Guideline Income: The Tail Wagging Support Obligations

Cameron W. Brinkman | May 15, 2020

balancing money on calculator


During separation and after divorce, the higher income person (the “Payor”) may be obligated to pay spousal and / or child support to the lower income person (the “Recipient”). The amount of the support payment is dependent, in part, on the Guideline Income of the Payor and, in some situations, that of the Recipient.

This article is written to assist readers in obtaining a general understanding of what Guideline Income is, what it is not, and how it is determined. Two areas[1] of common disagreement are highlighted, and each will be discussed further in subsequent articles.

These are complex topics, which require a working knowledge of both generally accepted accounting principles and personal income taxation in Canada. Where possible, the discussion has been simplified, perhaps overly so. Discussions of the many nuances in the determination of Guideline Income are beyond the scope of this article, and readers are encouraged to contact the writer or another experienced professional with any questions regarding their specific circumstances.

Collaborative Family Law

The collaborative process facilitates a discussion the many factors that may influence the allocation of UPTCI, as well as the identification and quantification of personal benefits. Often, a range of possible Guideline Incomes becomes evident, as does a range of support obligations.

The parties are then able to select a support obligation that works for them, and is consistent with the other aspects of the divorce, including the property division and parenting agreements. In this way, together the parties will develop a customized solution, and avoid having a resolution imposed upon them by the Courts.

Guideline Incomes

Guideline Income affects the support amount(s) owing from the Payor to the Recipient. While disagreements tend to focus on the amount of the support obligation, the solution is often found through a proper determination of Guideline Income.

For employees who do not earn significant income from other sources, Line 150 of their personal income tax returns may be a reasonable approximation of their Guideline Income.

For individuals with multiple sources of income, and particularly high-income individuals who own private companies (including self-employed people), the calculation of Guideline Income is more complex and involves subjective adjustments. These parties will benefit by involving an independent expert to assist in determining Guideline Income.

Three Sets of Guidelines

For purposes of child support, Guideline Income is determined according to the Federal Child Support Guidelines (“FCSG”), which are part of the Divorce Act and apply to those parents who are divorcing, or those who are changing a child support Order that was part of a divorce action. The Alberta Child Support Guidelines (“ACSG”) are part of the Family Law Act and apply to all other parents, including common law and same sex couples.

For spousal support, Guideline Income is determined according to the Spousal Support Advisory Guidelines (“SSAG”). The SSAG are the results of an academic paper released in 2008, are not law, and are not expected to become law. However, the SSAG are routinely relied upon by the Courts, lawyers, mediators, arbitrators and others involved in family law matters.

Whether you’re relying on the FCSG, the ACSG, or the SSAG, the calculation of Guideline Income is similar. The remainder of this article will refer only to the FCSG.

Determining Guideline Income

The FCSG are organized into 27 sections, and three supplementary schedules. Taken together, Sections 16 – 20, inclusive, and Schedule III describe how Guideline Income is determined. The process involves some adjustments that are mechanical, and not open to a range of interpretations. Other adjustments are somewhat subjective, are therefore susceptible to the biases of the parties. These subjective adjustments are commonly the cause of the differences that prevent parties from reaching an agreement themselves, and instead requesting assistance from the Court.

Section 16 – Calculation of Annual Income

Section 16 of the FCSG sets out that the determination begins with Total Income (Line 150[2]) of the Payor’s personal income tax return. This includes employment income (T4), interest and / or dividend income (T5), as well other sources of income the Payor may have. Line 150 is then adjusted for Schedule III items including[3]:

  1. The universal child care benefit and spousal support payments received are deducted;
  2. The gross-up[4] on taxable dividends are deducted
  3. The other half of taxable capital gains are added;
  4. Capital cost allowance on real property is added; and
  5. Carrying charges are deducted.

Section 17 – Pattern of Income

Where the Court feels that the amount determined under Section 16, is not the fairest determination of Payor’s income, Section 17 of the FCSG provides the Court room to adjust that amount to what the Court considers to be appropriate.

In making adjustments under Section 17, the Court may exclude unusual or non-recurring income or losses in the prior three years when developing an estimate of the Payor’s Guideline Income in future years.

Section 18 – Shareholder, Director or Officer

Where the Payor holds an equity interest in a corporation, Section 18 allows for all or a part of the undistributed[5] pre-tax corporate income (“UPTCI”) to be included in the Payor’s Guideline Income. Unfortunately, the FCSG do not provide much guidance as to how to determine what portion, if any, of the UPTCI should be allocated.

Opposing parties tend to allocate different amounts, often consistent with their own biases or those of their respective client. In some cases the UPTCI is significant, and different allocations result in significant variances between Guideline Incomes as calculated by opposing parties. As a result, the support obligation may be significantly impacted, and the impact may be magnified when calculating Guideline Income over a number of years.

A review of the significant jurisprudence on the allocation of UPTCI, or the various methods employed when making the allocation, are beyond the scope of this article. However, it does seem to be well understood that:

  1. The corporate veil is to be lifted[6];
  2. There may be reasons not to allocate all, or any, of the undistributed pre-tax corporate income to Guideline Income[7]. However, the burden of proof that the income should not be allocated rests with the Payor[8];
  3. Care should be taken to not “… kill the goose that lays the golden egg”[9], as the intention is not “….to place the largest shovel possible into the corporate store.”[10]; and
  4. Retained earnings is not the amount to be included[11].

