When a parent earns less than they reasonably could, fails to disclose their finances, or structures their income in a way that understates their financial resources, questions can arise about how much they should contribute toward support.
In Ontario, courts may impute income when a person’s reported income does not provide a fair basis for calculating support. This means the court may attribute an income amount to that person for support purposes, even if they do not actually earn that amount.
Imputed income may affect child support and, depending on the circumstances and applicable legal framework, spousal support. Understanding when it may apply can help you prepare for a support dispute.
What Is Imputed Income?
Child support calculations generally begin with a parent’s annual income, determined under the applicable child support guidelines. However, the income reported on a tax return does not always reflect the amount a person should reasonably be treated as earning or the financial resources available to them.
A court may impute income when the circumstances justify using a different amount. For example, a parent who voluntarily leaves a well-paying job without a reasonable explanation may be attributed an income based on their earning capacity.
Imputing income is not intended simply to punish someone for earning less. The purpose is to determine a fair income figure for calculating support based on the evidence and the applicable legal principles.
When Can a Court Impute Income?
Under section 19 of the federal Child Support Guidelines and section 19 of Ontario’s Child Support Guidelines, courts have discretion to impute income in specified circumstances. The applicable guidelines depend on the legal basis of the support claim.
Common situations include the following.
1. Intentional Unemployment or Underemployment
A court may impute income when a person is intentionally unemployed or underemployed, unless the circumstances fall within an applicable exception.
For example, a parent who voluntarily leaves a full-time position to work substantially fewer hours may face an imputation claim if the decision is unreasonable in light of their circumstances and earning capacity.
However, choosing a lower-paying job does not automatically justify imputing income. The court considers the reasons for the employment decision, the person’s qualifications, available opportunities, health, and caregiving responsibilities.
The guidelines specifically recognize exceptions where reduced employment is required by a child’s needs or by the person’s reasonable educational or health needs.
2. Failure to Provide Financial Disclosure
Parents involved in support proceedings generally have obligations to provide relevant financial information. If a person fails to provide required documents, a court may draw an adverse inference or impute income where permitted by law.
Relevant records may include tax returns, Notices of Assessment, pay statements, and business financial statements.
A lack of disclosure does not automatically establish a particular income amount. The court considers the available evidence when determining an appropriate figure.
3. Tax-Exempt Income and Other Sources of Income
The child support guidelines allow courts to impute income in certain circumstances involving tax-exempt income and income from sources that receive preferential tax treatment.
For example, where a person’s income is exempt from federal or provincial income tax, the court may consider imputing an appropriate amount to ensure that the support calculation reflects the circumstances fairly.
The treatment depends on the type of income, the applicable guideline provisions, and the evidence. Not every tax-exempt payment is automatically treated in the same way.
4. Income Diverted Through a Business or Corporation
Self-employed individuals and business owners may receive income through salary, dividends, or other arrangements. In some cases, a person’s personal tax return may not fully reflect the financial resources relevant to support.
The guidelines permit courts to address certain forms of income diversion and, in specified circumstances, to consider corporate pre-tax income when determining a shareholder’s income.
Courts may examine business financial statements, corporate tax returns, expenses, dividends, and payments made to related parties. However, corporate revenue or retained earnings are not automatically treated as personal income. The court must apply the relevant legal rules to the evidence.
5. Unreasonable Business Expense Deductions
A self-employed person may claim business expenses when calculating taxable income. However, an expense that is deductible for income tax purposes is not necessarily reasonable for child support purposes.
Where a person unreasonably deducts expenses from income, the court may impute income under the applicable guidelines. The analysis depends on the nature of the expense, whether it was genuinely incurred for business purposes, and the applicable legal rules.
6. Property or Assets That Are Not Reasonably Used to Generate Income
The guidelines also allow income to be imputed in certain circumstances where a person’s property is not reasonably utilized to generate income.
For example, a court may consider whether assets could reasonably generate income in the circumstances. This does not mean that every asset must be sold or invested in a particular way. The court assesses the evidence and what is reasonable in the circumstances.
How Do Courts Determine the Amount of Imputed Income?
