Calculating Guideline Income for Non-Residents of Canada

Kasey Anderson

When a payor of child support resides outside of Canada, it is important to consider whether there is a need to adjust the guideline income to account for a higher or lower rate of taxation in the country they reside. The Federal Child Support Guidelines allow for such adjustments pursuant to sections 19(1)(c) and 20(2), which provide that the Court has jurisdiction to adjust guideline income if the payor of support pays income tax at a significantly lower or higher rate than that in the Canadian province where the payee resides.

The Guidelines provide no specific formula for adjusting income; however, the Courts have applied the following to determine guideline income in cases with a non-resident payor:

1. Convert the gross foreign income to Canadian dollars at a fair exchange rate;
2. Look to the evidence of the applicable foreign tax rate to calculate net income;
3. Determine what gross income would be required to yield the same net income at Canadian tax rates; and
4. In some cases where relevant, examine the “bundle of services” that both governments provide in exchange for the tax dollars paid.

Steps 1 through 3 are relatively straightforward, however, step 4 can be a complex exercise. Take the United States for example, where, depending on the state, they may pay lower income tax but a much higher rate out-of-pocket for health insurance. In that instance, it would be prudent to factor in those insurance costs when determining guideline income.

Whether on either side of the issue (seeking to increase or decrease guideline income), expert evidence is critical when putting the matter before the court and should be presented on the issues of rate of taxation and the bundle of services provided. In LRS v SSD, 2020 ABCA 206, the payor father appealed an Order rejecting his claim to reduce his guideline income based on a higher income tax regime in the Netherlands where he resided. As evidence, he provided numerous documents in Dutch which were not translated, and information from the internet, but did not provide any expert evidence. The lower Court denied the father’s arguments on the basis that insufficient evidence was put forth to establish a “significantly higher” tax regime. The Court of Appeal agreed with this reasoning and denied the appeal.