Following the breakdown of a relationship, the issue of child support becomes critical for a separating couple who shares kids. Child support generally also becomes a point of major contention between former spouses, who often dispute things such as the quantum (i.e. amount) of child support that the payor parent is responsible for.

This week we explore a common argument in child support disputes- should money from an RRSP be included when calculating a payor parent’s income for purposes of child support?

Child Support in Ontario

The parent who is responsible for child support (i.e the “payor parent”) must pay a set amount based on his or her gross income in the previous calendar year, and on the number of children who are entitled to support. The Federal Child Support Guidelines provide recommendations on the proper quantum of support to be paid.

To determine their respective incomes, each parent must provide financial disclosure. Usually, determining income is a straightforward exercise. After all, everyone who is employed must indicate their annual income on their tax return. However, what is considered “income” for the purposes of family law is not the same as what is considered “income” when a parent files their taxes, and several factors can complicate the situation.

One complicating factor, for example, is non-recurring income (i.e. income that a parent receives during one or more calendar years that they do not normally receive). This can include things such as RRSP withdrawals, stock options, severance pay, etc.

In years where a parent receives non-recurring income, questions arise as to whether this additional amount should be considered “income” for the purposes of calculating child support payments.

RRSP’s and Child Support

The question of whether money from an RRSP should be included in calculating child support will depend, as does everything in family law, on the specific circumstances of the family in question.

An increase in annual income due to an RRSP being cashed in or money being withdrawn from an RRSP generally affects the payor parent’s child support obligation. RRSP income is presumed to be included in a payor parent’s income because it is included in the Line 150 income on their income tax return. However, this can be argued against. Where a payor parent wants their RRSP income to be excluded from their annual income, the onus lays on that parent to prove that it would be unfair determination to include RRSP income in the calculation. Doing this can be difficult.

Excluding RRSP Income in Child Support Calculations: Factors Courts Will Consider

Courts will consider various factors in determining whether RRSP withdrawals by payor parent should be included in that parent’s annual income for the purposes of child support.

A major consideration will be the purpose for which the RRSP amounts were withdrawn. In the following situations, money withdrawn from an RRSP or the total value of a cashed in RRSP was not included in a parent’s overall income for the purposes of calculating child support:

  • A case where the father had withdrawn money from his RRSP to pursue an investment. The court found that the funds he had withdrawn were not actually available to him as they had been used to pay for the investment. Therefore, the money was not included in determining his income for the previous year.
  • A case where an RRSP was used to satisfy a family debt. The cashed out RRSP was not included in determining a parent’s annual income since it had not improved the family’s overall lifestyle, and since the overall debt affected the payor parent’s ability to pay;
  • A case where a parent withdrew money from RRSP’s in three consecutive years to purchase a home, landscape, and renovate to earn rental income. The withdrawn amounts were not included in the payor parent’s annual income because the money had been used as a capital asset from the division of family property to provide a home for the children;
  • A case where a father had cashed in his RRSP’s because he could not afford to pay his legal fees and to meet his support obligations. The court found that the father had used the RRSP funds to ensure that he was not found to be in default of a court order and did not include the RRSP income in calculating his annual income.

RRSP income was also not included in cases where it was found to be a type of non-recurring gain.

In contrast, courts did include money withdrawn from an RRSP in the following situations:

  • In a case where a parent withdrew money from an RRSP to pay for legal fees, the court found that there was no reason not to include the amount withdrawn in that parent’s annual income for the purpose of calculating child support;

As you can see, there are many complicating factors that can make determination of a payor parent’s annual income for the purposes of child support challenging. It will depend very heavily on the circumstances of the separating parents and their children.  Discussions about child support are best undertaken with the help of a knowledgeable family lawyer. To speak with an experienced Windsor lawyer about child custody or support, call Jason P. Howie at 519.973.1500 or contact us online. Many of our clients are referred to us by former and current clients, and also by lawyers, counsellors and other professionals.