Business Expenses and Family Law
Many business expenses that you can legitimately deduct for income tax purposes are not deductible for Canadian family law purposes. This is important for determining the appropriate amount of child support or spousal support.
There are quite a few categories of business expenses through which business people run their expenses that have a personal component.
These sorts of expenses should be scrutinized carefully in divorce situations. The most common expenses that have a personal element to them which may not be declared in full are:
Family Law Treatment of Vehicle Expenses
Only the business use of the vehicle is a legitimate deduction for Canadian family law purposes. Often, the cost of personal use of a vehicle will be deducted on a person’s income tax return.
This includes lease payments, maintenance work, car insurance and gas or oil.
Family Law Treatment of Advertising and Promotion
In Canadian family law, this is a fertile category to look at for personal expenses. Such expenses include meals, entertainment, and gifts (even to paramours).
Family Law Treatment of Meals and Entertainment
As above a businessperson may abuse this category by writing off all food and meal expenses incurred, which is not permitted in Canadian family law.
Family Law Treatment of Home Office Expenses
Home office expenses are a legitimate income tax deduction. However, as the businessperson would have most of these expenses even without the business, they are not deductible in determining income for Canadian family law purposes.
Family Law Treatment of Telephone Charges
Many business people use cellular phones as a means of being easily accessible at any time. However, more often than not, the phones are used for personal calls as well as for their intended business purpose. The cost of personal use of the telephone must be added to the person’s income for family law in Canada purposes.
Family Law Treatment of Legal Expenses
Personal legal expenses are often subsumed under the general legal expense category of a business. You should investigate whether the legal fees paid by the business were actually for legal issues encountered by the business or by the owner of the business. Often the business owner will run the cost of his divorce lawyer through this category of expense.
Family Law Treatment of Travel Expenses
Expenses incurred for travel should be broken down into personal and business components. A trip may have a business purpose but may also have a personal element – such as a conference to which the business person brings his or her spouse – the increased costs for the spouse are not properly categorized as business expenses, nor are extra days spent at the location before or after the business part of the trip.
Family Law Treatment of Payroll Expenses
This category and use it to pay “employees” such as dentists or auto mechanics, or even girlfriends or boyfriends. As a result a breakdown of this expense may be required when investigating this during a divorce. As well, salaries may be paid to family members or friends to reduce business income.
Family Law Treatment of Depreciation Expense
The depreciation expense for a building may be added back to income when calculating child support. In some circumstances, depreciation on other items may also be added back to income.