentage of a special expense to be paid by the paying parent instead of specifying the exact amount.[278]

Amendment

This section has not been amended.

Recommendation

Section 14: Circumstances for variation

Background

Paragraph 17(1)(a) of the Divorce Act empowers the court to vary a child support order. Subsection 17(4) of the Divorce Act says that the court must first be satisfied that there has been "a change of circumstances, as provided for in the applicable guidelines." Section 14 of the Guidelines sets out what constitutes a change of circumstances.

Defining "a change of circumstances" helps parents and the courts decide whether an order should be varied. In particular, paragraph (c) helps parents who have a pre-Guidelines order to get a new child support amount under the Guidelines.

Application

Issue

Courts have focused on paragraph 14(c) of the Guidelines and on interpreting the word may in subsection 17(1) of the Divorce Act.

Case law

In one set of appellate decisions, the word may has been interpreted as giving the court discretion to make a variation order. Paragraph 14(c) has been treated solely as a "triggering mechanism." This allows a court to review the circumstances to see whether there is a sufficient change warranting a variation in child support payments and to review the reasonableness of the original order or settlement in light of the Guidelines.[279]

Another set of appellate decisions interprets the word may as empowering, giving the court the power to make a variation order. These decisions have seen paragraph 14(c) as a sufficient change in circumstances to require that all pre-guidelines orders be varied according to the Guidelines.[280] As a result, courts across the country apply paragraph 14(c) inconsistently.[281]

In Montalbetti v. Montalbetti,[282] a British Columbia Court of Appeal case decided after Wang, the court stated the following:

In my opinion, the chambers judge was correct in concluding that there was a sufficient change in circumstances to warrant a variation. I say that quite apart from the provision in s. 14(c) of the Guidelines, which in itself may also have provided a foundation for the variation.[283]

Section 14 was amended twice (see explanation below) to address this. Since the last amendment in November 2000, court decisions have tended to view paragraph 14(c) as mandating a change to child support orders to ensure their compliance with the Guidelines.

In O'Donnell v. Morgan,[284] a New Brunswick case, the court recited the amended section 14. It concluded that the paying parent met the test in paragraph (c) and varied the order according to the Guidelines. In Cholodniuk v. Sears,[285] the paying parent sought to vary his child support obligation, determined before May 1, 1997, so that it complied with the Guidelines. The court stated the following:

A previous application to vary this judgment was dismissed on February 11, 1999. Since that time however, s. 14 of the Guidelines has been amended to clarify that a child support order made prior to May 1, 1997, constitutes a change of circumstances that gives rise to the making of a variation order. As the order that Mr. Cholodniuk seeks to vary pre-dates May 1, 1997, he has met the threshold requirement for variation.[286]

In Turner v. Turner,[287] the court reviewed all of the relevant jurisprudence, articles written by various legal professionals, child support communications materials from the federal Department of Justice, and the amendments to paragraph 14(c). The court concluded that the coming into force of the Guidelines was a change in circumstances entitling a spouse to vary a pre-Guidelines child support order.

Amendment

Section 14 has been amended twice since the Guidelines were implemented. In December 1997, section 14 was amended to clarify that only one of the listed circumstances in section 14 needs to be met in variation cases.[288]

In November 2000, section 14 was amended again.[289] In light of the conflicting appellate decisions from across the country, the section was amended to properly reflect its intent. All of the circumstances for variation listed in section 14, including paragraph (c), are changes in circumstances that a court can rely on to vary an order.

Where there is such a change, for example as listed in paragraph (c), which refers to a situation in which an order was made before May 1, 1997, the intent is that the court vary the order and apply the Federal Child Support Guidelines. The Guidelines were designed to provide a fair standard of support for children in light of the parents' ability to contribute.

The court can decide not to apply the Federal Child Support Guidelines when parents have an agreement or order made before or after May 1, 1997 that includes a special provision that benefits the child. In this case, the court can take the agreement into account under subsection 17(6.2) of the Divorce Act and decline to vary the order, since the Guidelines amount might not be appropriate in that situation.

Recommendation

Section 15: Determination of Annual income

Background

Section 15 of the Guidelines not only provides the starting point for calculating income; it also gives spouses an opportunity to agree on the amount of their income. This reduces conflict and tension between spouses and encourages efficient settlements. However, the court must be satisfied that the amount agreed upon by the spouses is reasonable. The court's approval is required to ensure consistent treatment of spouses and children who are in similar circumstances and to establish a fair standard of support for the children.

