Professional corporations and income for child support – Guidance from the BC Court Of Appeal
Chantal M. Cattermole of Clark Wilson LLP on a case involving competing income assessments prepared by two Canadian accountants
VANCOUVER – The recent decision of Honourable Justice Willcock in Quinton v Kehler, 2020 BCCA 254 ["Quinton"] clarifies the method of determining the available income of incorporated individuals for the calculation of child support, as well as providing guidance for applying s. 16 and s.18 of the Child Support Guidelines [the "Guidelines"].
In Quinton, the respondent payor was the sole shareholder and director of a professional corporation. The issue in this appeal was whether the chambers judge erred in assessing the respondent's available income for the purpose of determining payable child support. The chambers judge held that, pursuant to s. 16 of the Guidelines, the respondent's available income was set out in the "total income" at line 150 of his T1 tax form. In her appeal, the appellant argued that because the respondent derives significant income from his corporation through dividends, his available income for child support purposes should instead include the pre-tax corporate income of his corporation.
The appellant relied on the opinion of a CPA [chartered professional accountant], who calculated the respondent's income pursuant to s. 18, by adding amounts paid by the corporation to the respondent, such as wages, salaries, and management fees, to its pre-tax income. The respondent's CPA instead calculated his income pursuant to s. 16, by adjusting the dividend income to reflect the actual cash dividends received, and reported that no excess money was retained by the respondent at the end of each year.
Honourable Justice Willcock found that the chambers judge's assessment left incorporated and unincorporated payor spouses on an unequal footing, contrary to the Guidelines' objective of consistency. He set out the following principles for applying the Guidelines for payors with income from corporations:
 ... I extract the following principles applicable to this case. First, the Guidelines should be interpreted in light of their stated objectives, including the ability to calculate child support in an objective manner that ensures consistent treatment of spouses and children who are in similar circumstances. Second, under a s. 18 approach, the corporate income method is likely to be the fairer method of determining income of an individual who wholly controls a corporation. This method allows a court to include all income available for child support an intact family would utilize. Third, where that approach is appropriate, pre-tax corporate earnings, not retained earnings or earnings after payment of taxes, are the starting point for an assessment of Guidelines income. Fourth, where a company is wholly owned by the payor, the onus is on the payor to provide evidence that his pre-tax corporate earnings are not available to him.
Applying these principles to this case, Honourable Justice Willcock overturned the assessment of the chambers judge, holding that income as determined pursuant to s. 18, rather than s. 16, more fairly and accurately reflected the money available to the respondent for the payment of child support. He clarified that "where the Guidelines refer to 'money available for the payment of child support,' they do not mean 'money available to pay child support after payment of taxes'" (at para 94). Similarly, cash-flow analyses, like that of the respondent's, do not serve the objectives of the Guidelines. This decision in Quinton provides a useful analysis of when to consider s. 16 and s. 18 of the Guidelines, particularly when a payor spouse is incorporated.
Chantal M. Cattermole is a partner at Clark Wilson LLP in Vancouver.