For self-employed tradespeople in Ontario, the income claimed on taxes is rarely the income used for family law purposes. Forensic accountants generally ‘add back’ personal expenses written off by your business-like vehicles, cell phones, and home offices-to calculate your true income for child and spousal support.
Going through a separation is incredibly stressful, especially when you own your own business or work as an independent contractor. If you are a tradesperson in Ontario-such as a plumber, electrician, or general contractor-your tax returns may not tell the whole story. Often, business owners write off legitimate expenses to lower their tax bill with the Canada Revenue Agency (CRA). However, family law in Ontario operates under different rules to ensure children and former partners receive fair support.
Understanding how true income is calculated can save you from paying too much or receiving too little. The Ontario courts use the Federal Child Support Guidelines, specifically Section 18, which allows a judge to look past your Line 15000 (Total Income) if it does not fairly reflect all the money available to you for support purposes.
Step-by-Step Process in Ontario
Whether you live in Toronto, Mississauga, or Ottawa, the process of determining true income generally follows these standard steps. Most family law matters are heard at the Superior Court of Justice or the Ontario Court of Justice, depending on the specific claims involved.
Step 1: Gathering Extensive Financial Disclosure
The first step is full and frank financial disclosure. You will generally need to provide your last three years of personal tax returns, Notices of Assessment (NOAs), and detailed corporate financial statements if your business is incorporated. Transparency is critical because failing to provide documents can lead the court to impute (guess) an income for you, which may be higher than reality.
Step 2: Identifying Personal Benefits and ‘Add-Backs’
Once the documents are gathered, the focus shifts to expenses that benefit you personally. 📊 For instance, if your contracting company pays for your personal cell phone, your truck lease, and your home internet, these are considered personal benefits. Under Ontario family law, the value of these write-offs is typically added back to your personal income to determine your true earning capacity.
Step 3: Hiring a Forensic Accountant
In many cases, it is highly recommended to hire a Chartered Business Valuator (CBV) or a forensic accountant. These financial experts specialize in reviewing Canadian corporate records. They will generate an Income for Support Report, detailing exactly which deductions are legitimate business costs (like buying copper wire or lumber) and which are personal add-backs.
Step 4: Filing at the Local Courthouse
After your true income is calculated, you or your lawyer will file a Financial Statement (Form 13 or 13.1) with your local courthouse. 🗂 If you cannot reach an agreement through negotiation or mediation, a judge at the Superior Court of Justice will review the financial reports and make a binding order based on the true income.
How Much Does it Cost in Ontario?
The costs associated with determining true income can vary widely based on the complexity of your business structure.
- Court Filing Fees: The basic fee to file an Application at the Superior Court of Justice is $214 CAD, plus additional fees for subsequent steps.
- Forensic Accountant (CBV) Fees: A professional income report typically costs between $3,000 and $7,000 CAD, depending on the volume of receipts and corporate structures.
- Lawyer Fees: Retaining a local family law lawyer often requires a retainer of $3,000 to $10,000 CAD. Hourly rates generally range from $300 to $650 CAD.
How Long Does the Process Take?
Resolving income disputes takes time. If both parties are cooperative and provide disclosure quickly, an accountant can finish a report in about 4 to 8 weeks. However, if the matter goes to a trial in an Ontario court, the process can easily take 12 to 24 months due to current court backlogs.
Understanding Deductions vs. Add-Backs
To make things clearer, here is how the CRA and Ontario family courts view common expenses.
| Expense Type | CRA (Tax Purpose) | Ontario Family Court (Support Purpose) |
|---|---|---|
| Work Truck / Vehicle | Often fully deductible if used for business. | Personal use portion is added back to income. |
| Cell Phone Bill | Written off as an operational cost. | Generally added back, as it replaces a personal expense. |
| Home Office | Deductible percentage of rent/utilities. | Often added back, as these are living expenses. |
Frequently Asked Questions (FAQ)
Can I just use my Line 15000 from my tax return?
Generally, no. If you are self-employed, Line 15000 rarely reflects your true cash flow. Ontario courts will look deeper into your business expenses to calculate a fair amount for support.
What happens if I refuse to provide my corporate records?
If you fail to provide proper financial disclosure, an Ontario judge can impute your income. This means they will legally assign an income to you based on your lifestyle, which could be much higher than your actual earnings.
Are all business expenses added back to my income?
No. Legitimate business expenses, such as buying tools, paying employees, or purchasing raw materials for a job, are strictly business costs and are not added back to your personal income.
Does my spouse have to pay for half of the accountant?
It is possible. In many Ontario family law cases, spouses agree to jointly retain and share the cost of a Chartered Business Valuator to ensure neutrality and save on legal fees.
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