How to Calculate Child Support in BC. What Income Is Used?

Calculating child support in British Columbia is a complex process that demands a thorough understanding of the types of income considered. The income assessment involves various factors, including the current and previous years’ income approaches.

Additionally, the method of income averaging and its applicability under certain circumstances might also be relevant. This article highlights these intricate details to facilitate a more informed approach to child support calculations.

Let’s explore child support determination and the diverse sources of income that come under its purview.

Key Takeaways

• Child support in BC is calculated using gross income, reported on Line 150 of your tax return, which excludes taxes and other expenses.
• All sources of income, such as corporate, self-employment, and rental income, should be considered when calculating payment for child support.
• Self-employed individuals can deduct reasonable expenses from their income, but underestimating your income can lead to consequences.
• In shared custody situations, child support varies based on the child’s residence time with each parent, and extraordinary expenses are shared based on proportionate incomes.

Background: Child Support Income Determination

Various methods and considerations are applied to ascertain a fair and accurate amount in the complex sphere of child support income determination. This is demonstrated by the case of Mr. Lhotka, who sought to reduce his income for child support purposes based on his 2013 earnings. The couple married in 1997, had two children, and divorced in 2016. Their separation agreement utilized a five-year average to calculate child support. However, Mr. Lhotka appealed for a reduction based on his 2013 income, which was lower than the preceding years.

Initially, the parties’ separation agreement set Mr. Lhotka’s income at $183,000, based on a five-year average. Upon his appeal to lower his income determination, a Chambers judge then set his income at $234,737, using the average value over three years. This resulted in a significant increase to his support obligations. However, the Court of Appeal reset his income to $196,604, based on a five-year average. The court deemed this to be the fairest assessment considering the fluctuations in Mr. Lhotka’s income over the years.¹

This case underscores the complexities involved in determining income in regards to child support, highlighting the need for careful consideration of income stability and financial fairness. This process is an essential precursor to the actual child support calculation, which will be discussed in the next subtopic.

Process of Child Support Income Calculation

Having established the intricacies involved in determining income for child support, we now turn our focus to the actual process of calculating child support based on this income.

The child support calculation in British Columbia starts with the gross income reported on Line 150 of the payer’s tax return. This value excludes taxes and other expenses. Income determination uses several sources set out by the Canada Revenue Agency, with adjustments made in accordance with a specific schedule outlined in Section 15 of the Federal Child Support Guidelines. If the payer’s income is regular, the income calculation is straightforward and is based on the T1 General form.

However, if the income fluctuates, the guidelines allow for adjustments based on the preceding three years. The court maintains discretion to adjust the income amount for the sake of fairness. The determination of what is fair and reasonable is derived from past income. This process considers the pattern of income fluctuation and aims to provide a just outcome for both the child’s and the payor’s financial security.²

Applicability of Income Averaging

The concept of income averaging emerges as a pivotal tool when evaluating child support obligations for parents with fluctuating incomes. This approach is beneficial in instances where a parent’s income is inconsistent due to factors such as seasonal work, contract-based jobs, or unpredictable business profits.

Section 17 of the Child Support Guidelines in British Columbia allows the court to contemplate a parent’s income over the last three years to derive an average.³ This is particularly applicable when there’s a significant discrepancy between the current year’s income and the average income of the preceding three years. The intent is to make a fair and reasonable determination of income for child support obligations.

However, the application of income averaging isn’t automatic. Courts exercise discretion in its use, primarily focusing on the fairness of the outcome. Factors such as the parent’s past income patterns, the reasons for income fluctuations, and the duration of the varying income are taken into account.

Ultimately, income averaging aims to strike a balance, making sure that child support payments reflect the parent’s capacity to contribute while safeguarding the child’s best interests.

Pros and Cons of the Current Income Approach

Weighing the pros and cons of the current income approach provides valuable insight into its effectiveness in determining child support. As the name suggests, the current income approach takes into account the parents’ present earnings to calculate child support payments.

Advantages:

• It reflects the real-time financial ability of the parents. This dynamic approach can accommodate recent changes in income, offering a more accurate reflection of the current financial situation.
• It allows for immediate adjustments in child support obligations, ensuring the needs of the child are met promptly.

Disadvantages:

• It can lead to child support payment fluctuations due to parents’ income variations. This can result in instability and unpredictability, making long-term planning difficult for both parents.
• The administrative burden of frequent recalculations can be significant. Changes in income often require a reassessment of child support, leading to increased administrative work and potential legal costs.

Advantages and Drawbacks of Using Previous Years’ Income

On the other hand, utilizing a parent’s previous years’ income to calculate child support also carries its own set of benefits and drawbacks.

One significant advantage of this method is the element of stability it brings to child support calculations. It allows for smoother planning for parents, as it considers the consistency of past income and helps predict future financial obligations. Additionally, it provides a reliable financial baseline, avoiding the need for frequent recalculations that may occur with fluctuating incomes.

However, this approach has its downsides. It lacks real-time accuracy, potentially leading to discrepancies between the calculated support and the parent’s current financial capacity. This approach may fail to account for unexpected challenges, such as job loss or a sudden decrease in income, thereby impacting the child’s well-being. In addition, this method’s inability to promptly adapt to current financial situations might result in either parent carrying an unfair financial burden. It is essential to weigh these factors when deciding on the most appropriate method for calculating child support.

BC Child Support: Income Calculation

In British Columbia, calculating child support involves a detailed examination of the parent’s income, primarily focused on the gross income reported on Line 150 of their tax return. This income level forms the basis for determining the level of child support required.

