Self Employed: Actual Dividend income, or line 150 on tax return?

[SelfEmployedDad]

Hello Everyone,

I am self employed. I have been for about 15 years, which covers a time span from well before we were married to well after we divorced - the present. During all that time, my income has been 100% dividend income, from a company I own, which acts as a 'shell' (no employees) and retains no earnings.

Child Support is legislated and there are 'table amounts'. However, I have been made aware, that in my situation, for the purposes of determining Child Support, there is a 'Schedule III' exception.

Specifically, I am referring to Part 5 of Schedule III located here where it states:

Dividends from taxable Canadian corporations

5. Replace the taxable amount of dividends from taxable Canadian corporations received by the parent or spouse by the actual amount of those dividends received by the parent or spouse.

That seems VERY clear to me. In my situation, my actual dividend income should be used with the tables to determine Child Support, and not the 'Line 150' amount, which is grossed up. As such, the resulting numbers vary HUGE depending which income is used.

At a Settlement Conference, I pointed this out, but was basically told by the judge; 'Too bad - we don't use that practice here. We just use Line 150.'

What that translates to me is; 'We don't follow the law here - we just do what we want.'

Now - the Settlement Conference ended up being a complete waste of time, and no decisions were made and no orders given. But, obviously, we are not done yet. Before we get to the Trial Management Conference, I need to have this issue NAILED.

Is there anyone with advice on this? I have searched through Case Law, but very rarely is the person's income 100% dividend, or with no income retained in the corporation. It creates an 'apples to pumpkins' comparison.

I guess I am looking to make sure it SHOULD apply to my scenario as well as how to get the Judge to follow the Law.

THANKS!

[Mess]

I can't read the judge's mind, but I suspect that at a settlement conference he wants to use simple calculations. A trial decision can take weeks or months and he would have clerks do the calculations.

Here are the Child Support Guidelines Step-by-Step. The best I can suggest is that you use the worksheets and submit them as part of your affidavit/evidence.

[SelfEmployedDad]

@Mess,

Thanks. With all the 'digging' I have done over the years, I have never seen those worksheets.

However, the 'Worksheet 1' to determine income makes no sense to me. It is excessively in my favour to the point of being completely unrealistic.

I am referring to this worksheet.

For simplicity, I will round numbers very slightly.

Total income (Line 150 on tax return) goes to Line 1 of the worksheet and is $73,100.

The only 'Deductions from Total Income' are the dividends, which is $57,400 (My T5 amount, and Line 6 on the worksheet.)

This translates into a 'Annual income for the guidelines (Line 18 on the worksheet) of $15,700 which is below minimum wage - making zero sense.

What am I missing?

Thanks.

[Mess]

line by line help

line 6 – dividends from taxable Canadian corporations

Find line 120 of the federal income tax return and copy the amount listed there to line 6A below. Next, determine the total amount of dividends received (usually found on your T5 slips). Copy that amount to line 6B. Finally, subtract the amount on line 6B from the amount on line 6A to calculate the excess portion. Copy the amount on line 6C below to line 6 of Worksheet 1.
To calculate the excess portion
– =
line 6A - line 6B = line 6C

I believe what is happening here is that you are deducting tax paid on the dividends. In other words, line 120 should be the gross amount. Some tax will be witheld. Subtract the amount you received from the gross dividend. This gives you a figure for the tax paid. You deduct this figure on the worksheet.

[SelfEmployedDad]

@Mess,

Thanks! That matches up perfectly with the Schedule III Part 5 Exception. Their 'Normal' worksheet is so ambiguous on that Line 6, it should be changed.

Now, the big question .... do Judges have to follow it? Or, can they do what they want?

I am constantly being told that Spousal Support Guidelines are not legislated, so they don't have to follow those. However, Child Support is - however based on the Judge's comment at the Settlement Conference, it seems they don't have to follow those either?

[Mess]

The settlement conference is a mediation session, it should generally follow the FLA but there will be shortcuts and compromises.

IMHO a judge should follow the Federal Child Support Guidelines and accompanying legislation at trial. If not, it may be possible to appeal based on the judge not following law. That said, there is sufficient flexibility built into the guidelines for a judge to justify alternate decisions based on hardship, imputing income, etc.

The amount you are looking at is enough to make a difference to you, but not huge and it is justified. I think it slips through calculations from Divorcemate. If this were me I would have my taxes done by an accountant (if you don't already) and then have the accountant do the worksheets as well. Have the accountant certifty the whole thing.