There is no single formula for every case. The amount depends on the reason income is being imputed and the evidence available.
Factors may include:
- Employment history: Previous earnings, work experience, qualifications, and demonstrated earning capacity.
- Job availability: Whether suitable employment is realistically available in the relevant occupation and location.
- Health and age: Medical conditions, disabilities, and other circumstances that may affect the ability to work.
- Education and retraining: Whether further education or training is reasonable and how it affects current and future earning capacity.
- Caregiving responsibilities: The needs of children and the practical demands of parenting.
- Financial records: Tax returns, pay statements, corporate records, and other evidence of income or available resources.
For example, a court may consider a person’s previous earnings and available employment opportunities when deciding whether income should be imputed following a voluntary reduction in work.
However, a court does not automatically use a person’s former salary, a regional occupational average, or minimum wage. The appropriate figure must be supported by the evidence and the circumstances of the case.
Who Has to Prove That Income Should Be Imputed?
The party asking the court to impute income generally needs to provide evidence supporting that request. Depending on the circumstances, this may include evidence of a person’s previous earnings, qualifications, employment choices, financial disclosure, or business activities.
The court then assesses the evidence and determines whether imputing income is justified and, if so, what amount is appropriate.
The evidentiary burden depends on the reason for the request. For example, a claim based on intentional underemployment may require evidence about earning capacity and the reason for the employment decision. A claim based on missing financial disclosure may involve different considerations.
A person’s income should not be imputed solely because the other party believes they could earn more. The court must have an adequate evidentiary basis for its decision.
When Might a Reduction in Income Be Reasonable?
Not every reduction in income justifies imputing a higher amount. Courts consider the reasons for the change and the person’s individual circumstances.
Relevant circumstances may include:
- A documented illness or disability that affects the ability to work.
- Reasonable educational or retraining decisions.
- Childcare responsibilities and the needs of the children.
- A genuine loss of employment or reduced opportunities in the relevant industry.
- Other circumstances that reasonably limit employment options.
Family violence may also be relevant where it has affected a person’s employment history, health, financial independence, or ability to return to work. The court may consider the evidence and the broader circumstances when assessing earning capacity and whether a reduction in income is reasonable.
These factors do not automatically prevent income from being imputed. Rather, they help the court determine whether imputing income is appropriate in the particular case.
Does Imputed Income Apply to Spousal Support?
Imputed income may also be relevant to spousal support calculations, but the analysis is not identical to the child support analysis.
The applicable legal framework, the parties’ circumstances, and the evidence all matter. In determining spousal support, courts consider factors such as each spouse’s financial means, needs, earning capacity, health, and responsibilities. The Spousal Support Advisory Guidelines may also assist in calculating the amount and duration of support, although they are not legislation.
A court may consider whether a spouse’s reported income fairly reflects their circumstances. However, the fact that a person earns less than their former partner does not, by itself, establish that income should be imputed.
Frequently Asked Questions
Yes, potentially. A court may impute income if the parent is intentionally unemployed or underemployed and the circumstances do not justify the decision under the applicable guidelines.
A court may draw an adverse inference or impute income where a person fails to provide required financial information. The amount will depend on the available evidence and the circumstances.
Yes. Courts may examine business records, income diversion, unreasonable expense deductions, and other relevant financial information when determining income for support purposes.
Not necessarily. Imputed income can affect the support calculation, but the actual amount of support depends on the applicable guidelines and the circumstances of the case.
The court will consider the children’s needs, the parent’s caregiving responsibilities, and the applicable legal exceptions. Staying home to care for children does not automatically justify or prevent income imputation.
Key Takeaways
- Imputed income is an income amount a court attributes to a person for support purposes based on the circumstances and applicable legal rules.
- It may apply in cases involving intentional underemployment, missing financial disclosure, income diversion, or certain tax and asset-related circumstances.
- Courts consider employment history, earning capacity, health, childcare responsibilities, financial records, and other relevant evidence.
- A reduction in income does not automatically justify imputing income.
- The party seeking imputation generally needs evidence to support the request.
- Imputed income may affect child support and, depending on the circumstances, spousal support.
