Non-Recurring Income

In this video, we will explain why the determination of income under the Family Law Act is not commensurate to the calculation of income for Income Tax purposes because a person may receive income in one year that they do not receive on a regular basis.

Upon the dissolution of a relationship the issue of support commonly arises and often separating parties require that this matter be resolved at the earliest possible time so that the parties can continue covering their living expenses with minimal difficulty. However, to establish each person’s respective obligation or entitlement, we must first review each party’s financial disclosure. Essentially, each party’s income must be determined to establish the quantum of any potential support contribution. However, the determination of income under the Family Law Act is not commensurate to the calculation of income for Income Tax purposes.

For instance, often what happens is that a person receives income in one year that they do not receive on a regular basis. This type of income is known as non-recurring income. Some examples of non-recurring income include: Registered Retired Savings Plan Redemptions, Stock Options, Capital Gains, Severance pay and so on.

When a support payor is in receipt of such non-recurring income, the question arises as to whether the quantum of support payments should be based on the payor’s regular annual income or whether such one time payments should be included as income.

As in most areas of the law, whether non-recurring income is included in computing the support obligation depends on the facts of the particular case.

For instance, let’s take a Registered Retirement Savings Plan as an example of a one time income source. If an RRSP is owned at the date of separation, then the party to whom this asset belongs must include the value of the RRSP on their Financial Statement and therefore the asset is included in the equalization calculation. As such, the RRSP is treated as property and is divided between the parties on separation.

However, the issue arises when the RRSP is later cashed in: does the RRSP holder have to pay support based on this one time hike in income? Often times this one time pay-out from the disposition of the RRSP is not included in the payor spouse’s income for determining spousal support as this inclusion would allow the recipient souse to share in the value of the property through equalization and then reap the benefits of the RRSP a second time by way of increased support. The courts prefer to avoid the latter double dipping as this often proves unfair to one spouse.

Nonetheless, it is important to note that the above example does not transpire in the same way when it comes to child support. In particular, the influx of monies upon an RRSP being cashed in post separation does effect the payor parent’s child support obligation. That is, child support is based on the payor’s gross income for the previous calendar year and so, the year following the time when you cash in an RRSP you will be required to pay child support on your entire income (including the value of the cashed in RRSP). The notion here is that child support is the right of the child and the process of equalization serves no direct benefit to the child. Thus, this is not double dipping.

As stated above, there are a number of additional sources of non-recurring income. For more information on this topic please visit our website or contact our office to book a consultation with one of the lawyer’s on our staff.

Please note: The script may not be exactly what is spoken, but contains the same information as presented in the video.

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