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Can gains in a TFSA be used for the purpose of calculating child support?

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  • Can gains in a TFSA be used for the purpose of calculating child support?

    Can gains inside a TFSA be used for the purpose of calculating child support?

    Thanks

  • #2
    I found a CANLII case where (6-digit!) dividend income was grossed up for the purposes of calculating income for CS - to compensate for the lower taxation rate of those dividends.

    The same principal might be applied for TFSA income ... though I cannot find any CANLII cases that discuss TFSA growth effects on CS - most likely because TFSA accounts are unlikely to contain more than 50K, so they are unlikely to generate more than $3K/yr income.

    I'd GUESS that as long as you are not withdrawing from your TFSA, then that growth would not affect CS.

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    • #3
      Are dividends in TFSAs (assuming all Canadian holdings) issued a T5 statement, or any other statement that declares them as income?

      I think this might be the key since I believe that child support is calculated based primarily from your tax return. If your TFSA is tax-free and all the holdings in it are Canadian, would there be a need to issue an income statement?

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      • #4
        This is an interesting question. Logically the answer is no but it is impossible to predict what judges will do. In my personal view, all investment gains whether taxable or not should be excluded for child support purposes. An example should illustrate. Suppose a couple divorces and they each receive 100,000 in proceeds. The female buys a house with her share and the male invests in the stock market. Both earn a 10% appreciation in their investments. Should he pay more spousal support on his gain? No. Ask yourself this question. Would a loss be deductible?

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        • #5
          But interest earned on investments is money in your pocket - you can spend it, save it, do whatever with it. The appreciation in an asset like a house is locked up until the asset is sold. Until then, it's just someone's best guess as to how money much the asset might fetch if it were sold at a particular point in time. It's not income until it's converted to money.

          I get some investment income (royalty) and it goes into my CS calculations. I also own a home which is appreciating in value, and that's not part of the calculations. CS is income-only, so other forms of wealth like gifts, lottery winnings, appreciation of real estate etc. aren't relevant. This might be something to consider if you get a huge windfall and are trying to decide what to do with it.

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          • #6
            This is one of those cases where good tax planning wins out. Registered accounts do not generate T5s.

            If your strategy is to minimize CS and you're one of the lucky ones who isn't left destitute by CS then go ahead and push all of your investments into RSPS and TSFAs. Anything else left in a cash account should be set up for long term capital growth and you should be trying not to sell and take your gains.

            Good tax planning should not make way for a courtroom sanctioned cash grab.

            Disclaimer - I'm not an investment or tax professional.

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            • #7
              I'll comment further. Royalties in my view is not investment income. Say you write a book and you receive royalties whenever a book is sold. That is employment income not investment income and should be included for CS purposes. Investment income is created by savings and one shouldn't be punished for saving instead of spending. It's almost a mute point because as the last poster pointed out TFSA contributions are not tax deductible and not taxable when withdrawn so they wouldn't know anyway.

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