Interim Child Support and Income Derived Through Dividends
Rawluk-Harness v Harness, 2014 ONSC 2531
This case deals with the issue of interim child support and income derived through dividends.
The parties were married in 1994 and separated in 2003. There are two children from the nine year marriage, ages 18 and 14. The children primarily resided with the Mother and the Father’s primary source of income was from his publishing business. Further, the Father elected to receive income as a dividend, as opposed to salary, from his corporation, which he wholly owned. The Mother applied for an increase in interim child support.
The Court found that the respondent’s line 150 income for “2012 is shown as $62,924; of this amount, $62,500 was a dividend from the respondent’s corporation. This dividend amount was shown as a taxable dividend on the respondent’s notice of assessment” (paragraph 19). The Court further found that the “parties agree that the actual dividend received by the respondent was $50,000 and that the taxable dividend consisted of the actual dividend ($50,000) plus a 25% gross-up ($12,500), for a taxable dividend of $62,500” (para 20).
The applicant argued that by electing to take this income as a dividend, the respondent would pay less child support than if he elected to taker his income as a salary, a factor which was fully under his control. Thus, the applicant argued that the respondent’s income should be the grossed-up value for child support purposes.
The Court found that sections 18 and 19(1)(h) of the Guidelines were relevant in this matter as they provided the framework to interpret which income ought to be attributed to the Father given the facts. In particular, section 19(1)(h) of the Guidelines provides:
19(1) “The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:
(h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax;…
In Riel v Holland (2003), 67 OR (3d) 417 (Ont. C.A.), the Court of Appeal for Ontario accepted “the principle that a proper interpretation of s. 18 and 19 of the Guidelines is to ensure that two parents, where one earns a salary and the other has a similar business income, but pays less tax, are treated consistently in respect of their child support obligations” (paragraph 25).
In Henderson v Casson, 2014 CarswellOnt 1259 (Ont. SCJ), the court included “the full amount of the husband’s taxable dividends in his income for child support purposes where the court was satisfied that the dividend income came from a corporation wholly owned by the husband” (paragraph 31).
The Court found that the respondent’s resources “available to pay child support are not accurately reflected by using his actual dividend of $50,000” (paragraph 34). Thus, the Court found that the respondent’s income for the purposes of child support was $59,945 for 2012. As such, the court ordered child support based on the above-mentioned income, in the amount of $892.00 per month.