The process involves several steps:

1. Gross Income Determination: This is the starting point for child support calculations. It includes all income before taxes and deductions and is usually based on the parent’s most recent tax return.
2. Adjustments: If the parent’s income varies considerably from year to year, the court may consider averaging the income over the last three years. This can provide a more accurate reflection of the parent’s earning capacity.
3. Deductions: Certain expenses can be deducted from the gross income. These include union dues, professional fees, and certain types of business losses.
4. Final Calculation: Once the adjusted income is determined, it is applied to the child support guidelines to calculate the required child support.

Inclusion of Various Income Sources

When calculating child support in British Columbia, it is critical to consider all sources of income, including corporate, self-employment, RRSP, rental, and investment income. These diverse incomes contribute to the financial resources available to support the child’s needs.

For corporate income, remuneration received from a corporation where the parent has a significant interest is considered. This could include salaries, benefits, and dividends. Self-employment income includes gross revenue from a business or profession minus the income costs.

RRSP income is considered when withdrawals are made.

Rental income, the net income after deducting expenses from renting properties, also contributes to the total income.

Investment income, which includes dividends, interest, and capital gains, is another source that it is crucial to include.

Additionally, any foreign income, capital gains, and other amounts that would be included in income under the Income Tax Act are assessed. It’s essential to report all income sources accurately. Failing to do so could lead to inaccuracies in the child support calculation, which may result in legal consequences.

Child Support Calculations in Shared Custody Situations

Determining child support in shared custody situations often requires a nuanced approach, as the amount can vary based on the child’s residence time with each parent. Shared custody, where each parent has physical custody of the child for at least 40% of the time, incorporates both parents’ incomes into the calculation.⁴ The process involves a few key steps:

1. Determine Each Parent’s Income: Both parents’ gross annual incomes are determined using the same rules as single-custody situations, including all sources of income and deductions for eligible expenses.
2. Calculate Theoretical Child Support Amounts: The child support amount each parent would owe if the other parent had sole custody is calculated using the Federal Child Support Guidelines.
3. Calculate Set-off Amount: The lower child support amount is subtracted from the higher to create a set-off. The parent with the higher income pays this set-off amount to the other parent.
4. Determine Responsibility for Special Expenses: Special or extraordinary expenses are shared between the parents, usually in proportion to their incomes.

Considering the complexity of this process, legal guidance is often beneficial to make fair calculations and adhere to the Federal Child Support Guidelines.

What Happens to Child Support Calculations If I Can’t Afford to Pay It in BC?

If you’re struggling in BC with child support payments, it’s essential to understand what to do if child support unaffordable situations arise. You may need to request a court review or apply for a modification based on your current financial circumstances, ensuring obligations align with your ability to pay.

How can Spectrum Family Law Help?

Handling the complexities of child support calculations can be challenging, and Spectrum Family Law, with its experience in family law, can provide invaluable assistance. We offer a thorough approach to calculating child support, which includes an in-depth assessment of all income sources, such as corporate, self-employment, RRSP, rental, and investment income. We also consider capital gains and foreign income to provide an accurate calculation.

Spectrum Family Law is adept at handling fluctuating income situations. If gross employment income varies, we can average the last three years, ensuring fairness in the calculation. We are also proficient in handling business expenses for self-employed individuals and scrutinizing reported income to ascertain appropriate deductions.

Spectrum Family Law provides meticulous calculations based on the child’s residence time with each parent for shared custody situations. We consider set-offs between parents’ incomes and share extraordinary expenses based on the proportion of incomes. Our experience extends to making necessary modifications in expense-sharing ratios as per court orders or agreements. With Spectrum Family Law, you are guaranteed accurate and fair child support calculations.

Frequently Asked Questions

What Happens if a Parent Refuses to Pay Child Support in BC?

In British Columbia, if a parent refuses to pay child support, the Family Maintenance Enforcement Program can enforce payment through measures like wage garnishment, seizing assets, or suspending driver’s licenses. Legal consequences may also apply.

How Is Child Support Calculated When Both Parents Have Shared Custody?

In shared custody situations in BC, child support is calculated based on the parent’s respective incomes and the child’s residence time with each parent. Extraordinary expenses are proportionally shared based on each parent’s income.

Can Child Support Be Retroactively Modified Based on Changes in Income?

Yes, child support can be retroactively modified in BC. Changes in income, whether an increase or decrease, can warrant a review and adjustment of the existing child support order by the court.

How Is Child Support Handled in BC if a Parent Is Unemployed or Loses Their Job?

In BC, child support may be adjusted if a parent is unemployed or loses their job. Courts consider unemployment benefits or severance pay as income. If job loss is voluntary, courts may impute income.⁵

What Role Does the Child’s Own Income or Assets Play in Child Support Calculations in BC?

In British Columbia, a child’s income or assets generally do not factor into child support calculations. The responsibility primarily falls on the parents, who follow federal guidelines based on their income and number of children.

References

1. Harras v Lhotka, 2016 BCCA 246 (CanLII)
   https://canlii.ca/t/gs0tn ↩︎
2. Federal Child Support Guidelines (SOR/97-175), s 15
   https://laws-lois.justice.gc.ca/eng/regulations/sor-97-175/page-1.html ↩︎
3. Ibid, s 17 ↩︎
4. Ibid, s 9 ↩︎
5. Ibid, s 19 ↩︎

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