Self employed

[blueman2017]

For those who are self employed how did your company impact your separation / divorce ?

Did you get into discussions around Company revenue vs Personal income?

What information did you have to provide to your husband / wife as part of the company disclosure?

Does the type of company make a difference? Ie Consulting vs import/export ?

How did you determine what your personal income is? Did you run into battles regarding this?

What about income / salary deductions vs Dividends...

[ross_toronto]

In my experience you will need to disclose the full books most likely. All income and expenses, tax forms, gst info, bank balances, the whole kit and caboodle.

Determining your income will most likely need to be done by a lawyer and then may be challenged by the other side's legal council.

If there is a lot of money involved the lawyer may want to request forensic accounts to provide expert opinions.

As far as i know the type of employment doesn't matter really except where it impacts taxes.

In the end if you can't agree a judge will decide the income. They use a formula based roughly on income minus expenses with tax deduction that can be considered partly personal added back on

My advice is to disclose fully and immediately to save yourself a lot of trouble!

[arabian]

Bank statements both corporate and personal, invoices, CRA statements for HST/GST & WCB are all essential documentation.

Up to parties to lay out the information in an easy-to-read manner. Getting too many "suits" involved is costly. Unless you have many companies involved you should be able to present a concise picture of the business and your personal finances for the 3 years prior to separation up to the current time.

Facts and data provide clarity for the judge (who isn't stupid and who has seen a situation similar to yours MANY time so don't waste your time trying to "jig" the financials). It is what it is.

[blueman2017]

So I'm absolutely ready to share the following:

Bank statements
Credit Card statements
Financial statements
balance statements
HST filings

The company has only been in operation for a few years so its really not a lot to go through; also for salary we did income splitting so she was a paid employee too and got the benefit of expenses being covered like phone and internet, food etc.,

I would never jig any financial document I don't even know how to; she was the accountant in the family not me. So she knows the books way better than I do.

[arabian]

Some of what you/your ex claimed as legitimate tax credits might be added back to determine your income for purposes of paying for support.

In other words, some of the things you/your wife claimed as "business operating expenses" might be added back to your gross income.

[blueman2017]

Some of what you/your ex claimed as legitimate tax credits might be added back to determine your income for purposes of paying for support.

In other words, some of the things you/your wife claimed as "business operating expenses" might be added back to your gross income.

Which income does that get added to? Company income? or my personal income?


Say for example company earns 100k revenue
Expense for X = 1000
Expense for Y = 2000

Personal income is 50k + X + Y
Are the expenses added to my personal income?

[ross_toronto]

A percentage of the expenses that you write off as business expenses can be added to your personal income yes. So if you use your phone 50% for personal use, but claim the full value as a business expense on your taxes a lawyer or judge may insist that some or all of the 50% value be added back to your income etc.

[blueman2017]

A percentage of the expenses that you write off as business expenses can be added to your personal income yes. So if you use your phone 50% for personal use, but claim the full value as a business expense on your taxes a lawyer or judge may insist that some or all of the 50% value be added back to your income etc.

Do you know where I can find the list of expenses that would get added back?

In my business the types of expenses I have yearly include:
adversiting
meals / entertainment
bank charges
business licenses, memberships
office expenses
professional fees
rental
salary/ wages
travel expenses
utility (which includes phone)
vehicle expenses


I'm assuming not all of these get added to personal income.

[arabian]

do you have a business out of your home? Proprietorship or incorporation?

IF so you can forget the rental, utilities/phone, meals/entertainment (unless you can prove that the specific expense increased your business), travel (unless specifically for business (no "trade show" travel to Vegas), and quite possibly the vehicle if you are claiming payments for something where you end up owning an asset). Memberships? (corporate memberships in a golf club wouldn't fly) but membership in a professional association would be acceptable.
Office expenses - paper, pens, stationary are ok but the nice painting or new couch for the office etc. would be questioned.



Does that answer your question?

