Imputing Income: When a Parent Quits, Works Less or Earns Cash

When a parent quits a job, cuts back to part-time hours or starts working for cash, the other parent often worries that child support will drop with the reported income. Parents whose income has genuinely fallen worry about the opposite: being held to a figure they no longer earn.

BC law addresses both concerns through imputed income. A court can set child support on an income the parent could reasonably earn, or is earning but not reporting. Whether it will depends heavily on the evidence.

How income is normally determined

In BC, a court making a child support order must set the amount in accordance with the child support guidelines (Family Law Act, s 150). The Family Law Act Regulation adopts the Federal Child Support Guidelines for this purpose, with a few modifications, so the federal rules on income apply to BC cases. Our guide to how child support is calculated in BC explains the tables.

The starting point is usually the parent's total income as shown on their tax return, with the adjustments the Guidelines set out (section 16). Section 19 of the Guidelines then allows a court to impute, meaning to attribute, a different amount of income where the reported figure does not reflect the real picture.

When a court can impute income

Section 19 lets the court impute such amount of income as it considers appropriate in the circumstances. The listed circumstances include where a parent:

• is intentionally under-employed or unemployed, unless that is required by the needs of a child or by the parent's reasonable educational or health needs
• appears to have diverted income in a way that would affect the amount of child support
• does not use property reasonably to generate income
• has failed to provide income information when legally required to
• unreasonably deducts expenses from income, which is not decided only by whether the Income Tax Act allows the deduction
• receives a significant part of their income from dividends, capital gains or other sources taxed at a lower rate

The list is not closed: the court may impute income in other circumstances where it is appropriate.

Quitting or working less

A frequent argument is intentional under-employment. Courts generally ask whether the parent is earning less than they reasonably could, given factors such as age, health, education, skills, work history and the available work. In an often-cited decision, the Ontario Court of Appeal held that "intentionally" refers to a voluntary choice and does not require proof that the parent was trying to avoid support (Drygala v. Pauli, 2002 CanLII 41868 (ON CA)).

That does not mean every lower income will be topped up. The exceptions in section 19 matter. A parent who reduces hours to care for a child, who cannot work full time for health reasons, or who is pursuing a reasonable educational plan may not have income imputed. A parent relying on one of those exceptions should be ready to show, with evidence, that the choice is reasonable and how long it will last.

A parent who is laid off or fired is in a different position from one who quits. Even so, a court will usually expect a genuine and documented effort to find suitable work.

Cash income and incomplete disclosure

Unreported cash income is harder to prove, but it is not invisible. Evidence can include bank deposits that exceed declared income, spending and lifestyle that do not match the tax return, business records, social media and statements made to lenders.

Disclosure rules help. Section 21 of the Guidelines requires a parent whose income is needed to set support to provide documents such as tax returns and notices of assessment. If a parent does not comply, sections 22 to 24 allow the other parent to ask the court to proceed to a hearing or order production, and the court may draw an adverse inference and impute income in an amount it considers appropriate. Our article on financial disclosure after separation covers what is usually exchanged.

Self-employed parents raise their own issues, including personal expenses run through the business and income left in a company. Our article on child support for self-employed parents and business owners deals with those in more detail.

How much income is imputed

The amount imputed has to rest on evidence. Courts often look at what the parent earned before, what similar jobs pay in the area, the parent's qualifications and any job offers turned down. A realistic, well-supported number is more persuasive than a high one.

Building your case, on either side

If you receive support and suspect income is being understated, gather what you can: past tax returns, pay information, evidence of the former job and the reasons for leaving, and anything showing spending or cash work. Ask for full disclosure early.

If you pay support and your income has genuinely dropped, keep a record of your job search, medical evidence if health is the reason, and any program details if you are retraining. Then apply to change the amount rather than simply paying less. Our article on changing a child support order in BC explains the process.

Child support turning on what a parent could earn? Get the evidence organized early

Our family lawyers can assess whether imputation is likely, gather and review income evidence, pursue or respond to disclosure requests, and present your position in negotiation or in court.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.