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Fredericton Daily Gleaner ~ Capital Appreciation ~ Child Support ~ August 7, 2006 - 17 Sep 2006 by TaxHelp
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While today probably represents the mid-point of the summer holiday season, it always leaves me slightly melancholy, knowing that Labour Day is just around the corner. On the other hand, it is a day where most of us collect a pay cheque for going to the beach and then firing up the barbeque. While New Brunswick Day is not a federally recognized statutory holiday, many jurisdictions celebrate the first Monday in August, whether it’s Natal Day, Simcoe Day or the just plain generic Civic Holiday. At any rate and looking at payments, the Supreme Court of Canada ruled last week on a matter that might be of interest to many readers.
It has been almost ten years since the federal and provincial governments implemented the rules commonly known as The Child Support Guidelines. As you may recall, agreements made prior to May 1, 1997 made allowance for child support payments that were taxable to the recipient and deductible by the payer.
As background many recipients had complained for years that such treatment was unfair and placed a heavy tax burden on them. The Thibaudeau case, based on the argument that such treatment is contrary to the Charter of Rights, went all the way to the Supreme Court of Canada. The Supreme Court ruled that, while such treatment does place a burden on recipients, this does not render it unconstitutional. Following the organized outcry, the 1996 federal budget proposed a number of changes in this area. The most important of these changes was that child support payments paid under a court order or written agreement made after April 30, 1997, would no longer be taxable to the recipient nor deductible to the payer. Note that the new rule did not apply to spousal support payments; hence, effective May 1, 1997, courts were required to distinguish between child and spousal support payments in the order. Prior agreements were left as written provided there were no material changes.
Now, once the tax treatment of the payments has been changed, the parties cannot return to the old rules. Along with changes to the tax treatment of child support, the government has guidelines to assist the courts in establishing the amount of support to be paid. The support guidelines are based on the assumption that children should continue to benefit from the financial means of both parents after divorce. Thus each parent's financial obligation toward the child is treated independently. The support-paying parent's contribution is set according to his or her own income, without reference to the income of the custodial parent, while the custodial parent is also expected to contribute a proportionate share of income to meet the costs of raising the child. In this way, the children will share in the increases or decreases in either parent's income, just as they would if the two parents had continued to live together.
The guidelines are flexible, and can be adjusted to reflect special individual circumstances. To help ensure consistency, courts are required to give written reasons for ordering child support that are more or less than the amount set out in the guidelines. The guideline allows for an annual review of income, to ensure accurate compliance. Unfortunately, this did not always happen.
The Supreme Court last Monday released a ruling that impacts this specific area. In a unanimous ruling, the Court implied that there is a requirement for the child support paying parent to declare when he or she has an increase in income. The Court confirmed that the parents in this case must make retroactive payments to the recipients to make up for the missed financial obligations, as a result of ever-increasing income. Retroactive payment judgments ranged from $10,000 to $100,000. Reports have suggested that there may be as many as 700,000 families that are eligible to review their situation and make a claim for additional support.
The whole purpose of the system was to insure that children have access to adequate income, generated by their parents. The annual review process makes sure that as situations change, support agreements reflect the reality. This ruling effectively confirms the moral obligation by applying a legal, retroactive solution in the event of non-compliance.
Roger Haineault is with Help 4 Taxes. He can be reached by email at roger@help4taxes.ca or by calling 1-888-450-1212. His column appears Monday. |
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