The Child Support Guidelines, a law dealing with the determination of child support, were enforced in 1997. According to these Guidelines, child support is determined based on the payor parent’s income and for the purposes of determination of income, we primarily rely on income tax returns of the individual. In most cases, the determination of income is simple and straightforward. But, in a few cases, it becomes complicated, and the same applies to situations when the support payor is non-resident or has foreign income. The purpose of this article is to give a roadmap for calculating foreign income for support purposes.
Applicable Law
An amendment to Section 20 of the Child Support Guidelines was made, which reads as follows:
(1) Subject to subsection (2), where a spouse is a non-resident of Canada, the spouse’s annual income is determined as though the spouse were a resident of Canada.
(2) Where a spouse is a non-resident of Canada and resides in a country that has effective rates of income tax that are significantly higher than those applicable in the province in which the other spouse ordinarily resides, the spouse’s annual income is the amount that the court determines to be appropriate taking those rates into consideration.
How to Calculate Foreign Income?
For the support payor, who earns foreign income, his/her income will be converted into Canadian gross income to determine support. It is not simply applying the currency exchange rates to the payor’s foreign income; there are a number of factors that need to be considered – foreign tax rates, entitlement to foreign tax credits, the tax treatment of spousal support, and exchange rates to determine income on Canadian standards. Normally, the average annual exchange rate is taken into consideration to convert the foreign income into Canadian Currency. [for references, please read:
Gonabady-Namadon v. Mohammadzadeh, 2009 BCCA 448 (CanLII) and E.B.G. v. S.M.B., 2016 BCSC 2434 (CanLII)]
Just for illustration purposes, if the support payor’s tax rate is higher or lower than the Canadian tax rate, then his/her income needs to be adjusted in order to bring it in line with Canadian tax rates. Please note, if the foreign tax rate is lower, the court may impute the support payor’s income to bring it to Canadian standards.
Can a Support Payor Claim Foreign Tax Credit?
A support payor, who has a foreign declared taxed income and is taxed in Canada, is allowed a tax credit. The purpose of the tax credit is to avoid double taxation.
Can a Support Payor Claim Tax Deduction?
Generally, the spousal support payor in Canada claims tax deductions for paying periodic spousal support. If a spousal support payor, having a foreign income, cannot claim a tax deduction, then an adjustment is required to bring the spousal support payor’s foreign after-tax income in accordance with the Canadian spousal support payor’s after-tax income.
Does the Court Need Expert Evidence to Calculate Foreign Income?
I think expert evidence is not required as long as the support payor can provide sufficient documents to the court to determine his/her income in Canada for support purposes. However, expert evidence may be required in a situation where the support payor has additional income due to the tax benefits in that country.
I believe section 20 of the Child Support Guidelines has addressed the anomaly of determining the support payor’s foreign income and has helped in achieving the goal of a fair determination of the support payor’s income to meet his/her support obligations.
Nasar Iqbal
Barrister & Solicitor