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SS Calcs, Anomalous Income Year and More

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  • SS Calcs, Anomalous Income Year and More

    I am assessing possible financial implications of a separation for a couple, "Jack and Jill", who have been married over 30 years. Jill does not work but has a $10k annual income from CPP and investment income. Not certain if this is relevant to SS judgements, but Jill has medical expenses of approximately $2-3k/yr and her mental (depression) and physical health are gradually declining (still mobile). Not the reason for considering separation/divorce... that's another story completely. Jack is semi-retired, works part time and has gradually been reducing his hours to get closer to full retirement. An income reduction strategy agreed upon by both Jack & Jill (not in writing).

    If I understand correctly, Line 150 on income tax return is used to determine SS. As noted, Jack's income over last few years has intentionally been declining by about $10k per year. This past year Jack's T4 income was $60k, but Line 150 was a surprise at $108k and partly due to $30k of Spousal RRSP and Spousal RIF's that were cashed in by Jill. The CRA of course credited Jack with those income amounts in Line 150 as they were cashed in early. This was a one-time cash influx and not repeated other years.

    A few questions here....
    1) Would a judgement likely still base SS soley on Line 150 given the above circumstances and single year income anomaly?


    2) If T4 income was steadily declining over past three or four years, is it likely that a judgement would consider income averaged over a certain time frame (how many years typically), or would they look at the declining income "trend" that Jack and Jill agreed upon (not in writing)?

    3) Investment income for both Jack & Jill is partly based on several leveraged investment loans, with interest payments made from Jack's income and/or from investment gains/withdrawals. Jack's income varies from month to month as hours are variable and not fixed. One loan is in Jill's name, but Jack pays her interest, another is in Jack's name and another jointly held, but Jack is named as prime. Would loan interest payments be taken into consideration when determining SS as Jill benefits from investment income that Jack subsidizes?

    4) Maybe it's just tough luck for Jack, but the way I see it is that investment income would decline significantly for both Jack & Jill, as our jointly owned residence is partly used as collateral for leverage loans. The house would be sold during separation. As a result some loans would need to be paid off and therefore investment income would decline for both. This becomes another major question and concern... would Jack be required to maintain some historic income level that previously had subsidized interest payments on loans for both Jack & Jill's investments? As some loans nor their interest payments would no longer exist, would this material change in "income needs" be considered in a SS determination? I see a potential imbalance here in Jill's favour if Jack's income level needs to be maintained to provide SS that includes interest expenses that Jill would no longer have.

    I hope the above makes sense.
    Thank you in advance for your input.

  • #2
    For #3, the courts for the most part only care about line 150. There are a few cases where they will deduct from line 150 - expenses against commission income, union/professional dues.

    We closed all of our leveraged investments for this reason.

    Given the current market you may take a bloodbath on selling those investments. Guess what the capital loss will no apply to line 150 income. You can back file to get a tax refund vs your prior 7 years of capital gains, or carry it forward seven years.

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