Application

Issue

No contentious issues have arisen as a result of this section.

Case law

In the case of Robillard-Cole v. Cole,[291] the court confirmed that subsection 15(2) of the Guidelines allows the spouses to agree in writing on the annual income of a spouse. The court is not bound by this agreement and may review the spouse's income in light of the income information provided under section 21 of the Guidelines. In the Ontario Court of Appeal case Wheeler v. Wheeler,[292] the court decided that if both parents agree on the income amount of the paying parent, that should be the income used to determine the child support amount.

Amendment

There have been no amendments to this section.

Recommendation

No amendments to this section are recommended.

Section 16: Calculation OF Annual income

Background

Section 16 of the Guidelines says that a spouse's annual income is determined using the sources of income listed under "Total income" on the T1 General form issued by the Canada Customs and Revenue Agency (CCRA). This amount is then adjusted according to the rules set out in Schedule III of the Guidelines.

In practice, this means that the first step in calculating a spouse's annual income is to get his or her most recent federal income tax return. The "Total income" figure on line 150 includes income from all sources, including employment income, pension income, interest and dividend income, business or professional income, and employment insurance and social assistance payments. For each of these identified sources, the amount of income must be determined using the most current information available as specified in subsection 2(3) of the Guidelines.

In some cases, the spouse's most recent federal tax return will provide the most recent information. However, in other cases, the most recent federal tax return and the CCRA notice of assessment and reassessment may not be the best sources for current information. For example, the income tax information may not be up to date, accurate, or a fair reflection of income, especially if a spouse's income has recently changed significantly. In these cases, one must use more current sources of information, such as pay stubs or other income records.

The spouse's income from all sources may have to be adjusted according to Schedule III of the Guidelines to further determine the income actually available for calculating child support. So income under the Income Tax Act is not necessarily the same as income for child support purposes.

Application

IssueS

PAST OR FUTURE INCOME?

At first, some people were confused about whether Guidelines income was based on past income, perhaps as found in an income tax return, or on projected income. As more case law interpreted the Guidelines, a clear direction emerged. For the most part, the courts are not determining current income on the basis of a preceding year's tax return, but rather by reference to the sources of income found in the T1 General form. This trend is reinforced by subsection 2(3), which directs the courts to use the most current income information, as well as by paragraph 21(1)(c), which requires a spouse to file his or her most recent statement of earnings.

Annual income

A related issue is the definition of annual income. Does the word annual refer to the current calendar year or to the next 12 months?

Case law

PAST OR FUTURE INCOME?

The leading case is Lee v. Lee,[293] wherein the Newfoundland Court of Appeal made the following statements:

Support must be paid out of the future income of the payor-spouse. The underlying rationale is still ability to pay. In that sense, the process of setting child support is a prospective one. In engaging in that predictive exercise, however, historical data is obviously important and usually provides the best forecast of current ability to pay.

Subsection 2(3) of the Guidelines supports the foregoing analysis inferentially since it requires the use of "the most current information" in the determination of any amounts for the purposes of the Guidelines.

Section 16 merely provides that the "sources" of income used for calculating income for the purposes of support shall be consistent with the sources used for calculating income subject to taxation. It is the categories of income, not their historical amounts, [that] must be determined by reference to income tax concepts.

Annual income

Case law is divided on the definition of annual. In several cases, the courts based a party's annual income on the most current information, saying that annual income is from the calendar year in which the application is heard.[294] Other cases say that annual income is income to be earned in the 12 months following the application.[295]

Amendment

Section 16 was amended on November 1, 2000, because Revenue Canada had changed its name to the Canada Customs and Revenue Agency.[296]

Recommendation

No amendment to this section is recommended. With regard to what annual income means, the Guidelines have the built-in flexibility to allow a definition that is "time appropriate" to the situation. If child support is being determined for a period that precedes the hearing of the application, then annual income relates to the time for which the child support amount is being calculated and ordered. If the child support amount calculated and ordered is for a period after the hearing, then annual income reflects that time period.

Section 17: Patttern of income

Background

Under subsection 17(1), the court may select an amount of income that, in its view, would be a fairer amount than the most recent income information. The court reviews the paying parent's annual income over three years to identify trends, fluctuations, and non-recurring items, then adjusts the income amount. There is no formula for this; the court does what is appropriate.