[blueman2017]

I'm incorporated

I do about 20% work from home and the rest is traveling to various clients sites / offices

[blueman2017]

do you have a business out of your home? Proprietorship or incorporation?

IF so you can forget the rental, utilities/phone, meals/entertainment (unless you can prove that the specific expense increased your business), travel (unless specifically for business (no "trade show" travel to Vegas), and quite possibly the vehicle if you are claiming payments for something where you end up owning an asset). Memberships? (corporate memberships in a golf club wouldn't fly) but membership in a professional association would be acceptable.
Office expenses - paper, pens, stationary are ok but the nice painting or new couch for the office etc. would be questioned.



Does that answer your question?

Sorry but what do you mean by "forget" those particular expenses?

[arabian]

what may be acceptable to Canada Revenue Agency for your tax filing MAY NOT be accepted by your ex as essential operating expenses for the determination of income for support purposes.

Much depends upon what type of business you are in. If your ex did the books for your company (as I did the books for company I was partner in with my ex) she will know only too well which expenses are personal and which are business. For example, if you and your ex were partners in an incorporated company and had your annual shareholders meeting in Hawaii you can be sure that your shareholders meeting trip and expenses will not be considered as legit for determining your income. There are many examples of how a judge determines this on CanLii.

[blueman2017]

what may be acceptable to Canada Revenue Agency for your tax filing MAY NOT be accepted by your ex as essential operating expenses for the determination of income for support purposes.

Much depends upon what type of business you are in. If your ex did the books for your company (as I did the books for company I was partner in with my ex) she will know only too well which expenses are personal and which are business. For example, if you and your ex were partners in an incorporated company and had your annual shareholders meeting in Hawaii you can be sure that your shareholders meeting trip and expenses will not be considered as legit for determining your income. There are many examples of how a judge determines this on CanLii.

Thanks, I'll scope it out.

I'm assuming its also a % of each; so for example if the car was 30% personal and 70% company then that % of personal is what's added to my Personal Income.

Same would apply to say phone, food, office expenses etc.,

Something such as advertising that would stay with the company because it lines directly with revenue; the more advertising I can do the more work (revenue) potentially comes in.

[arabian]

No you are still thinking of the percentage that CRA allows (square footage). That is not relevant when determining income for purposes of support. Although.... you can try to do a percentage and your ex may accept it (I certainly wouldn't).

You have to live in a place so that is not a business expense. Most people (employees as well as business owners) do some proportion of work out of their homes.

Food is not a business expense unless you are a professional chef or caterer. If you were an employee of a company you would not be claiming food as an expense (if you know how to do this please do tell LOL). It can be argued that you are quite capable of packing a lunch. Therefore "food" is often not considered.

A sharp-eyed attorney will also jump on any double-up expenses (claiming you paid your girlfriend to do your books but conveniently didn't produce any T4's in combination with claiming large year-end accountant fees. I always keep an eye on any non-arm's length items that my ex so loved to attempt to claim as "business expenses."

In the end it is, like so many things in family court, the prerogative of the judge.

Word of caution - careful to not say/do anything that can come back to bite you in the arse. Example: 2 years from now your personal situation changes and you decide to not work as hard. Your ex will then be armed with your documentation of your now-claimed advertising expenses which you swear generates XX revenue. When you decided to slow-down your work schedule your ex might try to argue that you intentionally are underemployed because you aren't spending the same amount of money on advertising....

I'd therefore recommend keeping your submissions short and concise and of course you should always be prepared to defend/corroborate your statements. Don't give any more information that absolutely necessary.

[blueman2017]

Does anyone know how income splitting works in a separation / divorce process?

For 3 years of the company ex worked for company (only as an employee) and earned a small salary. She received a t4 annually and filed taxes as such.

Shortly after separating she started working and earns now more than double what she did when working under my company.

How does the income that she earned from the company get taken into calculations?

Also during the time of working for my company she did some other jobs on the side so each year she had at least 2 T4 statements.