Given the potential for a large impact in the support obligation, and the subjectivity involved, the allocation of UPTCI is often the source of the largest disagreement between the parties.

Section 19 – Imputing Income

In a variety of circumstances, the Court may rely on Section 19 to impute an appropriate amount of income to a Payor. These circumstances include, but are not limited to:

  1. When the Payor is intentionally under-employed, or unemployed, or isn’t properly utilizing their assets to generate income;
  2. When the Payor earns income that is taxed at rates that are lower than ‘normal’ rates associated with earning employment or business income in Canada; or
  3. When the Payor has diverted income, unreasonably deducted expenses, or failed to provide the information required to determine Guideline Income.

Additional income is often imputed to the Payor under Section 19(g) when a personal benefit is provided to the Payor by virtue of having caused the company to record as an expense a cost which would otherwise be incurred by the Payor personally, with after-tax dollars.

These expenses reduce the corporate income which may be allocated to the Payor pursuant to Section 18(1)(a), while also enhancing the ability of the Payor to pay support. This inconsistency is resolved by including the personal benefits in Guideline Income, and the inclusion may be ‘grossed-up’ to reflect that the Payor would have had to earn a higher amount of pre-tax dollars in order to pay for the expense personally with after tax dollars.

As with the allocation of UPTCI, the determination of personal benefits is subjective, often leading to different conclusions as to the Payor’s Guideline Income.

Recent jurisprudence[12] regarding personal benefits places the onus of disclosure[13] on the Payor, and that disclosure is required to be in sufficient detail to allow the Recipient to understand how the amounts were determined. In practice, the disclosure is often inadequate, and the Recipient may engage an independent expert to confirm or refute the reasonableness of that disclosure. This is often done through a detailed review of the general ledgers, which is a time intensive[14] and costly process.

It is worth noting that the value of the additional resources directed toward refining the disclosure of personal benefits may easily exceed the benefit of doing so. For example, increasing the Guideline Income of a Payor with 2 children in Alberta from $100,000 to $110,000 will increase the child support payment by $138 per month, from $1,458 to $1,596.

It is worth noting that where the corporation pays for the cost of a personal item, but the amount is charged to the shareholder loan account[15] instead of being recorded as a corporate expense, it is not a personal benefit.

Section 20 – Non-Resident

Where the Payor is a non-resident of Canada, and resides in a country where tax rates are higher than the rates in the province in which the Recipient resides, the Court may rely on Section 20 to consider those higher tax rates in determining the Payor’s Guideline Income.

Cameron Brinkman is a partner with Pisko Brinkman Inc. in Edmonton, Alberta, a boutique firm experienced in providing business valuations, guideline income determinations, and other related services primarily in family law matters.


[1] Sections 18(1)(a) – allocation of pre-tax corporate income, and 19(g) – personal benefits.
[2] For 2019 and later taxation years, what was Line 150 will instead be Line 1500.
[3] The examples provided are common Schedule III adjustments, but the list is not intended to be exhaustive. Please refer to Schedule III of the FCSG.
[4] In Canada, there are three types of dividends. The amount of the gross-up, if any, is different for each type, and the gross-ups may change each year as the result of changes to the Income Tax Act.
[5] While not stated in the FCSG, it is understood that only the undistributed income should be allocated, to avoid double counting income that has already been distributed by way of a dividend.
[6] Baum v. Baum, 1999 BCSC, paragraph 28.
[7] Interested readers may refer to Thomspon v. Thompson, 2013 ONSC, paragraph 92 for a list of factors that may be considered when making the allocation.
[8] Cunningham v. Seveny, 2017 ABCA 4, paragraphs 1 and 36.
[9] Bembridge v. Bembridge, 2009 NSSC 158, paragraph 37.
[10] Stamoulos, supra., paragraph 44.
[11] Thompson v. Thompson, 2013 ONSC, paragraph 89.
[12] Refer to Sweezey v. Sweezey; Cunningham v. Seveny; and Zdyb v. Zdyb.
[13] Cunningham v. Seveny, 2017 ABCA 4, paragraphs 1 and 36, often referred to as “Cunningham Disclosure”.
[14] Zdyb v. Zdyb, 2017 ABQB 44, paragraph 70.
[15] Charges to the shareholder loan account are generally ‘cleared’ each year when the external accountant records a bonus or dividend, which is then included in Line 150 of the Payor.

Filed under: Child Support, Children and divorce, Dispute Resolution, Dividing assets, Spousal Support

Tags: , , , ,

The Blog

Edmonton and area Collaborative Practice News and Information

Avoid the “Prisoner’s Dilemma” in your separation

James Samaroden | January 18, 2024

The Prisoner’s Dilemma is a simple yet powerful thought experiment. Imagine two people, let’s call them Alice and Bob, who are accused of committing a crime together. They are arrested and placed in separate cells with no way to communicate.

Continue Reading

Fair Settlement

divorceseparationca | May 3, 2023

Continue Reading

Neutral Financial Experts Save You Money

James Samaroden | April 26, 2023

When going through a Collaborative Family Law (CFL) process, it is important to have a team of professionals to support both parties in reaching a fair and equitable settlement. One key member of this team is the neutral financial professional.

Continue Reading


Hosted on Panda Cloud