Self-Employment and Family Law: Calculating Income for Support.

• Author: Dargatz, Sarah
• Position: FAMILY LAW

In most cases, the amount of child support a parent has to pay is determined by their income. For an employee, this is generally simple to calculate and is usually set out at line 150 of the employee's tax return. However, many Albertans earn income from self-employment. It can be complicated to assess that parent's income for the support of their child as line 150 may not accurately reflect how much money that parent actually has available.

Under our tax laws, a self-employed person is allowed to deduct business expenses from their total income. Recently, the Alberta Court of Appeal, in Cunningham v. Seveny, 2017 ABCA 4, stated that people who have an interest in a business bear the burden of proof to demonstrate that certain business expense deductions are reasonable for the purposes of calculating income for child support. A self-employed parent must provide full financial disclosure to the other parent along with explanations of their compensation and benefits. The reasonableness of an expense is not necessarily determined whether the expense is allowable under the Income Tax Act. The court will look at the personal benefits the parent receives such as the personal use of the business' vehicles, computers, cellphones, travel, and entertainment expenses. Expenses that are not reasonable can be "added back" to their income. The court then "imputes" the new income on the self-employed parent and uses it to calculate child support.

If a self-employed parent does not provide adequate disclosure of their compensation, benefits, and explanations for their expenses, a judge can draw an "adverse inference". This means that a judge can make a presumption that the evidence was not provided because it would hurt that person's own case. For example, if information about an expense is not provided, a judge can assume a high percentage of the expense was for the parent's personal benefit and add most of it back to their income.

In some cases, it may be necessary to have an accounting professional review a business's financial statements to provide an opinion of what the self-employed parent's "guideline income" should be set at to calculate child support.

The same evaluation of a self-employed person's income can be done to calculate spousal or partner support as well.

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