Where a spouse has a non-recurring capital or business investment loss, under subsection 17(2), the court may adjust the income amount of the loss to reflect a more appropriate amount.

Under the Income Tax Act there are limitations and restrictions affecting the deduction of capital and business investment losses. Sections 6 and 7 of Schedule III of the Guidelines[297] change the treatment of these losses so that the full net capital gain or the full business investment loss (not just the taxable portion permitted by the Income Tax Act) is included in determining annual income for Guidelines purposes.

In determining a spouse's annual income the court may adjust the amount of a capital or business investment loss without applying the amounts determined by sections 6 and 7 of Schedule III. The court may adjust the amount of these losses and therefore neutralize the effect of a one-time loss. This is consistent with the Guidelines objective of determining annual income as fairly as possible. The court may adjust the amount of the loss and any related expenses, including carrying charges and interest expenses, as it considers appropriate.

Section 17 gives the courts flexibility and discretion in determining income in cases where the strict rules would create an unfair result that does not truly reflect a person's income.

Application

Issue

Section 17 raises several issues not necessarily related to how the section is interpreted, but to how the section is applied in relation to the facts of any given case. Examples include whether overtime income should be included in Guidelines income, whether income that historically fluctuates (such as farming income, fishing income, and real estate income) should be averaged out over more than one year, and what amount from a non-recurring source of income should be included in Guidelines income. With so many variables, the Guidelines cannot address every possible income scenario. They can only provide general rules courts can use to decide on the fairest income amount, given the evidence and circumstances.

Case law

The Court of Appeal case of Lee[298] explained, "Neither does s. 17 of the Guidelines indicate ... that the court is required to base its income calculations on past income levels." The Court added, "These are convenient shorthand methodological rules to enable a fair prediction of current income to be determined."

In Wilson v. Wilson,[299] a farming income case, the court decided not to rely too heavily on section 17 since the objective is to determine, based on the circumstances before the court, the fairest indicator of a person's income. The court went on to say that averaging the most recent three years of available information accounts somewhat for fluctuations that can occur from year to year.

In Pederson v. Walker,[300] the court held that a portion of the lump sum severance payment the paying parent received should be attributed to the income stream of all future years while the children were still dependent. In Holtby v. Holtby[301] and Hart v. Hart,[302] the court did not include a one-time RRSP withdrawal in income.

The courts have generally applied subsection 17(2) as intended. In the Saskatchewan case of Kuntz v. Kuntz,[303] the court found that, since the objective was to find the fairest indicator of current income, when somebody tries to use business losses to substantially reduce income, that person must completely explain the losses. The court went on to say that losses and expenses unrelated to earning income, as a general rule, should not be used to reduce income.

In Omah-Maharajh v. Howard,[304] the court did not allow a deduction from the father's income for his allowable business investment loss of $75,000. The court felt that if it permitted the deduction, it would be understating the father's ability to pay child support. However, the court allowed him to deduct the annual loan repayment on money he borrowed to make the investment, as this did reflect his income.

Amendment

The initial wording of subsection 17(1) was long and cumbersome, sometimes requiring courts to go through unnecessary mental gymnastics. There was also some redundancy and excess wording. Although the courts were, for the most part, applying subsection 17(1) as intended, the subsection was amended to make it even easier to apply.[305]

Subsection 17(1) was amended on November 1, 2000. It was reworded to clarify that the court should only consider past income when the income amount determined under section 16 would be unfair. The rewording also clarified that, when determining the income amount, the court should consider a parent's pattern of income, or fluctuations in income, or the receipt of a non-recurring amount.

The former paragraph (a) of subsection 17(1) was removed because it was redundant when read with section 16. Section 16 and subsection 2(3) set out the criteria for determining income when a parent's income is increasing or decreasing steadily. The annual income is determined using the most recent information.

The reference to a "source" of income, which is also found in section 16, was also removed. Under section 16, the court will determine income using the "sources" of income set out in the T1 General form issued by the Canada Customs and Revenue Agency. Section 17 applies to cases where the amount determined under section 16 is not fair. Therefore, the reference to "sources" in section 17 was unnecessary.

Paragraphs (b) and (c) were collapsed into subsection 17(1), without affecting how 17(1) is applied. The section was simply streamlined to make it easier to use.

Recommendation

No amendment to this section is recommended.

• Previous Page
• Table of Contents
• Next Page