New Income Splitting Rule and its Impact on Support
New Income Splitting Rule and its impact on support – January 14, 2015
As you may have heard, legislation was passed allowing families to split up to $50,000 in income between spouses under the Family Tax Cut program. This means that the higher income earning spouse can transfer $50,000 of income to the lower income earning spouse and take advantage of the lower tax bracket resulting in tax savings. This will impact the Line 150 Income, which is the income normally used for calculating Guideline Income for support purposes. The first issue is that Payors who have deducted the split income amount from their income, will show corresponding lower amount of income at Line 150. Conversely, the second issue is payors who receive the split income amount from their spouse will show a correspondingly higher amount of income at Line 150.
The Federal Child Support Guidelines already has a mechanism within it to deal with the first issue. Section 19(d) of the Guidelines permits the court to impute income (which means attribute income) in circumstances where income has been diverted which would affect the level of child support payable under the Guidelines. Basically, each Line 150 Income for such payors would be increased by the amount they have income split to their spouse.
However, there is no mechanism within the Guidelines to deal with the issue of reducing a payor’s income where their spouse has added income to their Line 150 using the new income splitting rule. I suspect this will be addressed by future amendment, similar to section 4 of Schedule III which allows for an adjustment to Guideline income to remove income reported from pension splitting.
More information about the Family Tax Cut can be found here: http://www.cra-arc.gc.ca/gncy/bdgt/2014/qa10-eng.html