This has been a trying year. COVID-19 and its health measures have resulted in isolation, fear, personal loss, and economic hardship. Businesses have collapsed and some remain on life support. The federal government created the Canadian Emergency Response Benefit (CERB) to mitigate some of the financial hardships resulting from the pandemic. This new and limited benefit was a godsend to some and a mere band-aid to others. It’s also been a lesson in how the Canada Revenue Agency (CRA) interprets the term “income” specifically when it comes to divorce.
Family law lawyers are familiar with the need to take a cautious approach to CRA’s (sometimes shifting) definitions. Many Canadians who thought they qualified for CERB have been surprised with car-loan-size debts to the government because they did not. It now appears that the Federal Government will forgive some of these misunderstandings, which is great news for those in this situation. However, this “forgiveness” does not change how the law considers CERB when determining income in a divorce.
Child and spousal support based on income
Most people are aware that the amount they must pay in child and spousal support is based on income. However, many are surprised to learn that what is considered income from a tax perspective can be quite different from how it is calculated for support purposes in a divorce. For many of us, determining income can be as easy as referring to line 150 in our income tax return. However, in some circumstances, we need to look at other factors.
While the following list is not exhaustive, here are some common situations that can affect income calculations for support payments in a divorce:
- Common deductions for self-employed people, such as transportation, meals, and mobile phone expenses
- Car allowances
- Receiving insurance benefits intended as income replacement
- Severance pay
- Corporations the person receiving or paying support controls
- Payment of union dues and professional fees
CERB is an income replacement
The intention was for CERB to be an income replacement. For some, CERB helped soften the blow of the reduction in their income in 2020, and for others, it exceeded the loss they suffered. Regardless, CERB is considered part of any recipient’s income in 2020.
As income replacement, CERB is a taxable benefit. If you received payments that exceeded your regular income or didn’t realize the benefit is taxable, you might be in for a surprise on your tax bill come April. Spouses separating in 2020 and 2021 may be able to include this debt in the division of their property.
Sorting out how CERB and other factors will affect your support payments in the event of divorce can be complicated. Discussing your specific situation with a family law lawyer can help.
By James Pullar
If you have questions about this post or collaborative family law in general, contact me today at [email protected]